Domino's Pizza has been as hot as pepperoni for a while. Judging by its third quarter results, which showed an 11% year on year rise in sales [1] , it still is.

Management believes the company should exceed expectations this year as a result of the strong Q3 performance. And though times are hard, Domino's is benefiting from the decline of eating out – as its customers decide to stay at home and order a pizza instead.
And amazingly, the average order size has increased – from £15.99 to £16.49 [2] .

In fact the company appears to be making the best of the economic conditions to protect its cost base – winning increased margin as well as higher sales. Food prices have been rising – but the company has been able to pass on raw material price increases to its franchisees, and put most of its suppliers under fixed price contracts in 2008. 75% of its food cost inputs are now under fixed price contract [3] , so it's protected from food price inflation for the foreseeable future. At the same time, utility costs have been locked in to mid 2011. Management has also re-engineered the production process, which should bring increasing benefits.

Domino's has also benefited from a crashing media sales market to get more, cheaper TV advertising to drive sales. Its sponsorship of Britain's Got Talent, in particular, has helped the brand stay in the public eye.

In terms of growth potential, there's room for new sites – Domino's has been opening about 50 a year (52 last year), which is growth of just under 10% on the existng 570 branch base, and expects to continue growing at this rate [4] . 23 new outlets opened in the first half of this financial year puts the company on track to meet that target again.

But it's not just new sites that are driving sales forward. Mature franchises are continuing to grow. Average weekly sales per outlet have increased from just under £10k in 2005 to over £15k now [5] . No wonder franchisee enquiries were up 13% in the first half of the year – giving the company the ammunition it needs for expansion. It's also worth noting that existing…

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