Domino's Pizza Japan (東京都品川区) has made headlines recently with its decision to close 172 stores across the country, representing almost 80% of the global total of 205 stores set to shut down. This drastic measure is part of a comprehensive strategy overhaul aimed at improving profitability, announced by its parent company, Domino's Pizza Enterprises, on February 7. The closures are expected to yield annual cost savings of approximately 15 billion yen (about AUD 15.5 million).
The closure plan reflects the company's commitment to addressing its financial challenges, as recent performance has been underwhelming. For the first half of the 2025 fiscal year, existing store sales dipped by 0.6% across the group, primarily driven by struggles within the Asian market, where sales fell by 4.2%. This decline is particularly concerning for Domino's Japan, which, with approximately 1,000 locations, accounts for about one-fourth of the enterprise's global outlets. If the slump continues, another 80 unprofitable stores could close by July 2024.
Compared to its competitor Pizza Hut, which has maintained around 600 locations without significant reductions, Domino's challenges raise questions about its operational strategy and market position. Analysts are examining the disparities between the two brands diligently. While Domino's witnessed significant growth during the pandemic thanks to the surge in online food delivery, critics of its aggressive expansion feared "cannibalization" among its stores and compromises on service quality.
Domino's Pizza Japan has roots dating back to 1985 when it opened its first outlet in Ebisu, Tokyo. Pioneering the market with its unique delivery methods, such as three-wheel motorcycles to navigate Japan's narrow streets, it played a significant role in forming the Japanese pizza delivery market. This history contrasts sharply with more rapid expansion strategies of its rivals, like Pizza-la, which has utilized franchise models for swift growth.
Despite the recent scale-back, industry experts argue Domino's still holds significant assets and opportunities for recovery. Following its complete acquisition by Bain Capital in 2010 and its alignment under Domino's Pizza Enterprises by 2013, the brand has shown resilience over the years. Recent data indicate the global pizza segment's sales growth is still predicted, but the competition is fierce, particularly with fast-food chains emphasizing value options.
Recent financial performance data paint a complex picture. Despite revenue growth last quarter, stock values saw volatility, plunging by around 4.5% after underwhelming earnings compared to market expectations. Revenue increased by 2.9% year-over-year, bringing total figures to USD 1.44 billion, yet earnings per share of USD 4.89 fell short of projected figures.
Industry dynamics are shifting. The rise of low-cost competitors like McDonald's and Burger King is squeezing margins, leading to increased competition for customers. These larger chains have recently expanded their value menus, making it even harder for companies who traditionally relied on their quality and service. Consumers are increasingly price-sensitive, reflecting broader economic trends such as inflation, impacting dining habits and leading many to opt for more affordable meal options.
Domino's is prioritizing the enhancement of its digital ordering and logistics through innovations like artificial intelligence, yet the immediate impacts of these technologies on sales and market competitiveness remain uncertain. For the brand to regain its foothold, it must tweak its pricing strategies and marketing outreach effectively, responding to the changing consumer behaviors.
Simultaneously, Domino's commitment to returning value to shareholders remains steadfast. Recently, it announced dividends rose by 15% to USD 6.04 per share, reflecting the company's enduring focus on rewarding investors, even amid turbulent times. This growth has continued at around 20% annually over the past decade, affirming fiscal stability.
Nevertheless, analysts express caution about the restaurant's current valuations. With price-to-earnings ratios above industry averages, concerns linger whether the elevated expectations can play out amid competitive market forces. Without adjusting their approaches, questions arise: can Domino's adapt to maintain market share and consumer loyalty?
The coming months are pivotal for Domino's Pizza Japan. With strategic shifts and significant transformations underway, industry observers watch closely, evaluating whether this iconic brand can navigate its current challenges and emerge stronger, as it has done throughout its lengthy tenure. For now, the company remains at a crossroads, where success will depend on its ability to balance costs with growth and innovation.