Domino’s Pizza: Alsea’s Lifeline During Pandemic

Alsea, the operator of restaurant chains such as Domino’s Pizza, Vips and Burger King, will close more than 100 restaurants following the COVID-19 devastation. In addition, those brands that are not profitable will disappear in an attempt to keep the company "healthy," said Alberto Torrado, Executive President of Alsea, in a conference with analysts, after reporting the company’s 2Q20 results.

"In order to be more efficient and healthier, we will have to close brands ... that do not reach the critical mass and sales that we need. We will close more than 100 restaurants by the end of the year in all our markets," he said.

Torrado said the company is analyzing restaurants unit by unit to know which one will remain open. “Alsea has the opportunity to close more restaurants than we thought at the beginning of the year due to their performance,” he added. However, the number of restaurants closed is only a small fraction of the total units it controls. At the end of June, Alsea had more than 4,256 restaurants distributed throughout Mexico, Europe and South America.

Vips is the one that has the worst performance so far within Alsea’s portfolio. Its sales are just 30 percent of what it reported in July 2019, while its other brands perform better.

"Domino’s (sales) in Mexico are above 100 percent than in July of last year. Starbucks is at 60 percent and Burger King is close to 60 percent in sales. The best brands in our casual dining format are P.F. Chang’s and The Cheesecake Factory, in which we are almost at 60 percent. The lowest in this category is Vips with 30 percent,” Torrado pointed out.

In 1Q20, demand for pizza in Mexico was such that some workers from other Alsea brands switched to Domino’s in an attempt by the company to keep them employed. Unfortunately, Domino’s is not the biggest brand in Alsea’s portfolio and its good performance is insufficient to report “good numbers,” Torrado explained. Recovery in sales will be gradual and slow in most markets, with the exception of Spain and France, where the reactivation has been faster, according to the company. Still, Torrado says there is an opportunity to gain market share from its competitors since many small and medium-sized restaurants will definitely close their doors.

Regarding the dispute between Walmart de México (Walmex) and the Tax Administration Service (SAT), Torrado said that after the payment of MX$8 billion (US$357 million) the retail giant made, the company held talks with the authority. "Now, we wait to see how the agreements between Walmart and SAT will end and what their implications will be for Alsea. Since Walmart paid, I am sure we will have an easier way to bring this topic to a conclusion,” he said.

Walmex's SAT payment caused the company’s net profit to plunge 81 percent in 2Q20. The tax authority considered that Alsea bought Vips below its real value and, therefore, seeks the payment of MX$3.9 billion (US$173 million) from Alsea.