Households are eating their way through their pantries in lockdown, hurting Domino’s Pizza sales

Households have loaded their pantries with food for extended lockdowns, hurting Domino’s Pizza sales.

Pizza sales suffer in the early weeks of lockdown but then rebound

Domino’s Pizza chief executive Don Meij believes once households have eaten their way through much of their bloated pantries in preparation for extended lockdowns they will soon get bored and crave for takeaway meals such as pizza.

Labelling it “pantry eating”, Mr Meij said the pizza chain’s experience across its regions in Australia, Asia and Europe through the first wave of Covid-19 last year showed a short dip in sales for his pizzas was soon followed by a return to historic growth patterns.

Mr Meij said Domino’s flagship outlets in Australia were experiencing this phenomenon at the moment as NSW, Canberra and Victoria faced lockdowns and curfews with same-store sales up just 2.7 per cent in the first seven weeks of the current financial year. That well below Domino’s long-term aspirations for like for like sales growth of 3 to 6 per cent.

“We know how the model responds now, there is a little short period of pantry eating and then ‘Bam!’ delivery grows again and we are still feeling quite confident we will have another strong year,” Mr Meij said after Domino’s delivered a 33 per cent jump in annual net profit to $184m as revenue rose 15 per cent to $2.20bn.

Total network sales from its operating regions jumped nearly 15 per cent to $3.74bn.

Domino’s profit result was 1 per cent ahead of market expectations, which saw investors push the stock up 4.5 per cent to $132.75 just before lunchtime on Wednesday.

Domino’s joins a growing list of companies ramping up their dividends, lifting its final dividend by 62 per cent to 85.1c a share, payable on September 9.

The board has also hiked its payout ratio from 70 per cent to 80 per cent in recognition of its new phase in the Domino’s growth, and the expected free cash flow set to return.

Mr Meij said he wasn’t overly concerned about the slowing sales growth early on in 2022, with households soon to eat up most of the food piled into their pantries.

“There is a short period of the first two to four weeks (of lockdown) depending on the market where people eat out of their pantries because they do all this pantry loading in the first few days and then as soon as that pantry loading dies down we see a big lift in (pizza) delivery, which is what we are seeing in Victoria and New South Wales right now and even Canberra,” he said.

“It goes into to a dip then rises and then you see that sustained all the way through the lockdowns.”

Domino’s opened 285 stores in the 2021 financial year with plans to accelerate store openings by adding 500 outlets to the network in the current year.

The group has upped its three to five year outlook for new store openings, forecasting a rise of 9-12 per cent from its previous guidance of 7-9 per cent. Its also upped its 3-5 year outlook for capital expenditure to $100-$150m from $60-$100m, as it assists franchisees with store expansions.

Domino’s said its “fortressing” strategy of opening more stores within existing catchment areas and nearby existing stores was successful.