Domino's Pizza Enterprises: A Bold Move in Japan

Domino's Pizza Enterprises (ASX: DMP) has announced a significant strategic move, planning to close 205 loss-making stores across its global network, with 172 of those in Japan. This decision, made under the leadership of new CEO Mark van Dyck, is a clear indication of the company's commitment to long-term sustainable growth and profitability.



The Japanese market has been a challenge for Domino's, with a combination of factors contributing to the underperformance of its stores. Rapid expansion during the COVID-19 pandemic led to a larger weighting of immature stores in underpenetrated markets. Higher media costs and lower advertising funds, coupled with lower advertising effectiveness, further exacerbated the situation. Economic challenges also played a role in the stores' poor performance.

To mitigate potential losses and improve overall financial performance, Domino's has outlined several strategies. The store closures and accelerated refranchising are expected to result in annual savings of $15.5 million, which will help sharpen market focus and improve profitability. A proportion of these savings will be reinvested into network optimization, marketing, and advertising efforts to reach more customers and lift order counts in low-frequency markets. Additionally, the company plans to focus on high-density population areas that can deliver incremental, profitable growth.



The closure of these stores is expected to have a positive impact on earnings, with the aggregate contribution of the closed stores being loss-making. The company anticipates a return to positive same store sales in Japan in FY25, with core margin improvements excluding one-off investments in marketing and FX headwinds.

Domino's Pizza Enterprises is set to provide an update on its Japan strategy at an investor day during the June half. This event will likely offer more insights into how the company plans to manage the transition for affected employees and franchisees, as well as the overall strategy for the Japanese market.

In conclusion, Domino's Pizza Enterprises' decision to close 205 loss-making stores, with a significant focus on Japan, is a bold move aimed at improving the company's financial performance and positioning it for long-term sustainable growth. By addressing the challenges in the Japanese market and reinvesting in more promising locations and marketing efforts, Domino's seeks to maintain its competitive edge in the fast-food industry.