Bain Capital said on Tuesday it had agreed to sell 75% of Domino’s Pizza Japan for Y12 billion ($123 million) after revamping the company to suit a more budget conscious Japan.
When Bain first bought the chain in 2010 it catered for special occasions, creating outlandish pizzas at a high price with toppings such as foie gras.
One example was a multi-course meal on a pizza; where one slice was a lobster appetizer, another a roast chicken entrée and desert was a slice with a whipped cream and berry topping. Such extravagant piazzas cost between $35 and $45 each.
“We thought that was an interesting niche, but if the firm brought the price point down and made more basic pizzas it could increase purchase frequency,” said David Gross-Loh, a managing director at Bain during an interview with FinanceAsia.
The private equity firm introduced simpler pizzas with fewer toppings. Offers appeared on the menu such as a ‘2 for 1’ costing Y2,000 ($20.39) and introduced the concept of ‘carry-out’ pizza in Japan. The multi-meal pizza is no more.
“We tapped into the suburban market and catered to moms who wanted a night off and ordered pizza, as well as a younger customer that might be more budget conscious,” said Gross-Loh.
However, he added that the average bill hasn’t changed much as customers are buying more side orders.
Bain helped the company expand its stores from around 179 to 259 stores as of June 30. Domino’s Pizza Japan opened 45 last year and plans to open about 50 this year. The business is targeting around 600 stores in Japan but does not have a set timeframe to complete the openings.
Domino’s Pizza Japan has the third-largest pizza delivery chain in Japan behind Pizza-La and Pizza Hut, and has been gaining market share. The firm’s top line has been growing at a clip of more than 10% annually, outpacing most of the restaurant businesses in Japan.
Bain also worked to run the stores more efficiently and aligned store managers’ interests with those of the company by introducing bonus schemes.
Bain drew on its expertise in the restaurant business globally to help Domino’s Pizza Japan grow. Bain bought a majority stake in Domino's Pizza of the US in 1998 and has also invested in other marquee names in the industry firms such as Burger King and Dunkin Brands.
Boston-headquartered Bain is selling control of the fast-food chain to Domino’s Pizza Enterprises, which has rights to the Domino’s brand in Australia, New Zealand, France, Belgium, the Netherlands and the Principality of Monaco.
The deal is valued at 10 times the company’s Ebitda. The transaction, including 9 billion of new debt, implies an enterprise value for the business of 25 billion yen. When Bain acquired the company in 2010 the enterprise value was about 5 billion yen, people familiar with the matter said.
Bain Capital will keep a quarter of the pizza business to benefit from the future growth.
“We’re driving it to a more Australian-style business where people order pizza more regularly,” said Gross-Loh.
However it is keeping some of the local flavor; the Kobe beef pizza is a big seller in wintertime.
