With the help of ultra-high takeaway orders, the domestic pizza industry, which has ushered in demand growth during the epidemic, is about to emerge as a new listed company.
On March 28, Dash Co., Ltd. submitted an application for listing to the Hong Kong Stock Exchange. According to the prospectus, Darby Islea Islea Is the sole general franchisee of Domino's Pizza in Chinese mainland, Hong Kong SAR, China and Macau SAR of China.
The IPO was also seen as raising funds for Domino's plans to expand in China, and the prospectus also emphasized its long-term goal: to become China's number one pizza company.
During the epidemic, the catering industry has been generally hit, and store closures have become the norm. Pizza is one of the few categories that has bucked the trend during the epidemic, and takeaway is a major factor in its growth.
According to the prospectus data, based on Domino's delivery "30 minutes must be reached" service, more than 73% of Domino's China's revenue in 2021 will come from delivery orders.
With delivery services, Domino's Business in China has maintained a high degree of resilience in the face of repeated epidemics, with single-store revenue and operating margins growing positively for three consecutive years.
In this industry trend, not only Domino's has chosen to expand against the market, planning to open 120 new stores in 2022 and 180 new stores in 2023, respectively.
After achieving a double increase in net profit last year, the veteran giant Pizza Hut, which was slightly depressed in previous years, plans to open more than 300 new stores in the Chinese market and extend its tentacles to the "fourth-tier market" represented by county-level cities.
At present, the Chinese pizza market as a whole is still in a rapidly growing and relatively early stage of development. In the prospectus, Domino's China expects the Chinese pizza market to grow at a COMPOUND annual growth rate of 15.4% from 2020 to 2025 and reach a size of 62.5 billion yuan in 2025.
Will the pizza industry take advantage of this to run out of the next Haidilao? Although the two are Chinese food and the other is Western food, they have many things in common: standardization, chaining, and branding.
With these characteristics, they have certain advantages over other categories in front of the three mountains of the catering industry such as rent, manpower and material costs.
However, some professionals are also skeptical about this and said: "At present, the volume of enterprises in this category of pizza is not too large, and its various subdivision indicators are not particularly prominent, and it is difficult to give birth to enterprises of the magnitude of Haidilao." ”
01
In the prospectus, Domino's competitive advantages mainly boil down to five points: the world's leading brands, innovative and localized menus, delivery services, technical advantages, and the replicability of the store model, and position its core advantages in the brand, delivery service, and replicable stores.
The delivery service of "30 minutes will arrive" is a major differentiator of Domino's, and its upstream central kitchen and downstream store configuration are basically planned around this service.
The highly standardized and replicable nature of the stores based on this design also allows us to peek into the entire Domino's Business Model in China from one store.
The manager of one of Domino's Stores in Beijing introduced the configuration of his stores. The entire store area is about 120 square meters, and the kitchen and counter occupy nearly half of the space.
Because its main raw materials are distributed by the central kitchen, the store kitchen equipment is simple, which not only reduces the cost of opening each new store, but also makes the occupied area as small as possible, improving the flexibility of store location.
According to the store manager, the store employs about 10 people, which is lower than the 20-30 people of other Domino's stores, mainly because its delivery radius is shorter than other stores. Usually a Domino's store of 20-30 people has a delivery radius of 2.5 kilometers.
Among the 10 people, 5 people are full-time delivery, and the remaining 5 people are responsible for the daily management and operation of the store, but during peak periods, the employees responsible for in-store operations will also participate in the delivery.
A rider in the store said that he delivered about 30 meal orders a day, 900 a month, and recently due to the epidemic, some part-time riders could not come to work, and his monthly delivery volume rose to 1200. He can get 9 yuan per order, and the monthly salary is about 10,000 yuan.
But he also said that Domino's orders are not completely delivered by full-time riders, and a very small number of orders will also be delivered by riders on other platforms, depending on the system scheduling.
From the perspective of the single-store model, Domino's and Haidilao have a lot in common: in the production of raw materials and dishes, mainly rely on the central kitchen and upstream raw material manufacturers, the production of the store end is relatively simple; the store design is standardized, the profitability and other indicators are clear, as long as the site selection inspection can be quickly copied.
These characteristics are also the more or less commonalities that the hot pot and pizza industries behind the two companies have.
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Rent, manpower and material costs are the three mountains that weigh on the catering industry.
According to the prospectus data, from 2019 to 2021, Domino's rental expenses in China were 106 million, 137 million and 180 million yuan respectively, accounting for 12.6%, 12.4% and 11.2% of the annual revenue, respectively. Rental costs rose 69 percent over two years, but the number of its stores grew 74 percent over the same period.
Domino's explained: "Rental expenses as a percentage of total revenue decreased, mainly due to our strong earnings growth and our increased negotiating capacity to negotiate more favourable lease terms as our brand awareness increased. ”
Stronger bargaining power in negotiations with leasing parties such as commercial districts is an important reason why Haidilao's rent cost accounts for less than 5% of total revenue.
As the offline traffic entrance of the business circle, Haidilao's powerful brand can disperse the large number of passenger flows it has attracted to other enterprises in the business circle, which is equivalent to the enterprises benefiting from Haidilao diversion and sharing the original rent of Haidilao.
When the brand effect of Dameile is further strengthened with the listing, it is not impossible to learn Haidilao's playing method, and its store rent costs are expected to drop significantly.
