While Starbucks warns of price competition in China and Apple tries to gain momentum with a new store in Shanghai, other U.S. consumer brands are seeing growth and planning expansion. Chinese Domino’s Pizza operator DPC Dash reported on Wednesday same-store sales growth for the 26th straight quarter, including during the pandemic. Last year’s revenue of 3.05 billion yuan ($429.6 million) was more than triple that of 2019, and net losses narrowed to about a tenth of what they were in previous years. “We continue to believe the company will turn net profit positive in 2025,” HSBC analysts said on Thursday. “Growth from new markets will continue to drive the company’s overall growth,” analysts said. Chinese President Xi Jinping met with visiting U.S. leaders last week as part of Beijing’s efforts to boost foreign investment in China. While advanced technology is a point of bilateral tension, the US and China have said they are seeking cooperation in areas such as climate and tourism. China’s huge consumer market of hundreds of millions of households also remains attractive to many businesses. Pizza push Domino’s owns about 14% of DPC Dash, which listed in Hong Kong about a year ago. The pizza brand opened its 800th store in China in January and plans to open 200 more by the end of the year. Papa John’s, which does not disclose revenue in China, said it had 317 franchised locations in 2023, up from 262 the year before. Outside of North America, the number of Papa John’s stores in China is second only to the UK. The company reported total international revenue grew 21% last year. Pizza is also gaining popularity in smaller Chinese cities and tops global sales charts. In 2023, DPC opened the first Domino’s stores in 13 cities outside of established metropolitan areas such as Shanghai and Beijing. Four of these new stores rose to the top of the global ranking of Domino’s stores with the most sales in their first 30 days of opening, according to DPC Dash. He added that stores in China are now among the top 19 locations for Domino’s best-performing store openings. The new store in the north-central city of Xi’an ranked first with sales of more than 6.3 million yuan in the first 30 days of opening, according to DPC Dash. This was followed by a new store in the central Chinese city of Changsha with initial sales of over 5.2 million yuan. “We didn’t really spend a lot of money on marketing to tell people” about the new stores, DPC Dash CEO Eileen Wang told me in an interview Thursday. “People naturally know and come.” She described it as a turning point for the company. Advertising and promotion expenses fell to 5.2% of revenue in 2023 from 5.8% in the previous year, DPC said in its 2023 filings. New growth markets outside Shanghai and Beijing saw revenue double in 2023 and account for more than half of total revenue for the first time in the second half of the year, the company said. He noted that he has not yet opened delivery services for some new stores. As for whether Domino’s Pizza is feeling pressure due to any caution among consumers, Wang noted that the company has a starting price of 39 yuan ($5.49) per order and a 30% discount every Tuesday and Wednesday. According to the latest DPC results, the average custom sales value in Shanghai and Beijing fell 7.1% in 2023. “We are certainly cautious about the foodservice sector in FY24E,” Hong Kong-based investment bank CMB International said last week. “However, we believe DPC can still gain market share as consumer trade declines and gain rapid growth momentum by expanding into new markets.” DPC is the third-largest pizza brand in China, CMBI analyst Walter Wu said in a separate note. “DPC remains our top choice in the food service sector due to its value for money, huge potential for expansion in China and, in particular, consistent success in new emerging markets.” Wu has a buy rating on DPC Dash and a price target of HK$73.05. HSBC maintained a buy rating on DPC Dash and lowered its price target to HK$71 ($9.07) due to lower expectations for long-term revenue growth. That price target is still more than 40% above the stock’s closing price on Thursday. Embracing Western Food The Hong Kong Stock Exchange was closed on Good Friday and will not reopen until Tuesday. The exchange will also be closed on Thursday, April 4, due to a local Chinese holiday. Mainland exchanges are closed on April 4 and 5 due to holidays. “The Chinese eat pizza,” said Wang, CEO of DPC Dash. “As income levels rise, adoption [of] Western food is becoming more expensive.” Yum China, which owns Pizza Hut in China among other brands, is set to report earnings at the end of April. McDonald’s recently acquired a larger stake in its China operations and said in February it planned to open 10,000 stores. In China, by the end of 2028, this will almost double the number of company stores (5,903 at the end of last year). “Certainly in China, as you’ve read and seen with a number of other companies, consumer sentiment in the country is under a lot of pressure right now, and that leads to the fact that in the fourth quarter in particular, we saw the environment become more promotional.” , Chief Executive Officer Christopher J. Kempczinski said on the company’s latest earnings call, according to a FactSet transcript. But, he said, “We certainly think we will continue to see good competitive performance in this market as consumer wealth and GDP continue to grow in the mid-single digits.”
