Domino’s Pizza is retreating from an entire country and will shut down as much as 70 of its corporate-run stores in total in a bid to lift flailing profits.
In an update to the ASX on Tuesday, the fast food chain revealed that its earnings were stuck in a rut and it was making some drastic changes to improve its situation.
The pizza franchise said it would be scrapping between 65 and 70 of its “underperforming” corporate stores in a major ‘turnaround’.
Another 70 to 75 stores are set to be sold to experienced franchisees and restructured.
Overall, the changes represent a reduction or change to 15 to 20 per cent of its 913 stores.
Domino’s Pizza will also be shutting down all 27 of its stores in Denmark, dubbing the European nation a “loss making market”.
The closure and selling of underperforming stores to franchisees is expected to save Domino’s between $16 million to $20 million per year.
In the statement, the pizza giant said these underperformers were taking longer to turn a profit “than originally anticipated”.
Global CEO Don Meij said “Making the decision to close any store is a difficult one, but for these stores it is the right one.”
He added that “Any inefficiency is a burden on the system as a whole”.
The decision to exit the Danish market is expected to net the business an extra $12 million.
Domino’s had already failed once in Denmark, and they acquired the brand from its previous owners in 2019 for €2.5 million ($4 million) in a receivership deal.
“Performance in this small market has not materially improved,” the company wrote to investors.
Domino’s said the previous owners had “breached public trust” with food safety violations that were reported in Danish media.
European CEO Andre ten Wolde said they were unable to jump over these hurdles as the damage was already done to their reputation in this region.
“While our team’s effort won back some customers, and created loyal fans, the legacy damage from the previous ownership was ultimately too great for us to overcome in the foreseeable future.”
In total, including franchises, Domino’s has 3827 stores, and these cuts represent only two per cent of its global footprint.
Off the back of the news, Domino’s share price plunged by more than 10 per cent to a four-year low.
When markets closed on Tuesday, it was trading at $43.55 per share.
In February, in a half-year update, Domino’s revealed its sales was four per cent lower to the previous like period.
At the time, the company blamed a failed surcharge fee strategy and increasing costs on the poor performance.
It comes as just a week earlier, Domino’s scrapped a seven per cent delivery surcharge fee on Australian customers.