Outside Yum China, which operates pizza hut, there is finally hope to see pizza concept stocks again.
yesterday, DPC dash (Dashi shares) disclosed its preliminary prospectus. The company, the exclusive franchisee of damelor in China, plans to be listed on the Hong Kong stock exchange. Bloomberg quoted market news last October that the company’s IPO may raise $100 million.
Next, the snack generation will take you to see what dry goods deserve attention in the latest disclosed documents.
- What is the trademark of Domino’s pizza?
The trademark and related intellectual property of the company are owned by Domino’s IP Holder LLC, and authorized to use the shares in Chinese mainland and Hong Kong and Macao. The general franchise agreement is valid until June 1, 2027 and can be renewed for two 10-year periods if certain conditions are met. Domino’s pizza, Inc., the global franchisor, is the world’s Largest Pizza Company. As of January 2, 2022, it has more than 18800 stores in more than 90 markets around the world.
- How is the growth?
From 2019 to 2021, the company’s revenue was 836.6 million yuan, 1.1 billion yuan and 1.6 billion yuan respectively, with a year-on-year increase of 32.0% from 2019 to 2020 and 45.9% from 2020 to 2021.
From 2019 to 2021, the number of domino stores increased from 188 to 468, an increase of 149%. As of the latest statistics, the number has increased to 485 this year (the following table shows the distribution of stores).
Like other chain restaurants, the company regards the same store sales growth (SSSG) as a key performance indicator to measure the operation level of existing stores. By 2019, 2020 and 2021, the same store sales had increased by 7.3%, 9.0% and 18.7% respectively. During this period, the same store sales had achieved positive growth every quarter.
As the main business of damelor is delivery, the overall financial performance of Dashi shares has maintained relative elasticity against the background of the epidemic, and the total revenue and same store sales have increased every year. Due to temporary closure and travel restrictions, the operation of some stores in Shanghai and Shenzhen has been adversely affected since mid March 2022.
- Is it profitable?
The answer is not yet. In 2019, 2020 and 2021, the net losses generated by Dashi were RMB 181.6 million, RMB 274.1 million and RMB 471.1 million respectively. It can be seen that the losses have expanded due to rapid expansion and the patience of capital.
However, the company recorded positive store EBITDA or 242.2 million yuan last year, with a corresponding profit margin of 15%, which means that it still has good profitability at the store level. The company said its profitability was affected by a variety of factors, including whether it could expand sales from existing stores, continuously expand revenue and customer base in a cost-effective manner by improving operational efficiency.
- What is the experience of opening a domino?
At present, the average area of Domino’s store is 124 square meters, and the average number of seats in the store is 28. Each store is usually equipped with 20 to 30 team members, including managers, employees and riders.
In terms of construction time and cost, it takes four to six months to establish a standard domino pizza store. Depending on the size and location of each store, the estimated average investment cost of each store is about 1.5 million yuan,
In 2021, the average daily sales of each store is 10692 yuan. If the store is opened in Beijing and Shanghai, the average daily sales is 12781 yuan. In terms of the number of orders, the average daily order volume of each store last year was 118, compared with 138 in Beijing and Shanghai. The average consumption per order is about 90.5 yuan, compared with 92.6 yuan in Beijing and Shanghai.
During the track record period, the first break even period of most stores opened by Dashi shares was one to three months, while the general cash investment return period of stores was three to four years. In Beijing and Shanghai, stores generally record the first break even period of one to two months, and the general cash investment return period is two to three years.
In terms of menu, at present, Chinese stores have a unified menu, including pizza (with a variety of bottoms and ingredients, more than 30 kinds of pizza in China), pasta and baked rice, side dishes, desserts, drinks and soup.
Stores need less labor and can use semi processed ingredients provided by the central kitchen to prepare food more quickly. The central kitchen provides services for the damile pizza store within a radius of 350km. At present, there are three in China (the following table shows its capacity utilization). Proximity to the central kitchen is an important consideration when evaluating the location of a new store.
Although the quantity of delivery orders of each store was not disclosed, in 2021, more than 73% of the sales of domino came from delivery orders, which was higher than the industry average of about 49%. These delivery orders need to be completed in an average of 23 minutes to meet the company’s commitment.
- What “moat” does domino have?
According to the analysis of Domino’s, the barriers to entry of China’s Pizza market are brand awareness, effective supply chain management, seamless distribution experience, science and technology investment, standardization and regulatory compliance, growth and considerable economic benefits.
Distribution service is one of the highlights of damelor: the brand provides customers with a commitment of 30 minutes from the beginning of placing an order, and claims to be the only Pizza Company in China that can realize this service through all channels.
The company relies on full-time riders to complete delivery orders, including those placed on its own online channels and third-party online channels. Since the vast majority of customers order meals through digital channels (accounting for 98.3% of sales in 2021), the technical infrastructure is crucial to the business. The company uses self-developed private cloud solutions to deal with some passenger traffic problems with third-party cloud service providers.
In addition, the company commissioned frost Sullivan to conduct a consumer survey last year (the survey was conducted among about 600 participants in Beijing and Shanghai, including online survey and questionnaire survey), indicating that its pizza “received the highest evaluation from respondents” in terms of taste. At the same time, these respondents also said that its pizza was “the most innovative” and “rated as the most cost-effective” among pizza brands.
