Hotel chain set to absorb Domino's in Taiwan, PRC

Formosa International Hotels Corp (晶華酒店) yesterday announced plans to acquire Domino's Pizza Inc's operations in Taiwan and Beijing to facilitate its food and beverage business across the Taiwan Strait.

Following negotiations which lasted around half a year, Formosa International, operator of the Grand Formosa Regent Taipei, approved the buyout plan at a board meeting yesterday. The NT$500 million (US$15.4 million) cash transaction is expected to be completed by early next year.

"We're very happy to have the best pizza operation team in Taiwan and China joining us," Steven Pan (潘思亮), chairman of the hotel firm, said at a press conference.

He said that Formosa International would pay NT$470 million to absorb the pizza chain's 115 stores in Taiwan and NT$30 million to take over its seven outlets in Beijing.

Shares of Formosa International dropped 2.19 percent to close at NT$98.3 on the Taiwan Stock Exchange yesterday.

With the local Domino's management team, led by managing director Scott Oelkers, having won kudos from its Michigan-based headquarters for making Taiwan one of its fastest-growing markets, Pan said that the pizza chain would maintain independent operations.

The brand name will be kept intact and the original team will stay on board, he said.

Pan said that there would not be any layoffs.

Instead, the company will initiate an active expansion policy in Taiwan, as well as Beijing and Shanghai, the two Chinese cities in which the world's second-largest pizza-delivery company has obtained authorization to operate, he said.

Formosa International expects to learn from the effective management system, personnel education programs and distribution networks employed by Domino's to help expand its food and beverage business, said Amy Hsueh (薛雅萍), managing director of corporate business development at Formosa International.

To ensure that consumers' growing appetite for fast food will be satisfied, Oelkers has laid out an aggressive plan for the near future.

"Within the next three years, we plan to open 30 to 40 stores in Shanghai and Beijing. In Taiwan, we can continue to add five to 10 stores per year," he said.

Domino's set up its first pizza delivery store in Taiwan in 1989 and rapidly expanded between 1995 and 1997 at a tremendous rate of 20 store-openings per year.

The chain has quickly boosted its market presence by launching a series of pun-filled commercials in which Oelkers uses creative slogans in fluent Mandarin to establish public awareness of the Domino's brand name and phone number.

Domino's is expected to post double-digit growth this year, with revenues estimated to approach NT$1.6 billion, up from last year's NT$1.4 billion, in both Taiwan and Beijing. Its gross margin will increase from 4 percent last year to 6 percent this year, general manager Engin Huang (黃彥鈞) said.

In a Taiwanese pizza market valued at US$200 million per year, the chain claims to have a share of more than 50 percent in the delivery segment and nearly 50 percent in the carry-out segment.

Unfazed by the Domino's development strategy, the market leader, Pizza Hut, remains optimistic about its domestic sales growth, although it said Taiwan has become a mature market.

"We'll continue with store expansion and I believe our number of stores and turnover will stay above that of Domino's," said Felisa Wu (吳玉屏), marketing director of Jardine Food Services (Taiwan) Co, which operates 127 Pizza Hut restaurants nationwide.