Domino's US Sales Dip Blamed on Australian Strategy Shift

Domino's US operations experienced lower-than-expected second-quarter earnings, with the company's chief financial officer pointing to its Australian franchisee as a significant factor. Sandeep Reddy, Domino's US CFO, stated that "comp sales declined by 0.1 percent in the quarter as they continued to be impacted by Domino's Pizza Enterprises."

Reddy explained that decisions made by Domino's Pizza Enterprises' management, particularly the move away from promotions and discounts in favor of an everyday low-price model, have negatively affected the company's overall performance. This strategic shift, implemented by Domino's Pizza Enterprises executive chairman Jack Cowin in August of the previous year, has reportedly led to a loss of one in ten customers.

"Domino's Pizza Enterprises was definitely a drag on our same-store sales because their performance continued to be impacted by the approach that their management have already talked about, which is they've actively decided to actually reduce the lower margin transactions," Reddy said during a call with US investors and analysts. He added that the reduction in lower-margin transactions has resulted in a decrease in order counts that has not been fully compensated by an increase in ticket prices.

Domino's Pizza Inc. chief executive Russell Weiner expressed optimism for a turnaround in the Australian operations, noting that the struggles are partly "purposeful, resetting kind of the profit piece here." He highlighted that Domino's Pizza Enterprises remains the top pizza provider in most of its markets and is "coming back from a position of strength."

Weiner also announced the upcoming appointment of Andrew Gregory, former chief executive of McDonald's Australia, to lead the Australian operations. Gregory brings 30 years of experience in the restaurant industry, predominantly with McDonald's. The focus, according to Weiner, will be to "go in with the right kind of value to recapture order counts" after an initial period of prioritizing profit over order volume.

Cowin has previously defended the everyday low-price strategy, asserting that it has benefited franchisees at the store level. He argued that while price-driven customers who only order with heavy discounts might be lost, these transactions were not profitable for the company. The move aims to increase profitability for franchisees by focusing on customers who are less sensitive to price fluctuations and are willing to pay for value.