Domino’s share price collapse could spell Coca-Cola Amatil-style ending

Dominos Pepperoni Pizza. Photo: Supplied

The 42 per cent fall in the share price for the Australian listed Domino’s Pizza Enterprises since January has some wondering whether a similar scenario now could play out to that of Coca-Cola Amatil over four years ago.

In 2021, Coca-Cola European Partners purchased the Australian listed Coca-Cola Amatil in a deal orchestrated by the Coca-Cola Company in the United States after it had been unhappy with the way the business was being managed by its Australian team.

Sources say the company chiefs did not have connections to the US head group that were as close to those who had run the business in the past.

One possibility is that the US-based Domino’s Pizza Inc takes advantage of the depressed share price and buys the Australian business.

Alternatively, another Domino’s franchise rights owner operating in another part of the world, could do so.

Bain Capital has previously owned rights.

Not only has Australia seen it before with Coca-Cola Amatil, but also 7-Eleven, where Seven & I Holdings, which has the licence for 7-Eleven in Japan, bought the business for $1.7bn two years ago.

Much of the Domino’s share price collapse can be attributed to Wednesday’s trade, where shares fell 15 per cent, taking its market value to $1.9bn, after it said that its chief executive Mark van Dyck, who was only appointed in November, was now departing in December.

Shares closed at $17.02 after peaking at over $158 amid the global pandemic in 2021 as consumers ordered pizzas in lockdown.

Chairman, Hungry Jacks Australia founder Jack Cowin, would take up the position of executive chairman until a replacement could be found.

It comes amid other executive changes and a number of executive departures under Mr van Dyck’s leadership.

He replaced Don Meij, who ran the Australian listed Domino’s for 22 years and expanded globally, but as he left, s the company made a string of profit downgrades and its share price fell.

Any buyer of the Australian Domino’s would need Mr Cowin’s blessing given he owns almost 26 per cent and has a strong relationship with management of the US business.

There are experts who doubt he would be a seller when the price of the business is depressed.

Analysts believe Mr van Dyck had been doing many positive things to right the ship, including shutting stores and reorganising the business to lift performance.

It announced in February the closure of loss making stores, mostly in Japan.

He was leaving before his strategy day presentation when many thought he may announce an exit from the France market.

Jefferies analysts said in a research note that the stock was being priced for a major downgrade and capital raising, but they believed that both were highly unlikely.

“Industry conditions are tough and franchisee economics sub-optimal, but we see opportunity for significant cost-out which should improve economics and position the business for an eventual demand recovery.”

Domino’s has moved to be highly competitive on low prices but some believe it now needs to work on product quality, with its move to introduce a pizza with mini beef pies baked into the crust raising some eyebrows.

It is operating in a tough market, where supermarkets such as Aldi sell frozen pizzas for $4 and middle-of the road restaurants sells pizza’s for about $30 as the cost of living for consumers has sharply risen.

Across the board, the cost of fast food has increased, including McDonald’s, which sells Big Mac combos at between $15 and $20.

Key areas of focus for Domino’s remains strengthening franchisee profitability and operational simplicity, strengthening franchisee profitability, costs and enhancing leadership.