Selected Domino's stores last weekend ran a promotion, selling pizzas for only $2.

The fast-food company, also known for its $5 range, said the $2 offer isn't a permanent fixture and that it's only used at the discretion of individual franchise owners.

The Domino's store in Belmont was promoting the $2 pizzas between the hours of 11am and 4pm on Sunday. Other Domino's stores such as the one on Elliott Street in Auckland CBD and Mt Eden have also offered the same promotion.

A Domino's spokeswoman said the promotions were designed to "thank customers".

Advertisement

"From time to time, in addition to our $5 offering, many of our stores... choose to thank their customers through Customer Appreciation Days where consumers can get even more incredible deals, however these prices are not the norm," the spokeswoman said.

Domino's $5 pizza range has faced backlash both here and in Australia, with critics questioning whether franchise holders were making a loss by selling them at such a low price.

Asked about the profitability of the $5 range, the Domino's spokeswoman said that the pizzas were "profitable individually" and that they contributed to a larger average order with customers also picking other pizzas and sides.

"The average ticket price of a $5 pizza order is almost three times that price point," the spokeswoman said.

She said Domino's operated on a high volume business model.

Retail analyst Chris Wilkinson questioned the profitability of the $2 and $5 pizzas, calling them "loss leaders" amounting to marketing ploys where goods are sold below cost to get customers through the doors.

"There is no doubt this is a loss leader on an extreme basis, but in highly competitive markets brands will sometimes resort to audacious promotions to arrest market declines and claw back goodwill," Wilkinson said.

"While Domino's have tried to migrate consumers toward some of their premium menu items and non-pizza products where there is greater margin, the brand has become known more widely for its [$5] basic range, that Pizza Hut has matched."

The downside of loss leaders is consumers then expect an offer or such prices continuously and only worked if it drove long-term growth, Wilkinson said.

"This is about market share, regaining goodwill and shifting more of the fast food discretionary spend across from other categories into their stores. The deal shows how determined they are, but will likely come at a cost to franchisees who will need to be able to achieve significant longer-term growth off the back of this."

Domino's Belmont, Auckland, was on Sunday selling pizzas for $2. Photo / Aimee Shaw
Domino's Belmont, