Iceland is a notoriously toughmarket for international fast food chains to break into. McDonald's, Dunkin' Donuts and Burger King— they've all tried and failed in Iceland. But there's oneAmerican fast food chain that Icelanders are obsessedwith — Domino's. Of the three big internationalchains with significant presence in Iceland, the pizza chain has the biggestmarket share in fast food by far. Domino's also has a hugefootprint for the small island nation. There is a Domino's restaurantfor every 14,000 people.
Its owner says Icelandic Domino's aresome of the best performing Domino's around the worldby weekly sales. So Domino's decided to tryto expand into Iceland's neighbors. In 1997, Domino's opened in Denmark andthen in Norway and Sweden in 2014 and 2016. But other parts of Scandinavia justaren't buying what Domino's is selling. In early 2019, Domino's Danishbusiness went bankrupt and in October of 2019, UK-based companyDomino's Pizza Group, which owns stores in Sweden, Iceland and Norway,announced it would exit those.
Markets. Its business therejust isn't profitable. And now the company islooking for a buyer. And you know, I think thesale is a preferred option. But if they don't find a buyer,you know, let's not forget these are sort of sustainedloss-making businesses. They might not find a buyer forall of the markets, in which case they simply have toclose them down. Closing those restaurants would be thelast resort for Domino's Pizza Group, considering the chain's track recordof success in the UK and.
Other parts of Europe, why is itthat Domino's failed to deliver in most of the Nordics? Two Irish-American brothers Tom andJames, Monaghan opened the first Domino's in Michigan in 1960, andby 1967, Domino started opening franchise locations across the U.S. By 1978, it hadgrown to 200 stores. Domino's first international store opened inCanada in 1983, and as of 2019 there are 16,500 Domino'sin more than 85 countries. And more than half of its salescome from outside of the U.S.
Domino's has spread around theworld thanks to franchising. The U.S.-based Domino's Pizza partnerswith master franchisees and international markets who inturn can subfranchise. The company looks for partners whohave knowledge of the local market. That model lowers therisk of entering international markets for Domino's Pizza. Domino's presence inthe Nordic region started in Iceland in 1993 and thebrand was a hit. The local operator thought it could dowell in Denmark, too, where it arrived in 1997.
Domino's opened up shop in Norway in2014 and expanded to Sweden in late 2016. But the brand doesn'thave a presence in Finland. The business in Denmark went bankruptafter a TV network exposed poor hygiene and expired foodat the restaurant. Another franchisee, Australian companyDomino's Pizza Enterprises, paid about 2.8 million dollars to buystores in April 2019. The Australian company now operatesin six European locations, plus Japan, Australia and New Zealand.
Of all those European markets,Domino's Iceland is a standout. Its owner says restaurants therehave clocked higher average weekly sales than any otherDomino's on the planet. But Iceland can't propup the entire bloc. In the first half of fiscalyear 2019, Domino's Pizza Group's international markets, which includes Norway,Sweden and Iceland, had operating losses of 8.1 million dollars. In fiscal year 2018, Sweden hadthe lowest average weekly sales per.
Store for Domino's PizzaGroup in the Nordics. Based on Domino's success in Iceland,the chain seemed poised to work well in other Nordic countries. The Nordic bloc is a regionof northern Europe that includes Denmark, Norway, Sweden, Finland and Icelandand their associated territories like Greenland. They're all independentcountries, but they share key things in common. The Nordic economicmodel has strong labor unions, high taxes and provide serviceslike education and healthcare, making them expensive places to live.
But the five Nordiccountries are also wealthy. Their GDP per capita, a metric thatbreaks down the country's GDP per person, ranks within thetop 10 in Europe. The Nordic countries take pridein their culinary traditions. After a period of industrialfood production that brought processed food to the Nordics, in the early2000s there is a shift toward more organic and locally produced food. Eating habits in the Nordic countriesput strong emphasis on families eating together at home.
