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Oh, the troubles he's seen
March 5, 2008
This morning, Domino's Pizza CEO David Brandon, presenting at Bear Stearn's "Retail Restaurant and Consumer Conference" was asked by restaurant analyst Joe Buckley to explain why the chain's average transaction continues to rise. Earlier, Brandon suggested higher prices had already driven away "value-oriented" customers. His answer provides insight into why running a restaurant company has become an increasingly difficult proposition. Here it is in a slightly edited form: "There are plus and minuses to everything," Brandon begins. "We are communicating with small business owners. There is not a headquarters I can fly to and have a very sophisticated meeting with an owner-operator who owns 600 or 700 units.
"We are communicating with small-business owners that have had positive same-store sales for 12 years in a row and fairly low volatility in terms of commodity prices. I can't tell them how to price their product. I can coach them.
"They are making those decisions and then, all at once, they're confronted by consumer behaving differently. Energy prices and real estate deflation and all the things that cause consumers to start thinking about how they buy. At the same time, virtually everything [franchisees] buy is at a 10-year high or historical high.
Careful with the wheat!
"Corrugated, which we use for practically everything we sell, is at a 10-year high; tomatoes, 10-year high; cheese, all-time high; wheat, all-time, all-time high; meat products 10-year high; ... energy, minimum-wage levels at federal level, [and] 10 million miles week -- what’s that cost our drivers in gas charges?
"We’re in an operating environment that creates a much higher level of sophistication in terms of how you balance increasing prices with appealing to customers.
"What we've learned in our highly fragmented system is that coaching [franchisees] through and putting the right tool kit in place to address those challenges is something that has obviously been a significant challenge for us."
No kidding. EBITDA fell by nearly $10 million, to $239.3 million, in 2007.
Posted by David Farkas on March 5, 2008 | Comments (0)