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Financing

Domino’s is making a bet on China

The pizza chain is investing at least $40 million into its master franchisee there and has big hopes for its development in the fast-growing economy.
Photograph: Shutterstock

Domino’s means business when it comes to China.

The Ann Arbor, Mich.-based pizza chain on Thursday said it has invested $40 million for a minority stake in Dash Brands, which owns and operates Domino’s locations in China.

Under the deal, Domino’s is required to invest another $40 million into Dash Brands if the company meets certain performance conditions. If Dash Brands doesn’t, Domino’s simply has the option to make that investment.

“We’re very happy with where the business stands today,” Domino’s CEO Ritch Allison said on the company’s second-quarter earnings call Thursday. “We are excited about the long-term growth potential there. We believe we can play a role in helping Domino’s China reach that potential and view this as a good long-term investment.”

Company executives would not reveal how much of a stake in Dash Brands that Domino’s is acquiring, only that it is a minority stake.

It’s not uncommon for franchisors to take minority stakes in international master franchisees or even in some cases domestic operators—Burger King’s owner, Restaurant Brands International, owns a minority stake in Carrols Restaurant Group, its largest U.S. franchisee.

China is a critical market for Domino’s, which operates 300 stores in the country. The company clearly wants more than that, viewing China as a major potential source of future growth.

“We know if we want to hit our long-term aspirations as a brand, we have to have China be a thriving market for us,” CFO Jeff Lawrence said.

Domino’s operates 17,173 global restaurants, including nearly 11,000 in international markets. Growth outside the U.S. slowed last quarter, largely a factor of the coronavirus and its impact on overall development.

Despite the pandemic, Domino’s same-store sales in international markets increased 1.3% in the quarter ended June 14. It was the 106th straight quarterly increase in international comps, and probably the biggest surprise given the challenges in many markets during the pandemic.

“To be honest with you,” Allison said, “back in April, I thought this incredible run was in doubt.”

He noted that several markets performed strongly, including China, Japan and South Korea, markets Allison said are “responsible for pioneering many of the contactless delivery and carryout innovations.”

Other markets, such as France, Spain and New Zealand, were completely closed while markets like India and Saudi Arabia had significant portions temporarily shuttered. “I’m in my 10th year here at Domino’s and I have never observed such wide variations in performance across our international business,” Allison said.

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