Responses to a survey conducted in 1997and then again in 2012 showed that family meals hadn't decreased inNordic homes, despite the fears that introduction of fast food inthe 1990s would drastically reduce the number of families optingto eat at home. In the Nordic countries, healthand wellness are also important values. A survey of Nordic peoplepredicted that some of the biggest Nordic food trends in 2019 willbe meat free proteins, holistic diets and baking pastries with beans. So where does fast food fit in?.
Nordic consumers haven't embraced global fastfood chains as fully as other countries, and when they do optto eat on the go, more often than not, they're opting for localchains rather than global fast food restaurants. Consumers tend to preferlocal chains for a couple of different reasons. Part of it hasto do with loyalty and trust. In both Sweden and Norway, globalbrands have a stigma of being unethical and consumers perceive themto be prioritizing profits above all else asopposed to local brands. In terms of competition,.
These two countries are quiteinteresting because they have very, very strong local brands as evidenced,for example, by case of Sweden and the burger competitionin this country. So there is a big localbrand called Max and quite successfully manages to challenge established playerslike McDonald's due to local appeal, local expertisein the market. Nordic consumers also take pridein supporting local brands. Analysts say local restaurants havemore market knowledge in fast food than international chains do, andthey are faster adapting menus.
To local tastes. Take, for example, the meatfree trend in Norway. Swedish burger chain Max jumpedon the trend early, offering meat-free burgers. It set offa domino effect and McDonald's ultimately introduced a veggie McSpiceand two vegetarian wraps in 2017. In both Sweden and Norway,the pizza market is highly fragmented, with local and independentchains making up more than half of the marketin the two countries. The biggest pizza chain in Norwayis locally run Peppes Pizza, which.
Has 39.1 percent of themarket as of 2018. Domino's tried growing quickly inNorway by buying another Norwegian chain called Dollie Dimplesin May 2017. It was a massive expansion ofDomino's footprint, but analysts say it presented some problems, too. So I think when they acquired thebusiness, they thought it would be a very simple you're buying a pizzaoperator, you kind of change the logos, change the product a bitand suddenly the store goes from being a local pizza restaurantto a Domino's Pizza restaurant.
Instead, what they didn't realizewas that this business wasn't really set up in the same wayas a classic pizza takeaway company. Analysts say Dolly Dimples wasn'tparticularly efficient and Domino's didn't have enough demand to keepup with its new large footprint. Converting Dolly Dimples stores intoDomino's, increase order counts and sales for the chain,but the stores weren't profitable. Plus converting them took timeand money, which was especially problematic in an expensivecountry like Norway. In the U.S., Domino's won thepizza wars with delivery, but the.
Nordic countries are among thesmallest markets for food delivery. That was a big part of theproblem in Norway when Dolly Dimples was taken over by Domino's. Dolly Dimples was more about diningin rather than taking out for delivery. Pretty much the oppositeof Domino's typical strategy. The market for deliveryin Scandinavia is small. That's partly due to the factthat population density of the Nordic countries is low, so deliverydrivers have to travel further distances. It also didn't helpthat Domino's entered Norway and.
Sweden just as the deliverywars were heating up. While the market for delivery isrelatively small there, are a handful of companies competefor the market share. If in the past, Domino's Pizzawas unique because not many other restaurants would deliver food toconsumers, nowadays, almost every restaurant — a vast majority ofrestaurants in Norway and Sweden — are working with delivery services,which means that their competition is much wider thanit was in the past. On a call with analysts, theCEO of the local franchise running.
Domino's in Iceland, Sweden andNorway said it was considering eliminating delivery entirely from certainstores at lunchtime in Norway. Analysts say that this islikely due to lack of demand. Frozen pizza is alsohuge in Scandinavia. Instead of ordering delivery, somepeople might choose frozen pizza instead, especially in Norway, whichhas the highest spending per person on frozen pizzaof any country. Norwegians spend almost $56 dollars perperson on frozen pizza each year. One frozen pizza brandestimates Norwegians eat approximately.
