Domino’s acquires Hallo Pizza

Hallo PizzaDomino’s has purchased Germany’s largest independent pizza chain, Hallo Pizza, for €32 million (AU$48 million) in a deal that will see its presence in the market grow from 209 to 300-340 stores.

The deal, executed through its joint-venture with Daytona Germany, will cost its subsidiary Domino’s Deutschland a further €20 – 30 million (AU$30 – 45 million) in integration, re-branding, store conversion and transaction costs over the next 2-3 years.

Domino’s owns the majority stake in the joint venture and will bear two-thirds of the costs, aggregating to between €35 – 42 million (AU$35 – 63 million) over the next 2-3 years.

Hallo Pizza maintains a footprint of 170 stores within Germany alongside a procurement and logistics business called Chrisa, together booking total network sales of €80.2 million (AU$120.4 million) in FY16 and normalised earnings before interest, tax, depreciation and amortisation (EBITDA) of €3.5 million (AU$5.26 million). The Hallo Pizza network will continue to trade on a transitional basis until franchise contracts and stores are converted to Domino’s, which is expected to improve the profitability of the network.

“The acquisition of Hallo Pizza strengthens our market leading position and assists DPE to accelerate towards achieving its target of operating 1,000 stores in Germany,” Domino’s chief executive Don Meij told the market on Thursday morning. “We are excited to share our innovations with Hallo Pizza franchisees to drive the customer experience and higher sales under the Domino’s system.”

The transaction has the full support of Domino’s master franchiser, US-based Domino’s Pizza Inc., and is slated to have a “small positive contribution” to Domino’s FY18 underlying earnings.

Hallo Pizza was founded in 1989 by Alex Fassbach and has since grown to a network of 149 franchisees across 169 stores. The company has had a mixed track record over the last three-financial years, booking €75.5 million in sales in FY14, before recovering a slump to €72.7 million in FY15 with a €80.2 million result in FY16.

“I am delighted that Hallo Pizza franchisees will be joining Domino’s, the leading pizza operator in Germany, [to] share in Domino’s operational expertise, leading innovation and brand presence to provide even greater products and experience to our customers,” Fassbach said. “We will work with Domino’s management to ensure a seamless transition for our franchisees.”

Domino’s said on Thursday that 45 Hallo Pizza stores currently sit near Domino’s existing stores, which “may lead to some consolidation”. Operational systems, including Domino’s TANDA rostering platform, will be rolled out within the new network in a bid to improve the profitability of existing franchisees.

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