🔴 Why You Should Short Domino's Pizza (w/ Howard Penney) | Summary and Q&A

TL;DR

Domino's is facing increased competition from third-party delivery services like Grubhub and Postmates, resulting in a slowdown in growth and market share loss. Howard Penney believes this trend will continue, leading to a bearish outlook for Domino's and a bullish outlook for Grubhub.

Key Insights

• 🥳 Domino's is facing increasing competition from third-party delivery services, which is impacting its growth and market share.
• 🥺 The company's rapid unit growth and oversaturation are leading to cannibalization and declining margins for franchisees.
• ⛅ The rise of purpose-built restaurants and cloud kitchens highlights the shift in consumer preferences towards eating at home.
• 🙈 Grubhub is seen as a disruptive force in the industry, with strong growth potential.

Transcript

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Questions & Answers

Q: How is competition affecting Domino's growth and market share?

Domino's is losing market share as new players like Grubhub and Postmates enter the delivery market. These companies are offering a wider variety of food options, eroding Domino's dominance in the delivery space.

Q: Are these third-party delivery services profitable?

While the sustainability of their business models is questioned, some companies like Grubhub have proven to be profitable, with significant EBITDA. However, excessive discounting and free delivery offers are potentially not sustainable in the long term.

Q: How are franchisees being impacted by Domino's growth strategy?

As same-store sales slow and the company accelerates unit growth, franchisees are experiencing declining margins. This issue becomes more pronounced as sales decline and more stores open, leading to dissatisfaction among franchisees.

Q: What is the primary risk to the bearish thesis on Domino's?

The primary risk is a reacceleration of same-store sales, which could happen if Domino's successfully implements aggressive discounting strategies. However, the competition in the delivery industry and the shift in consumer behavior are likely to continue challenging Domino's profitability.

Summary & Key Takeaways

• Domino's is struggling with competition in the delivery market, both overseas and in the United States.

• The rise of third-party delivery services like Grubhub and UberEats is posing a threat to Domino's business model.

• Domino's is also facing challenges from oversaturation and cannibalization due to rapid unit growth.