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"Domino's CEO Warns Large Number Of Stores Will
Disappear As Fast Food Bankruptcies Continue To Rise"
by Epic Economist
"Domino’s store closings are soaring in 2023. The biggest pizza chain in the entire globe has admitted that it raised prices way too fast, and now it is facing the consequences of this decision as sales continue to fall in most of its locations in the U.S. and the world. The company is facing a perfect storm as financial losses hit the highest level since 2011. That has led corporate executives to warn that nearly 20% of the chain’s underperforming restaurants will likely disappear before the end of the year. The announcement comes as a new Bloomberg report shows that bankruptcies in the restaurant sector are rapidly rising amid worsening macroeconomic factors. The outlook is getting gloomier for the entire industry, and experts say one single disruption in the system could push Domino’s and other major chains over the edge in the next few months.
During its latest earnings call, the chain’s U.S. CEO Russell Weiner revealed that the company’s sales dropped by roughly 8.3% in the first quarter, after falling 6.6% in the fourth quarter of 2022. The company's same-store delivery sales fell for the third consecutive quarter in Q2. The decline in delivery may stem from consumers hitting their breaking point on inflation, as delivery fees stack on top of product price hikes.
“As we saw in the last recession, delivery moves with the economy, especially for customers with lower disposable income, who represent a significant portion of our business,” Weiner highlighted. Predicting more financial volatility ahead, global corporate executives are now conducting mass store closings to save on costs. In the U.S., the number of store shutdowns can hit up to 250 in the second half of the year, according to a source familiar with the matter who talked on condition of anonymity with Insider.
At least another 150 locations are set to close in Australia, Japan, France, and Germany. This year, the company also shuttered all of its locations in Denmark and Italy due to years of underperformance, the source said. Executives announced that several unprofitable stores would be gone by the end of the year. “Domino’s will reduce the size of its current corporate store network by 15 to 20 percent, through closing underperforming stores and accelerating the refranchising of corporate stores in a major ‘turnaround’,” the company said in a statement.
Not only Domino’s but many other big fast-food franchises are likely to default on their debt as the recession accelerates. That could spur more of them to file bankruptcy in the coming months, analysts warned. Although Domino's large number of franchisees can be a major advantage during times of economic prosperity, it can also be a major liability during economic downturns due to the increased exposure to debt, and limited access to credit. If operators continue to be squeezed by higher operational costs and falling sales, many of them may become insolvent, and the company may suddenly find itself drowning in debt and stuck with zombie stores. That's what happening with Burger King right now. After three franchisees filed for bankruptcy this year, the burger chain is closing 400 locations and trying to renegotiate its debt in an attempt to stay afloat and restore profitability. This situation shows that it doesn't matter how big a company is, a series of small failures can make it rot from within. Considering the size and scope of Domino's troubles, we're not that far from seeing a similar outcome."
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