Burger King’s parent company, Restaurant Brands International (RBI), is considering a bid for Domino’s Pizza, people with knowledge of the matter told Brazil Journal. The structuring of the bid is advanced.
The acquisition would fill a significant gap in the RBI brand portfolio — which sells hamburgers at Burger King, chicken at Popeyes Louisiana Kitchen, and coffee at Tim Hortons — and would mark the entry of the 3G Capital company into one of the fast food industry’s fastest-growing segments.
While looking at potential acquisition targets, RBI also considered Yum Brands, but Domino’s — besides being a smaller, more digestible target — carries an additional appeal: in recent years it has dramatically innovated its business model, embracing technology like no other company in the industry.
Today, more than 60 percent of Domino’s pizza orders in the US are made via online channels, and there are 11 ways to order a pizza from the company, including text messaging, Twitter, Facebook Messenger, Apple Watch, Amazon’s Alexa, Google Home, Samsung TV, Ford Sync, and the Domino’s app itself, among others.
If the offer materializes, RBI — which as every 3G company is best known for ceaselessly cutting costs — will also be buying growth. Domino’s leads — by far — the growth in same-store sales in the US quick-service restaurant industry. From 2010 to the third quarter of 2017, Domino’s same-store sales rose 8% a year on average. Starbucks, the second fastest-growing company, boosted sales by 6 percent. Next came Taco Bell, McDonald’s, Dunkin Donuts, Wendy’s and Burger King, with growth of about 1.5% a year in the period.
On Friday, Domino’s market cap was US$ 9.6 billion on the New York Stock Exchange; RBI was worth US$ 28 billion.
The potential RBI offer comes at a time of transition at Domino’s. Last month, CEO J. Patrick Doyle announced that he will step down at the end of June. The new CEO will be Richard ‘Ritch’ Allison, who currently runs Domino’s International.
Doyle is the conductor of the turnaround that turned Domino’s into the envy of the fast food industry. That process began in 2009, when Domino’s reshaped its recipes to improve the taste of the product. At the time, Doyle made a mea culpa in an advertising campaign that showed consumer criticism of the company’s pizza. In a tweet, a consumer said that Domino’s pizza tasted like cardboard and that “microwave oven pizza is far superior.” Others complained about the use of “processed cheese,” and that the company sauce tasted like ketchup.
At the time, Doyle acknowledged that Domino’s pizza “did not taste good” and that “the old days of trying to spin things simply doesn’t work anymore.’’
It was an aggressive bet, but what came next required even more courage: a cultural transformation of Domino’s that, in the words of one company executive, went from a pizzeria with some online sales to “an e-commerce company that sells pizza.”
One of the first food companies to launch online orders, Domino’s doubled down in 2010 by deciding that the only way to create an online ordering platform would be to develop it in-house. It then set up a technology area and started to run that business internally, according to Digiday.
The creation of value was brutal. In March 2010, Domino’s stock traded at US$ 14. Today, it trades at US$ 220. The stock appreciated more than most tech giants in the period.
Domino’s operates around 14,400 stores in 85 countries and delivers more than 1 million pizzas per day. (The most popular ‘topping’: pepperoni.)
The company’s growth outside the US has been overwhelming: by the third quarter of 2017, the international division had computed 95 consecutive quarters of same-store sales growth. Between 2012 and 2016, while Pizza Hut opened 2,651 stores outside the US, Domino’s opened 3,605. More than half of Domino’s international stores are operated by four large master franchisees, all publicly listed companies.
In the US, Pizza Hut had sales of US$ 5.8 billion in 2016, against Domino’s US$ 5.5 billion, but analysts believe the company has surpassed Pizza Hut in 2017. The results will be known tomorrow, when Domino’s reports its fourth quarter.
This story originally appeared on Brazil Journal in Portuguese.
