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Investors wanting exposure to the leisure sector without the risks of an over-supplied market like the UK should consider the company running the Turkish and Russian operations of Domino’s Pizza, namely DP Eurasia (DPEU).
The business is displaying similar characteristics previously seen with the UK and US versions of Domino’s, namely a shifting point with online sales.
Selim Kender, chief strategy officer at DP Eurasia, says other Domino’s master franchise owners saw like-for-like sales take off once the online channel represented 50% of overall delivery orders. DP’s Turkish business is close to hitting this magic metric.
‘We’ve found customers who order online do so more frequently and there is a higher ticket price,’ comments Kender.
DP Eurasia has 490 Domino’s Pizza stores in Turkey; of which 355 are owned and operated by sub-franchisees. The remaining 135 sites are corporate-owned and located in Turkey’s main cities.
Kender says corporate stores are more profitable and benefit from DP Eurasia’s control over how they are run and having direct access to the consumer, thereby enabling it to closely monitor customer preferences and trends.
He also states that DP Eurasia has 51% market share of the TRY 1.2bn (£237m) Turkish fast food pizza delivery market. ‘The sector has grown by 16% to 17% a year over the last few years and this trend is expected to continue,’ he adds.
Stockbroker Peel Hunt says the company’s long-term target is 900 stores which would take 13 years to achieve at a rate of 30 new sites a year.
‘Management develops clusters of stores, “castles”, which provide very fast delivery times to local households and, critically, make the areas around clusters unattractive to competitors,’ says Peel Hunt analyst Ivor Jones.
Four years ago DP Eurasia won the master franchise for Russia, replacing someone else who had only managed to open 13 stores in 17 years, all in Moscow. It quickly fixed the operations and now has more than 100 stores in the Greater Moscow region.
Its first Russian sub-franchisee opened a store in late 2016 and it now has nine sub-franchisee stores. The long-term target for Russian corporate and sub-franchisee is 1,500 stores.
Moscow often has bad traffic which isn’t good for fast food delivery firms. DP Eurasia has replicated its Turkish ‘castle’ strategy in Russia and only serves postcodes where it knows it can deliver in less than 30 minutes, thereby giving it a competitive advantage over rivals. The company will commence Russian expansion beyond Greater Moscow by the end of 2017.
Peel Hunt forecasts TRY 43.2m pre-tax profit in 2017 versus TRY 29.4m in 2016. Pre-tax profit is expected to hit TRY 60.1m in 2018 and TRY 86.8m in 2019, illustrating how this is truly a rapid growth story. (DC)
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