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Domino’s long-term unit goal runs into a problem: The pandemic

The pizza chain has seen global unit growth slow even as its sales remain strong as the coronavirus limits new construction.
Photo courtesy of Domino's

Domino’s fortressing strategy has run into a barrier of its own: the pandemic.

The Ann Arbor, Mich.-based pizza chain, which has been unstoppable for years and only got stronger during the pandemic, appears to be running into a challenge getting stores open during the coronavirus.

Those limits, largely in international markets, have left the company questioning whether it can meet its 2025 goal of 25,000 global locations. “Our retail sales growth will continue to be pressured by the slower pace of store growth that we’ve seen thus far and anticipate for the foreseeable future,” CEO Ritch Allison told analysts and investors last week, according to a transcript on the financial services site Sentieo.

“We are currently reassessing whether we will be able to achieve the timing of our previously articulated goal of having at least 25,000 stores opened by 2025,” he added.

To be sure, the company still believes it will get to 25,000 locations—that goal will simply take longer to reach. But it’s indicative of the challenges presented by the pandemic. Limits on construction and regulatory approvals required to open new stores are putting growth limits even on the most successful concepts.

Last quarter, Domino’s opened a net of 83 locations globally, or about 0.5% above the 17,173 locations the chain started the period with.

For the year, the chain has averaged a net of 79 new locations globally per quarter. By comparison, Domino’s averaged 278 new units each quarter last year.

That kind of decline was to be expected at the outset of the pandemic, when quarantines around the globe cut back on commercial activity. Yet openings are improving more slowly than expected after they shrunk in the first and second quarters, both in international markets and around the world.

That presents a challenge for a company that has its sights set on more units. Domino’s plans to open a lot more locations in the coming years to “fortress” markets. Company executives believe the additional locations will generate more sales over time as customers order more carryout pizzas and the speed on delivery orders improves.

Domino’s established its goal of 25,000 global locations, including 10,000 in the U.S., early last year.

On their earnings call, Domino’s executives said they expect more “choppiness” in store openings to continue because of construction and permitting delays. “Also, we expect to see a few more closures as the markets reassess their portfolios and make sure that we’re focused on resources going forward on the stores that are going to drive growth.”

The store opening problem isn’t nearly as pronounced in the U.S.—the 44 net new locations the chain opened last quarter was actually higher than the 40 locations opened in the same period a year ago. Indeed, Allison said, “this is a terrific result when you consider what is happening across the category and more broadly across the U.S. restaurant industry.”

Allison remains optimistic on the ability to add units in the U.S., noting that closures of other concepts could provide openings for new Domino’s units. “I see a heck of a lot of opportunity to accelerate our new unit growth on the U.S. side of the business,” Allison said, noting that new unit openings are “still very strong and consistent with where we were a year ago.”

The challenges with international openings is a combination of delays in construction and permitting along with a focus in many markets simply on reopening stores that were closed.

Allison, for his part, expects international development to pick back up again and that the 25,000-unit goal will be achieved, even if not quite as quickly as planned. “I’m optimistic over the medium- and long-term that we’ll get back to the very strong pace of unit growth that we had in the international business,” Allison said. “It’s just that the step back we’ve had to take in 2020 did cause us to take a look and reassess the timing of that 25,000 milestone. Not the milestone, but just the timing of it.”

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