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Pioneering Palates: U.S. Pizza Chains Capture Chinese Consumer Hunger

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Robert Tavares

March 31, 2024 - 12:34 pm

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Dominating The Market: How U.S. Pizza Brands Conquer Chinese Appetites

Despite facing intense competition in the evolving Chinese market, American food giants are making noteworthy strides. Starbucks forewarns about the stiff price war, and Apple seeks to rekindle its prominence by inaugurating a new outlet in Shanghai. Yet, U.S.-based consumer brands like Domino's Pizza exhibit remarkable growth and ambitious plans for further expansion.

Domino’s Pizza's Triumph in China

DPC Dash, the operator of Domino's Pizza in China, has reported an impressive string of performance – a 26th consecutive quarter of same-store sales growth. Remarkably, this streak extends across the tumultuous pandemic period. In the fiscal year that has passed, the company's revenue not only soared to 3.05 billion yuan ($429.6 million), achieving over threefold the amount in 2019, but also the net losses significantly tapered to nearly a tenth of figures from previous years.

Financial analysts from HSBC have expressed optimism for DPC Dash. In their analysis released on a Thursday note, they forecast the company will shift into a net profit position by the year 2025. HSBC experts underscore that fresh markets will serve as the key drivers of the company's sustained growth.

Xi Jinping’s Appeal to U.S. Investors

Recently, Chinese President Xi Jinping convened with U.S. business leaders. This meeting is part of a larger initiative by Beijing to allure foreign investments into China. Despite the advanced technology sector being a source of friction between the U.S. and China, both nations have declared their intention to seek collaborative opportunities in domains like climate action and tourism.

The vast Chinese market, home to hundreds of millions of households, remains an attractive landscape for numerous enterprises. Domino's Pizza highlights the narrative of foreign brands thriving amidst China's burgeoning market.

Expansion and Strategy: The Pizza March Forward

With a roughly 14% stake, Domino’s holds a significant investment in DPC Dash, which went public on the Hong Kong stock market about a year ago. The pizza chain celebrated the opening of its 800th store in China this January and has an ambitious roadmap to inaugurate 200 additional outlets by year's end. Papa John's, though it doesn't provide explicit revenue figures for China, has reported an uptick in locations from 262 to 317 franchised branches in 2023, with China's franchise count second only to that in the U.K. Papa John's also highlighted that its international revenue grew by 21% just last year.

Interestingly, pizza is gaining popularity not only in major cities but in smaller Chinese localities as well, making a mark in global sales rankings. In 2023, DPC Dash brought Domino's to 13 new cities outside the usual hotspots of Shanghai and Beijing. Astonishingly, four of these fresh outlets soared to the apex of Domino's global charts for sales within the initial 30 days of launching. Moreover, locations in China now proudly hold the top 19 ranks for Domino's most successful store openings worldwide.

Record-Breaking Sales and Consumer Engagement

A new Domino’s outlet in Xi'an, situated in north-central China, blew past expectations with sales exceeding 6.3 million yuan within its first month. Likewise, another establishment in Changsha, central China, followed suit with impressive early sales over 5.2 million yuan. DPC Dash CEO Aileen Wang shared insights on this success, revealing that these feats were accomplished without heavy marketing investments. Wang believes this signifies a turning point for the company as people seem to naturally discover and gravitate towards the new stores.

Interestingly, advertising and promotion expenses have seen a reduction, now accounting for only 5.2% of revenue in 2023 compared to 5.8% in the previous year. New growth markets, especially those outside Shanghai and Beijing, saw their revenues double last year. Moreover, these newer markets contributed to more than half of DPC Dash's total revenue for the first time in the latter half of the year.

DPC Dash has not implemented delivery services for some of its newer locations yet, suggesting further potential for growth. Addressing the query of whether there's any impact from consumers' cautious spending, CEO Wang highlighted that Domino's offers competitive starting prices and runs attractive discounts on Tuesdays and Wednesdays, despite the average sales value per order in Shanghai and Beijing witnessing a 7.1% decrease last year.

Pizza's Place in Chinese Consumer Patterns

Observers express a reserved stance towards the overall catering industry for FY24E, citing cautious consumer behavior. However, according to CMB International, a Hong Kong-based investment bank, DPC Dash may continue to capture market share, even as consumers potentially trade down in their consumption. Positioning as a value-for-money option, DPC Dash has immense potential for expansion, particularly in its budding new markets.

The bank's analyst, Walter Woo, endorses DPC Dash as the leading choice in the catering sector, spotlighting its cost-effective menu offerings, the vast room for growth within China, and especially its consistent feat in new markets. Woo continues to maintain a 'buy' rating on the DPC Dash stock, with a promising price target set at 73.05 Hong Kong dollars.

HSBC echoes a similar sentiment, maintaining its 'buy' rating for DPC Dash while slightly adjusting the price target to 71 Hong Kong dollars ($9.07), tempering the forecast to account for moderate long-term revenue growth expectations. This target still projects a substantial 40% increase from Thursday's closing share price.

Western Food Gaining Ground in China

As the Hong Kong Stock Exchange observed the Good Friday holiday, it shuttered its doors until the following Tuesday. Investors will also note the market closure on April 4 for a local Chinese holiday, and the mainland exchanges will be closed on April 4 and 5.

According to DPC Dash's CEO, the Chinese populace has embraced pizza with open arms as incomes rise and Western food acceptance swells. Yum China, the owner of the Pizza Hut brand among others in China, is poised to report earnings later in April.

McDonald's recently upped its stake in its China operations and, this past February, laid out aspirations to reach the milestone of 10,000 stores in China by the end of 2028. This target is almost double the corporation's store count from the previous year's end.

During McDonald's latest earnings call, CEO Christopher J. Kempczinski remarked on the Chinese consumer sentiment, mentioning the promotional environment evident in the fourth quarter. Despite these challenges, Kempczinski remains confident about the company's prospects, citing potential growth in consumer wealth and GDP in China.

Embracing Opportunities Amidst Challenges

The current scenario paints a diverse picture of U.S. brands in China. While some like Starbucks and Apple navigate through their own sets of challenges, companies like Domino’s Pizza paint a tale of opportunity, growth, and a robust acceptance of Western cuisine. By capitalizing on this trend and continuing to make strategic investments in new markets, U.S. consumer brands can position themselves to thrive in the Chinese economy, despite the complex dynamics of international relations and fluctuating consumer sentiments.

These stories and more about the adventures of international brands in China underline a larger narrative of globalization and cross-cultural exchanges. As businesses worldwide eye the lucrative Chinese market, their success stories underscore the significance of understanding and adapting to local tastes and consumer behaviors, establishing a crucial balance between proven international strategies and localized offerings.

In conclusion, the steady march of U.S. pizza brands across China's vast consumer landscape is a testament to their resilience and strategic insights. By catering to changing tastes, offering value, and expanding into new territories, they are writing a new chapter in the annals of global commerce and cultural exchange—one where the aroma of freshly baked pizza signifies more than just a meal, but a symbol of shared tastes and economic prosperity.

For more in-depth coverage and updates on this story, visit the sources linked:

Domino's Pizza China Growth CEO Aileen Wang on China Strategy Papa John's International Revenue

Note to Editors: This article is based on the information available as of the latest market closure and may require updates in response to market changes or subsequent company statements.