Domino's Pizza rues misfortune after pulling cookie from meal deal

A Domino's pizza delivery car outside a store in the US
The pizza chain has suffered weaker growth in the UK, knocking its shares

The humble cookie has been a source of misfortune for Domino's Pizza, after the takeaway chain admitted that pulling the dessert item from a popular meal deal hurt sales.

David Wild, chief executive, blamed a slowdown in like-for-like sales growth at the start of this year on the “disappointing” performance of its Winter Survival deal, which had been successful in the past few years.

“This year it didn’t go as well as expected,” he said. “We made a slight change to the offer by taking a cookie, which was the dessert, away. That was part of the problem and we have run the offer too many times and customers want something different.

“You have got to keep refreshing things.”

Like-for-like sales growth in the UK for the first nine weeks of the year was 3.9pc, down from 4.8pc in the final quarter of the 2016 financial year.

However Mr Wild was bullish on the company's wider performance, pointing out Domino's total sales growth of 8.3pc at the start of this year was ahead of the takeaway food market, which grew 5pc. 

Analysts at Numis said the slowdown “reflects a challenging comparative figure, slower take-up of its Winter Survival deal, and stiffer competition”.

Domino's shares fell more than 13pc following the update.

For the year to December 25, the company's sales rose 13.8pc to £360.5m and pre-tax profit climbed 12.8pc to £82.5m.

The Milton Keynes-based business managed to grow sales in new stores by 15pc and plans to open at least another 80 sites in 2017, creating 3,000 new jobs.

Around 72pc of its sales are now made online, and mobile phones accounting for 73pc of such transactions.

A delivery robot in New Zealand
Technology is playing an increasing role in Domino's business

Mr Wild acknowledged the plethora of social media platforms made it hard to keep up with customers. 

But he said developments such as the chat-bot it launched via Facebook Messenger in August 2016, which broadened its e-commerce platform from ordering to customer service, was a key innovation that showed it could compete in the digital arena.

“We’re always looking to embrace new channels and the franchises pay a fee to a national advertising fund, which is linked to sales,” he said.

“This means the more sales we generate, the more money we have to spend.”

A Domino's pizza delivery man trialling a delivery by canoe
Domino's trialled waterway deliveries last year

Numis said while Domino's UK performance looked “disappointing”, previous slowdowns had been “good buying opportunities”. It said the company was attractive due to the fact it was growing earnings at 10pc per annum with “excellent free cash flow generation”. It added that Domino's valuation compared well to its US-listed cousin.

While trading conditions so far this year in the UK are weaker than some might have hoped, the Republic of Ireland and Switzerland registered 12.3pc and 9.4pc growth in like-for-like sales respectively for the first nine weeks of the year.

Management also announced the company had, with partner Pizza Pizza Norway, acquired Dolly Dimple’s, the country’s third largest pizza company with 42 stores, for £4m.

Its one-third stake in Joey’s Pizza, Germany's largest chain of pizza restaurants, contributed £700,000 to underlying group pre-tax profit while profits from its 49pc stake in the Norway, Sweden and Iceland Domino’s business contributed £200,000 of profit across the seven months it has been owned by the company.

Mr Wild said investors were supportive of the deals it had made but there were no other opportunities the company was working on right now.

The chief executive added that the company boasted a low net debt to cash profits ratio of 0.4 times, meaning it had firepower should it want to make a deal.

The company raised its dividend by 15.6pc to 8p a share, from 6.9p in 2015.

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