NEW YORK —Domino’s Pizza expects its international business to surpass its domestic stores in fall 2012.
“We are about 15 to 18 months from having more stores and retail sales outside the U.S. than inside,” Chief Executive Patrick Doyle said. “We move very fast in international markets, when we see opportunities, we act on them.”
The pizza chain has 4,909 stores in the U.S., which comprise 51% of its retail sales, and 4,470 restaurants internationally, contributing the remainder. Domino’s international business accounted for about 35% of income from operations last year, driven by franchise royalty fees.
In the first quarter, which ended March 27, Domino’s reported international same-store sales up 8.3%, surpassing 17 straight years of increases and offsetting the negative slide in the U.S., which was lapping abnormally high year-ago results from its new pizza recipe.
Domino’s says a big part of its success is simple: pizza is universal.
“This is a product that is really easily adaptable around the world,” Doyle said. “In India or Japan, it’s very simple for us to go in there and put different toppings on it to give it a local flavor. It’s much harder for a lot of other restaurant categories to do that. They have to design an entirely new menu.”
But there is an exception to Domino’s broad appeal, Doyle acknowledged. In China, dairy traditionally hasn’t been a part of consumers’ diets, making it tough for them to stomach. Secondly, the concept of delivery food hasn’t quite caught on in the country.
Given that the two biggest aspects of Domino’s traditional business model involve dairy, through its cheese-drenched dough, and delivery, the company has had trouble succeeding in China.
“It’s the only market we’ve gone into that convenience of delivery wasn’t compelling enough to support the kind of volume in stores that we need,” Doyle said.
Domino’s biggest competitor domestically, Yum Brand’s Inc.’s /quotes/zigman/303422/quotes/nls/yum YUM -1.66% Pizza Hut, spotted these hurdles before pioneering in to China. Pizza Hut took on a more upscale, spacious, family dine-in model for its brand in China, unveiling a broad, lengthy menu that features other food categories, with pizza often buried in the menu.
Doyle said that while Pizza Hut is “doing nicely” with its altered approach, Domino’s will stick to the fast service, delivery model it uses elsewhere, competing not with Pizza Hut, but instead with quick-serve chains, primarily Yum’s KFC and McDonald’s Corp. (MCD), in the Chinese market.
“There is some adjustment period, but we continue to see change in the consumers. And the good news is, KFC and McDonald’s are delivering now in major cities,” Doyle said. “So our strategy is more of a longer-term play than a short-term burst.”
When it comes to rapid growth, Domino’s is focused on India, where it says it is the largest international brand. Last year, India’s same-store sales increased 37%, more than any other region. Domino’s says it can grow from 377 restaurants there at the end of the first quarter to 750, but the company hasn’t set a goal date.
Domino’s top four international markets in terms of potential number of stores are the U.K., the largest, followed in size order by Mexico, Australia and India.
“What Domino’s has gotten really right is that we have found phenomenal master franchisees around the world to run our stores,” Doyle said.
The international business is able to bring value back to the U.S., using ideas that those franchisees have incorporated, especially in the online ordering and social media marketing areas. Working with local franchise operators, such as India-based Jubilant FoodWorks, also helps in choosing sites for restaurant openings, considering foreign real estate markets can be tough to navigate.
Domino’s entered two new markets earlier this year, Philippines and Poland, after adding five new markets in 2010. The stock, recently trading around $23.46, has risen about 90% over the past year.