Finally, it is worth mentioning its economic model. At the front end, stores focus on providing services to outbound customers through online channels, which makes the location of stores highly flexible (easy to open new stores) and the size of stores compact (reducing rent and renovation costs); At the back end, the stores are supported by a central kitchen and supply chain, which minimizes the equipment demand of each store, thus reducing the initial investment cost. The company believes that the model is scalable and reproducible.
- What is the capital behind domino?
Since 2017, Dashi Co., Ltd. has conducted five financing transactions, raising a total of US $173.4 million. The current controlling shareholder of the company is good taste Limited (GTL), holding 37.35%; Secondly, Domino’s Pizza LLC, which holds 15.73% of the shares, is the brand side of Domino’s pizza.
For GTL, the latest disclosed document refers to that it is ultimately wholly owned and controlled by the trustee of discretionary family trust, and James Leslie Marshall, the director and vice chairman of the company, is the protector, discretionary beneficiary and director of the trustee. Marshall is the founder of Berge bulk group, a well-known Singapore dry bulk shipping company.
- Who are the executives of domino?
At the board level, the company currently has one executive director, five non-executive directors and three non-executive independent directors.
among them, Aileen Wang, 44, is the executive director and CEO, mainly responsible for the overall strategic planning and business direction of the company. Her main resume comes from McDonald’s China, who has served for eight years. Finally, she served as the vice president of franchise of McDonald’s China in May 2017. Before joining McDonald’s, she worked at McKinsey.
In the senior management team, there are also McDonald’s “veterans”. For example, Zhong Jun, 49, chief operating officer, once served as general manager of McDonald’s Guangzhou market. In addition, other executives have foreign enterprise backgrounds, such as CFO Wu Ting, who once worked in Mogu, CITIC CLSA, etc; Xu Xinyi, the chief performance officer, once served as the chief financial officer of Coca Cola enterprise management (Shanghai) Co., Ltd. and Wang Yujing, the chief marketing officer, once served in Estee Lauder.
- Long term growth strategy?
Dashi shares first mentioned the rapid acceleration of the number of stores. The company said that this will not only increase the absolute number of stores, but also develop new store models (such as stores that only provide take out and delivery services), and it is expected that these new store models will be smaller and more flexible locations for stores suitable for Hall food customers, thus reducing rent, decoration and operating costs.
It is worth noting that the company said that with increasing the density of the store network, it has taken measures to prevent the diversion between existing stores and new stores, especially in Beijing and Shanghai, where the share is more stable. Given the 30 minute delivery guarantee, it minimizes store overlap within a 30 minute radius.
In addition, the strategy also includes promoting brands and improving customer loyalty, further improving technical advantages, improving pizza based menus, improving distribution leadership, and so on.
- Purpose of listing and fund-raising?
If successfully listed, the fund-raising will be used in the next two years to expand the store network, repair the existing stores and improve the utilization of the central kitchen.
Specifically, Dashi plans to open 120 to 180 stores in 2022 and 2023 in cities adjacent to three existing central kitchens in North, East and South China and cities that will open new central kitchens. In addition, it will also improve technical capacity and general enterprise use.
It is estimated that the planned investment cost of opening new stores in 2022 and 2023 will be about 180 million yuan and 270 million yuan respectively.
- What are the characteristics of China’s Pizza market?
According to the pre disclosure documents, the company said that from 2016 to 2019, the revenue scale of China’s Pizza market increased from 22.8 billion yuan to 33.5 billion yuan, with a compound annual growth rate of 13.7%, and it is expected to reach 62.3 billion yuan in 2025.
Citing market research data, the company said that the growth of China’s Pizza market was driven by the improvement of China’s urbanization level, the increase of Chinese consumers’ disposable income and the increasing acceptance of Western food by consumers, especially the younger generation of Chinese consumers. The following figure shows the market size of China’s Pizza market by revenue from 2016 to 2025.
It is worth noting that the company stressed that because pizza is very suitable for delivery, the Chinese pizza market is expected to deliver more than hall food this year, and delivery inside and outside is expected to account for most of the revenue in the next five years. Among them, the scale of China’s pizza delivery market will be 15.7 billion yuan in 2020 and is expected to increase to 37.4 billion yuan in 2025.
In terms of market, the first tier and new first tier cities created 65.9% of the revenue of China’s Pizza market in 2020. In the future, China’s Pizza market is expected to remain concentrated in first tier and new first tier cities, accounting for 59.2% of China’s total pizza market in 2025.
At the same time, the market competition is also fierce. Damelor believes that the Chinese pizza market is highly competitive in terms of food quality and taste consistency, value for money, customer service, store location, supply of high-quality ingredients, delivery, takeout and availability and quality of hall food services, brand awareness and so on.
According to the data provided by it, the market share (calculated by revenue) of domino in 2020 is 3.6%, which is significantly lower than the first 39%, but close to the second 5.6%. The company said that in the long run, it hopes to be able to come first, but did not give a timetable at the same time.
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