Insights

Domino's China partner DPC Dash in profit and growing fast

Domino's business partner in China, DPC Dash, recently reached a new milestone by opening its 700th store there. They also expect to open 180 new Domino's locations during the rest of this year and have ambitions to double its number of restaurants to 1,500 over the next two years.

Since their first-ever earnings were released at the end of August, shares have risen by around 70% on the Hong Kong exchanges.

There are several reasons that the stock has soared in such a short period. The announcement of the company's first profits, a slowing economy in mainland China, and a belief that Hong Kong stock has underperformed all added to the remarkable rise.

Additionally, in early September, DPC Dash was included in the Shanghai- and Shenzhen-Hong Kong Stock Connect programs, which made shares accessible to mainland investors – a move that especially attracted investors who buy shares in familiar companies they see in everyday life.

DPC's stock is now trading at a price-to-sales ratio of 5, higher than both Domino's in the United States and Yum China, the leading pizza company in China. Pizzas are seeing a resurgence in Chinese consumers' eating habits, and the fast expansion of online food delivery services has also helped.

DPC's CEO, Aileen Wang, pointed to localization strategies, a delivery-based business model, and technological and menu improvements being behind their recent success. By the start of October, the DPC had 716 stores in 21 Chinese cities.

What makes DPC stand out is a rapid expansion while maintaining solid profits, which they have achieved by focusing on delivery services, which have lower overhead costs than regular restaurants, and by using centralized preparation for many of their recipes.

DPC and Domino's first started working together with restaurants in Shanghai and Beijing in 2010. They have since expanded their operations to other cities and have plans to reach 1,500 outlets by the end of 2026, from just under 600 at the end of 2022.

The first half of 2023 generated over a 50% revenue increase and a significant rise in profit margins, but with the end of Covid restrictions, deliveries fell, leading to a decline in same-store sales growth.

DPC Dash is also trying to move into smaller towns and cities, where Western food, such as pizza, may not be as well known or appreciated. It also plans to continue its speedy expansion into new markets, following a strategy pioneered by Pizza Hut in China.