South Africa’s once high-flying pizza industry has been dealt a blow with the announcement that the Domino’s Pizza business is being liquidated. A total of 55 stores and about 770 employees will be impacted by the closure, which is with immediate effect.
The stores are all owned by Taste Holdings, the master franchise holder for South Africa. A total of 16 franchised outlets will continue to trade, with Taste Holdings management providing assistance where possible, the company said.
Taste Holdings has been attempting for some time to sell the Domino’s business and has been receiving financial assistance from Domino’s Pizza International, the global owner of the brand, for some time.
Doors closed when suitable buyer could not be found
However, when that support ceased and a buyer for the South African business could not be found, the decision was taken to close the stores.
Domino’s demise is a combination of the difficult times being experienced by Taste Holdings, which is exiting the food business and attempting to reinvent itself as a purely luxury retail group, and a change in the fortunes of the local pizza industry over the years, where tough competition and heavy discounting is chomping away at profitability.
Until relatively recently, Taste’s strategy was a combination of fast food and luxury retailing. On the food side, it owned Starbucks, as well as Domino’s, Maxi’s (a quick-service, sit-down family restaurant) and The Fish & Chips Co. It has since sold all except Domino’s.
Number of outlets could not be grown to be profitable
In November 2019, Taste said it could not grow its chain of outlets sufficiently to reach its target profits. The original intention was to establish 150 to 200 Starbucks stores and 220 to 280 Domino’s outlets. Management estimated that more than R700 million would be needed to achieve a positive cash flow.
Business Day quotes Anthony Clark, an analyst with Small Talk Daily research, as saying the liquidation was “an ignominious end to an ego-driven expansion”.
“They simply didn’t have the balance sheet or expertise to roll out two international chains simultaneously,” said Clark, referring to both Starbucks and Domino’s.
The company also overspent capital in some areas, such as Starbucks outlets that were too large, he added.
Tough competition in SA pizza market
It was unsurprising that no buyer was found for Domino’s, given the intense competition in the pizza market, Clark said.
In January 2020, The South African reported that cash-strapped South African consumers are no longer biting into a slice of pizza as frequently as they used to.
The report quoted Spur Corporation CEO Pierre van Tonder as saying “the pizza market in South Africa is extremely competitive, with local quick service restaurant (QSR) brands discounting product significantly to maintain sales volumes”.
The difficult pizza market in South Africa today is in stark contrast to the situation around five years ago, when pizza sales were booming and major new players were entering the field.
In late 2014, Domino’s Pizza and global rival Pizza Hut announced they would both be entering what they saw as a “marketplace with great potential”.