Domino's, Taste Sign 15-year African Deal - Analyst Blog

In an effort to develop its international footprint, Domino's Pizza, Inc. DPZ signed a 15-year license agreement with Taste Holdings. The agreement, which includes a 15-year renewal alternative, pertains to the development of Domino's brand in seven Southern African countries — South Africa, Lesotho, Swaziland, Namibia, Botswana, Zimbabwe and Mozambique. Thereafter, Zambia and Malawi will follow, if certain conditions are fulfilled.

Johannesburg-based Taste Holdings operates almost 150 restaurants under the popular brands of Scooters Pizza and St. Elmo's Pizza in Africa. As part of the agreement, most of the franchise stores of Taste Holdings will be converted to Domino's Pizza outlets.

Domino's stepped into the Africa continent with a debut in Nigeria in collaboration with its master franchisee, Eat 'N' Go Restaurant Group, in 2012. The company has since then been successfully operating in the region, fuelled by competitive pricing and adapting its menu to the local culture and food.

Taste Holdings' agreement with Domino's comes on the back of a Sub-Saharan Africa economic renaissance, which is fueling an investment drive by fast-food joints looking to capitalize on the continent's growing middle class income. Further, with growing political and economic stability, foreign fast-food brands are approaching the region with renewed optimism.

According to a 2012 report by consulting firm, McKinsey & Company, consumer-facing industries across Africa are expected to grow about $410 billion by 2020. Of this, roughly 45% or $185 billion is expected to come from apparel, consumer goods and food businesses.

In fact, Domino's Pizza has become the top pizza company in several international markets like India, South Korea, Turkey, Australia and France. The company's international operations have an outstanding record of 20 consecutive years of positive same-store sales growth. In our view, Taste Holdings stands to benefit from the solid performance and expertise of Domino's' international business.

Domino's Pizza is not the only fast-food joint seeking to tap into the economic boom in the Sub-Saharan region. In 2013, Yum! Brands, Inc. YUM — the parent brand of KFC, Taco Bell and Pizza Hut — announced plans to expand into Tanzania, Uganda and Zimbabwe. Additionally, the company has plans to strengthen its footprint in South Africa.

Among others, Burger King Worldwide, Inc. BKW also started operations in South Africa in May, last year, while McDonald's Corp. MCD is already an established brand in South Africa.

Domino's, currently, carries a Zacks Rank #3 (Hold).