Domino’s Pizza Group has struck a deal with its franchisees over profit sharing, brining an end to more than two years of negotiations and a long-running dispute.
The takeaway pizza chain group said it will invest £20million over the next three years, with franchise owners agreeing to bolster the speed of new store openings.
Domino’s said that its UK arm had struggled in comparison with other global locations it operates in, but claimed the deal ‘can begin a new era of collaboration in which the system can realise its full potential’.
Shares in FTSE 250-listed Domino’s have jumped sharply and were up over 25 per cent, or 87p, to 433p in early morning trading.
Agreement: Domino’s Pizza Group has struck a deal with its franchisees over profit sharing
As part of the deal, Domino’s will spend £20million over three years for digital acceleration and in-store innovation to support franchisees in attracting new customers.
The new deal includes renewed food rebates for franchisees and store incentives, and requires franchisees to open at least 45 new stores a year over the next three years, while testing out new technology and store formats.
The company expects to achieve at least the upper end of its medium-term target of £1.6billion to £1.9billion in system sales.
Dominic Paul, chief executive of Domino’s, said: ‘This is an important moment for Domino’s, and I’m delighted we have reached what is truly a great resolution with our franchisees.
‘We saw first-hand through the pandemic how, when we work together, we win together. I firmly believe that the resolution we have reached is a good one for franchisees, our people, and our shareholders.
‘It means that our interests are aligned, and we are now in an even stronger position to execute our strategic plan. Our franchisees are truly world-class, and we are looking forward to accelerating our growth together.
‘Our business continues to perform strongly, and we are looking to the future with confidence.
‘Combined with our new strategic plan which is focused on accelerating our growth in both delivery and collection, the resolution we are announcing today can unleash the power of the Domino’s brand, and enable us to deliver long-term, sustainable growth which will benefit all our stakeholders.’
Mark Millar, chairman of the the Domino’s Franchisee Association, said: ‘This framework for growth is the result of many months of discussions, and the DFA and its members are pleased to have reached an agreement that brings Domino’s and its franchisees closer together and enables us to focus on a future that delivers growth for all.
‘The DFA represents the overwhelming majority of franchisees and what unites all of us is our belief in, and passion for, the Domino’s brand.’
In terms of what’s in store for shareholders, Domino’s said: ‘We will continue to maximise shareholder returns through a sustainable and progressive dividend and distributing an annual allocation of surplus cash through share buybacks.
‘In FY21 we have returned £136million of surplus capital to shareholders via dividends and share buybacks and will update the market with guidance for the FY22 dividend and buyback programme at the full year results in March 2022.’
Russ Mould, investment director at AJ Bell, said: ‘Domino’s has now struck a deal with these franchise partners which will see a not inconsiderable investment on its part, boosting marketing spend and improving the digital platform, and in return they will up the pace of openings and agree to participate in national promotions.
‘The market likes the news as, at a stroke, it improves the growth trajectory of the business. However Domino’s relationship with its franchisees remains a vulnerability for the group which could rear its ugly head at the end of this three-year agreement.’
