Domino's bullish on China market

Due to strong confidence in the potential of China's consumer market reinforced by favorable government policies introduced amid the COVID-19 epidemic, US restaurant chain Domino's Pizza will keep its 2020 business target in the country unchanged, the company's China CEO Wang Yi said.

The company plans to open around 100 restaurants in China to bring the total number to 360 by the end of this year, Wang said. In the next three to five years, Domino's Pizza will have around 1,000 restaurants in the country, most of which will be located in first-and second-tier cities, she said.

"A physical store can help to build the brand image, which is especially important when entering a new market. It can also meet consumers' need for social connection when necessary," said Wang.

Domino's Pizza entered China in 1997. Its development pace accelerated over the past few years, with the compound average growth rate coming in at 30 to 50 percent over the past five years. This is much faster than the 11.2 percent industry average growth rate tracked by market research firm AskCI Consulting.

Given the rapid growth in China, the headquarters of Domino's Pizza Inc announced in late July it would invest further in its China master franchisee, injecting capital and resources.

China has become the first overseas master franchisee outside the United States which receives such direct investment. It has also shown the company's positive outlook on the development of the Chinese consumer market, said Wang.

As the pizza chain is well-known for its delivery services, the company's expertise meets the major consumption trend in China. At present, online platforms contribute about 75 percent of Domino's orders in China.

A food delivery industry report jointly released by the China Hospitality Association and China's largest on-demand service provider Meituan Dianping in early July said there were about 460 million Chinese food delivery service users at the end of last year, taking up more than half of the urban population.

The market value of the food delivery service industry surged 39.3 percent to 653.6 billion yuan ($94.5 billion) at the end of 2019 and this is expected to top over 1 trillion yuan in the next three years. The online food delivery sector will account for 20 percent of China's food and restaurant market value by the end of this year, the report said.

"The rapid expansion of China's food and restaurant market has fueled our confidence. Other Western-style fast food chains selling fried chicken and burgers have succeeded in China, and we think the logic is the same for pizza sellers," said Wang.

While Domino's business was affected due to the COVID-19 epidemic at the beginning of the year, the company started to see a rebound in the second quarter.

Government policies have helped companies cope with the difficulties, which include the exemption of companies' social security payment for six months starting from February as well as the exemption of value-added tax for personal lifestyle service providers by the end of the year. Those policies were announced by the State Taxation Administration in early February.

In a report released in mid-July, US investment bank Oppenheimer Holdings reiterated their rating of "outperform" for the pizza chain listed on the New York Stock Exchange and increased its price target to $425 from $405.

While describing the Chinese market's contribution as "small" at present, Oppenheimer analysts added that China could become "more intriguing as the business grows".