Domino’s Stockholders Should Be Watching This Carefully
Let’s face it: at first glance, the idea of setting up an American pizza joint in Italy is equivalent to opening a sand shop in the middle of the Sahara, or selling ice cubes to Eskimos. However, the second-largest pizza chain in the U.S. (after Pizza Hut), has dared to land in Italy. Domino’s Pizza, Inc. (NYSE:DPZ) has everything to gain and nothing to lose. Domino’s stockholders should take notice.
Domino’s has been undeterred by the cultural challenges, believing it can develop a market in the very home of pizza; a food that Italy has asked the UNESCO to include in its world heritage designation. With almost 11 thousand stores in 73 countries, the Domino’s franchise made its Italian debut in early October in Milan with the launch location at Via della Martinella. (Source: Susanna Kim, “Domino’s Opens Its First Pizza Restaurant in Italy,” ABCNews, Oct.7, 2015.)
This is the first of three locations that Domino’s wants to open by Christmas in Milan, Italy’s business and media capital. While Domino’s is the first official American pizza chain to open in Italy, Sbarro’s opened a location in Milan a few years ago. However, Italians like their food traditional and only the boldest chains would consider approaching their market.
If Domino’s proves to be even a mild success—if it can merely survive, in fact—it will be able to boast about it in the U.S. for pizza dominance in the domestic market. Quite simply, with minimal investment, DPZ stock will gain simply from being able to claim that the company went to Italy, and served its pizza while Italians liked it.
No other pizza chain in the U.S. will have claims to that. And it does not matter if it fails.
Domino’s Stockholders Should Take Note
It is no small feat convincing Italians to try foreign foods, let alone serving them their own most typical food. Now, if Domino’s is truly bold, it will try to set up a location in Naples (the home of pizza for centuries). As a Neapolitan myself, I would not recommend it, but McDonald’s has managed to survive.
McDonald’s Corp. (NYSE:MCD) opened its first Italian location in the late 1980s and has been successful, adapting to Italian tastes. For instance, the Golden Arches claims to have sold more espresso to Italians than any other restaurant.
That may seem a great achievement at first, but, Italians buy their espresso at their local bar (in Italy bars serve coffee far more than they do alcohol) and McDonald’s only other large-scale competitor might be the restaurant chain known as AutoGrill, which focuses on serving highway travelers. It is a chain but also serves full sit-down meals and such regional specialties including pasta with mushrooms and wild boar according to the region.
Domino’s Pizza is not taking the Italian market lightly. Its Italian franchising will be led by an Italian, Alessandro Lazzaroni; entrepreneur, 36, former director of retail for Galbraith and, before that, manager for McDonald’s Italy. Lazzaroni holds the franchise rights for Domino’s in Italy (in partnership with the company ePizza spa). As pointed out, the opening in Milan is the first of a plan to many other outlets in the coming years throughout Italy. (Source: Katie Little, “Domino’s just opened its first Italian restaurant,” Oct.5, 2015.)
Domino’s will use the Italian approach. Italian food relies less on the ability of the chef and more on the quality of the ingredients. Therefore, Domino’s has promised to use “local produce.” If the company knows what is good for Domino’s stock it will insist of this.
Domino’s Insists the Company is Buying All the Ingredients from Italian Manufacturers
Domino’s has adapted its recipes, starting from the original, but using only Italian products. These include the right flour for pizza dough and Neapolitan tomatoes for the sauce. Other products such as mozzarella, Parma ham, Gorgonzola, Grana Padano cheeses will also be standard equipment.
Where Domino’s can start to make its Italian mark is through convenience. Hungry Milanese will be able to order pizza from Domino’s online, which is a major innovation in a market traditionally served by individually owned restaurants.
As for the menu, it includes Domino’s pizza Margherita with other varieties, Neapolitan and Sicilian, and tiramisu for dessert. According to recent research, Italians eat on average one pizza seven times a month.
Domino’s Pizza was founded in 1960 in Ypsilanti, Michigan. The chain is confident about success in Italy, although it admits, “the challenge will be difficult.” No other major brand of pizza has ever dared enter Italy, admits Richard Allison, president of Domino’s International. Sales, however, are looking good for the chain. In 2014 they were $8.9 billion worldwide, of which $4.1 billion was in the U.S. and $4.8 billion worldwide.
In the U.S., Domino’s is known for its large pizzas. These are not likely to be featured in Italy. Even their pasta dishes are very, very American from an Italian’s point of view: from “Chicken Alfredo” to “Chicken Carbonara.” As few know, Italians rarely eat chicken in pasta: in fact, it is rare to find chicken served in any restaurant in Italy. Domino’s Pizza has over 11,900 outlets in more than 80 markets.
Here’s the Bottom Line on Domino’s Stock
Domino’s stockholders were pleased by the company’s app for orders, covering almost 95% of smartphones in the United States, and other innovative platforms for orders including the Ford Sync system, the Samsung Smart TV, Twitter, and text messages with pizza emojis. In June 2014, Domino’s also launched a voice ordering system combined with its app for both iPhone and Android.
Domino’s Italian landing should boost Domino’s stock and it will encourage other American food chains to launch Italian locations. It will not be surprising if Starbucks Corp. (NASDAQ:SBUX) opens its first location in Italy, selling, of all things, espresso coffee to Italians.