Domino's China operator banks on IPO for expansion

Recent attempts by the Chinese franchisee of Domino's Pizza Inc to seek a Hong Kong float have demonstrated enhanced efforts by the operator to tap the flourishing and competitive pizza market in China, experts said.

The comments were made after Domino's Pizza's operator in China — DPC Dash Ltd — filed for an IPO on the Hong Kong stock exchange for the second time this year since March, on Friday.

Boosted by rising demand for pizza deliveries in the past three years, DPC Dash managed to expand the number of Domino's stores by 170 percent to 547 in three years in China.

By the end of June, the company directly operated 508 stores on the Chinese mainland, with some 56 percent located in Beijing and Shanghai.

The company has established three processing and distribution facilities — "center kitchens" — in Shanghai, Sanhe in Hebei province, and Dongguan in Guangdong province, to fuel its fast expansion in the country.

Its revenue in China rose to 1.61 billion yuan ($222.8 million) in 2021 from 837 million yuan in 2019 despite the accumulated net loss of 600 million yuan in three and a half years, according to the DPC Dash Ltd's prospectus filed to the Hong Kong bourse.

In the first six months of this year, the operator reported sales of 909 million yuan, exceeding its total earnings of 2019.

The company said it plans to use the raised capital on network scale-up and to open 300 new stores in China by the end of next year.

Globally, Domino's Pizza Inc has more than 19,200 stores in over 90 markets as of June.

Featuring a directly operated business, DPC Dash still faces fierce competition in China from its rivals such as Pizza Hut. Pizza Hut has more than 2,700 stores nationwide.

Ranking third among the top five pizza brands in China in terms of 2021 revenue, Domino's has charted plans for faster growth and bigger market share, according to a report from consultancy Frost &Sullivan.

Its ambition is backed by its plans to cash in on rising demand in the delivered pizza segment, which is expected to see more rapid growth compared to that of the overall pizza market in China.

Domino's has strength in branding and scale, yet requires more focus on its product innovations to catch up with the consumption updates in the local market, said Zhu Danpeng, a food and drink analyst in Guangzhou, Guangdong province.

In 2021, sales of delivered pizzas amounted to 17.9 billion yuan, accounting for 49.2 percent of the overall Chinese pizza market, the report said.

From 2021 to 2026, the compound annual growth of the pizza delivery segment in China is expected to reach 19.9 percent, with a market size of 44.3 billion yuan, accounting for 64.3 percent of the total, the report said.