47 million frozen pies every year. Living in the Nordic countriesis relatively expensive compared to the US. There's a lot to dowith higher taxes to pay for social welfare system and higher costsof goods and services. Domino's Pizza Group, the franchiseein the Nordic countries, cited high labor costs as one ofthe reasons its business was unprofitable. In Iceland, Norway, Sweden and Denmark,there is no national minimum wage, but there arevery powerful trade unions. These unions and other employeegroups negotiate fair wages by.
Industry, experience and age. I mean, even despite the factthat these countries don't have a minimum wage the basically laborlaws, the bargaining power of workers is very, very strong. In Nordics, equality are quitestrongly embedded their culture so it's quite hard to optimizeand cut down on labor costs. In the case of Norway, workers abovethe age of 20 in hotel, restaurant and catering industry must bepaid at least $18 an hour. That's almost double what minimum wageemployees in the UK are paid.
Minimum wage in Britain dictates a workerbetween the age of 21 and 24 years old must earnjust above $10 an hour. When part of what makes pizzaattractive to customers is its affordability, high labor costs candrag down a business. You know this model works ifyou've got relatively cheap labor where you can get people just to churn outpizzas and you make then quite a nice margin on that, so they want tosort of pitch it as a as a mid-market take awayor delivery option. But if the cost of the laborproducing that is prohibitive and your.
Margins get squashed, that I think thatis probably one of the big contributors to the fact that itwas loss-making in recent quarters. Domino's may feel more of a squeezefrom high labor costs as the Nordic economies slow. Global trade tensions and a varietyof domestic problems are causing a slowdown in the Nordics, accordingto a 2019 Reuters poll. Particularly in Iceland, where Domino'shas been the strongest, the chain is struggling dueto weak macroeconomic conditions. While Domino's still makes money there,it's not as profitable as the.
Market once was. In the third quarter of fiscal year2019, same store sales in Iceland were down 8.2 percent. Company executives cited a decline intourism and a weak market overall. It also shut down oneof its locations that quarter. If you look at the macro datain Iceland, it's certainly not as good as it's been in previous years. All of these places, as Isaid, there's high operating cost markets, those costs increase every year andyou need to be generating more.
Sales in order tocompensate for that. Domino's Pizza Group, the UK-based chainthat owns Domino's in the Nordics, also has problems at home. Shares of Domino's Pizza Group havefallen about 25 percent from their peak in 2016. It's fighting with sub-franchisees over howit shares the profits and facing weak consumer confidenceas Brexit looms. Domino's Pizza Group was unable tocomment due to the ongoing transaction, but even its management hassaid they just weren't the.
Right ones to be running abusiness in Sweden, Norway and Iceland. The CEO of Domino's Pizza Group,which is the master franchisee of the US Domino's, said that his companywas not the best owners of these businesses. Now Domino's Pizza Groupis in the midst of selling its international business. That includes Domino's stores in Iceland,Sweden and Norway, as well as its business in Switzerland. Analysts say that these restaurants could besold as a group of four or individually.
In Sweden, I think there's apossibility of finding someone who might be willing to just buy that outright,because while it's making a big loss, it's veryearly stage business. It's not got the same kindof potential structural problems that sort of Norway and Switzerland have. Domino's unprofitability in parts of theNordic bloc may make finding a buyer difficult. And flat out closing those restaurantswould be the last resort. But there is hopefor the American chain.
Even Domino's in Denmark found abuyer after the local Domino's franchisee went bankrupt in 2019. Domino's has been successfulin other European markets. That shows that the Nordic countriesprobably aren't a lost cause. Analysts say acquisitionby U.S.-based Domino's or the Australian-based Domino'sis possible for the business in Iceland, Sweden and Norway,or a local operator could take over. With little to nocompetition from global pizza chains, Domino's should have been inprime position to succeed in.
Scandinavia. But the big question now— will Scandinavians ever give up local pizzas infavor of Domino's pies?