In addition, Domino's store strategy can further reduce its rent expenses. Due to its highly takeaway characteristics, the store area is small, and it mainly radiates to the community and small business districts, making its location highly flexible and the rent cost low.
In terms of labor costs, Domino's divides it into two parts: store-level employee compensation and company-level employee compensation. Store-level employees include store managers, store staff, full-time delivery riders, and employees who work in the central kitchen to support day-to-day operations. Employees at the company level include senior management, regional managers, and other functional teams.
From 2019 to 2021, the compensation expenses of store employees were 248 million, 316 million and 467 million, accounting for 29.6%, 28.6% and 28.7% of the total revenue, respectively.
The compensation expenses of employees at the company level were 0.79 billion, 120 million and 150 million, respectively, accounting for 9.5%, 10.9% and 9.3% of the total revenue for the same period.
Due to its store standardization attributes, with the expansion of stores, the salary expenses of store employees will also rise synchronously, and with the expansion of the store network, the company's level employees accumulate rich experience and have the ability to support more store operations, and the proportion of this part of the salary expenditure may gradually decline.
Moreover, similar to the hot pot industry, pizza is also a catering category that does not require a chef, and while the salary is gradually declining, Domino's has eliminated the labor cost of digging up professional chefs.
In terms of material costs, benefiting from the high standardization operation similar to hot pot, the ingredients for making a pizza are relatively simple and can be stored and transported on a large scale, and also have a cost control advantage that is far superior to other catering categories.
In addition to cost, from the perspective of revenue, the current domino's volume is small, with an annual revenue of 1 billion yuan, which is not the same as Haidilao.
However, due to its takeaway and small stores, its single store has a daily revenue of about 10,000 yuan, and the ping-efficiency ratio is 27,000 yuan / year, even slightly higher than Haidilao.
03
The scale expansion effect brought about by standardization, chaining and branding has been repeatedly staged in recent years in catering categories such as hot pot and new tea.
Although the pizza industry has been developing in China for more than 30 years, it has not been able to expand on a large scale.
Since the opening of the Pizza Hut Dongzhi store in 1990, Pisa's development in China can be roughly divided into three stages:
The first stage is dominated by foreign brands such as Pizza Hut, positioning high-end Western food, focusing on family dinner scenes;
The second stage is represented by the rise of local brands such as Le Caesars and Zumba Pizza.
The dividing line between the first two phases is not obvious, and one landmark event is the collapse of Pizza Hut's "Fruit Tower". Pizza Hut has launched a 28 yuan fruit and vegetable salad self-service service, customers can take as much as they want, but can only take one plate.
In order to take as much as possible, customers piled cucumbers, yellow peaches and oranges layer by layer like piles of "fruit towers". At that time, on the Tianya community and Baidu Tieba Bar, how to stack the fruit tower was a long-standing topic.
As the fruit towers stacked higher and higher, the Pizza Hut service began to lose money, and salad buffets were cancelled in 2009. When the service was restarted in 2020, the response was mediocre, with only double digits of retweets to the relevant dynamic comments.
Behind the collapse of the fruit tower is the fading of the freshness of the imported pizza by consumers, and pizza has begun to move closer to fast food from high-end Western food.
Now, the domestic pizza market is in the third stage - local brands have expanded from local to national, and other foreign brands have also made efforts in the Chinese market to seek a scale effect.
In the current pizza market, Pizza Hut China and local brand Zunbao Pizza under Yum China ranked first and second respectively, with more than 2,000 domestic stores. Domino's ranks third with 468 stores in the country, but among the top five pizza brands, Domino's China has the fastest growth.
Although major brands are making efforts, at present, the competitive situation is not optimistic.
In recent years, the pizza market has maintained a growth rate of more than 10% for a long time, but the market is highly concentrated, and in terms of 2020 revenue, the top five brands occupy 52.5% of the market share, of which Pizza Hut accounts for 39%.
According to enterprise investigation data, the number of pizzerias in operation and existence in the mainland is currently 20,000, and 20,000 enterprises have only obtained less than 50% of the market share.
Secondly, the homogenization is serious, Le Caesars has used durian pizza to sell a blockbuster product rapidly, but at present almost all pizza shops have durian pizza products, which is similar to milk tea in the pizza industry.
In addition, in terms of business model, the pizza industry lacks bright spots. At present, there are two main models of common pizzerias on the market, one is the brand represented by Pizza Hut, focusing on the store experience and positioning casual Western food, and the other is the brand represented by Domino's, focusing on takeaway.
During the epidemic period, the Western food category has undergone a round of reshuffle, and restaurants such as Wagas and New Elements, which once competed with Pizza Hut, have embarked on the road of selling and bankruptcy, and Pizza Hut has also declined significantly, once dragging down the performance of Yum China.
Compared with popular categories such as hot pot, the pizza industry still lacks some highlights to support its search for a larger commercial space. At present, Domino's store operating profit is less than 10%, far lower than Haidilao on the eve of the listing, which makes it much less elastic in expansion.
"How to develop after financing is very important, if the expansion is too fast, the density of stores is large, or there are too many stores in areas with weak consumption acceptance, it will affect its profitability." Lai Yang, a member of the expert committee of the China Chamber of Commerce, analyzed.
Source| Box Lunch Finance, author | Liu Xingzhi
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