Dominos Pizza Poland: Store Visit Report

Dominos Pizza Poland is listed on the Aim market of the London Stock Exchange and has a market capitalisation of £66m. The company owns the Dominos master franchise for Poland and Croatia. There are currently 113 Dominos stores in Poland and 3 Dominos stores in Croatia. There is a very clear strategy to improve store profitability and then grow store numbers which, over time, could be a multiple of the existing footprint. Key to this is consistently delivering great value, great taste and great customer service which will drive all important volume and profitability.

I spent a day in Warsaw last week with Nils Gornall, the CEO of Dominos Pizza Poland and Edward Kacyrz the CFO. Nils joining about 12 months ago but has worked in, managed and owned some of the most profitable Dominos stores in Australia over the past 20 years. Edward joined at the end of 2022 and as well as being a chartered accountant has a wealth of experience in the retail space and digital transformation. We spent some time in the head office, visited a number of Dominos stores in Warsaw as well as the commissary in Lodz.

Whilst here in the UK we have suffered from inflation running above 10%, in Poland, inflation touched 18% earlier in the year before beginning to fall back down and this has been challenging for the company to manage. The approach has been to ensure the company is running as efficiently as possible to mitigate some of these cost pressures, which in a number of areas have seen double digit cost increases.

Looking at the property portfolio all stores were rebranded to the Dominos brand in 2022 but a number remained with the old Dominium internal layout. We visited stores both pre and post upgrade and improvements made to the layout improved the flow of pizzas through the kitchen and overall capacity within the stores. There were also staffing benefits from the new store layouts and a new labour scheduling system is currently being implemented which will provide further staffing benefits.

Another impressive factor about all the stores visited was the cleanliness and tidiness of all locations, both behind the scenes and the customer facing areas. I was particularly impressed with the cold rooms and stock cupboards where everything was meticulously labelled in the right place. This attention to detail seemed to be part of the culture of the company and their efforts to improve many things by small percentages should all contribute to overall improvements in operating performance.

The product portfolio is currently being reviewed to ensure the optimal range in this inflationary environment. Nils demonstrated his pizza making skills by making four new pizzas with a selection of toppings. We didn’t taste the new offerings, having already eaten some delicious pizzas, but they certainly looked good. Management believe the new pizza range will make the Dominos offering more attractive relative to the competition. Pricing is another area being looked at to ensure the value proposition is as strong as it can be and a small number of changes are being implemented to improve this.

With regard to raw materials the company is making the most of the wider Dominos family to ensure they achieve the best prices from suppliers. There have been some recent substantial falls in the price of cheese since the beginning of the quarter. Some of these price benefits are going to be reinvested in more cheese on the pizzas and the balance will have a positive impact on the bottom line.

Further investment has been made to make their digital platform easier to use and reduce the number of dropouts and this has had a positive impact on performance. Digital now accounts for 70% of orders and 25% of digital sales come through the mobile app.

An area where the company has made significant improvements is in reducing delivery times which are crucial to keeping customers happy and making repeat purchases. Lower delivery times have been proven in multiple Dominos territories to correlate to higher sales, hence an area of focus for Nils and the management team. We saw some of the e-bikes which are making this happen and whilst the company is continually focussed on further improvements the company has already made considerable progress here. Delivery times in Q1 2023 were 5.40 minutes lower than in the corresponding period in 2022 and some of the best stores achieve delivery times below 20 minutes.

We also visited the Lodz commissary which is about an hour and a half west of Warsaw and conveniently located in the centre of the country. This a modern production facility and automated in a number of areas which means there were surprisingly few staff there. The facility was meticulously tidy again and we saw a very efficient dough production line. This facility could comfortably supply 200-250 stores with a little additional investment and provides the company with excellent support for their growth ambition. There are also a few areas of further automation that could be made and plans are being developed to ensure appropriate investment to further reduce costs.

On the revenue front the group recently reported growth of 19.2% for the first quarter and management is pleased with performance in April and May. Comparatives get tougher as we go through the year but management are determined to do all they can to keep the positive sales momentum going forward.

Pizza has proved popular the world over and the Dominos franchise has proven to be one of the best franchise models globally. DPP is steadily improving its operating performance which will enable the company to grow the store portfolio over time. Poland, with a population of 38m, has only 113 dominos stores, significantly below what the country could support. Management are determined to grow DPP into a much larger business over time.