Domino’s Pizza said it expects higher food prices to persist this year, putting pressure on the chain to cope with rising costs without alienating consumers.
“We expect unprecedented increases in our food basket costs versus 2021,” CEO Ritch Allison told attendees of the virtual ICR Conference on Tuesday.
The company is forecasting an 8% to 10% increase in its food basket costs for 2022, three to four times the inflation for a typical year. Allison said that prices for meats, cheeses and certain grains are going up, making its pizzas more expensive to produce.
Food isn’t the only area that Domino’s expects to spend more on this year. Allison said that the company currently believes the restaurant industry will continue to see higher labor costs this year as well.
“That will certainly impact us at Domino’s as well,” Allison said.
During its third quarter, staffing issues put pressure on Domino’s U.S. transactions. Some locations had to shorten hours, potentially leading those restaurants to miss out on sales. Executives said they are taking steps to improve their labor challenges, including rolling out a new applicant tracking system and updating franchisees on ways to most efficiently use their workers’ time.
The pizza chain plans to change some of its national promotions in 2022 to maintain profit margins, despite rising costs. For example, when its $7.99 week-long carryout offer starts in a few weeks, Domino’s will only offer the deal to customers ordering online. Digital orders typically result in customers spending more, plus Domino’s will get access to valuable consumer data and its workers won’t have to answer phones to receive the orders. On top of that, Domino’s plans to reduce the number of chicken wings and boneless wings available with the offer from 10 pieces to just eight.
The pizza chain also reiterated its two-to-three year outlook, saying that it expects 6% to 8% of net unit growth and 8% to 10% of retail sales growth. Wall Street analysts surveyed by Refinitiv are expecting Domino’s to see earnings growth of 12.9% in 2022 and revenue gains of 7.1% in 2022.
Shares of Domino’s were down nearly 1% in morning trading. The stock has climbed 28% over the last 12 months, giving it a market value of $18.3 billion.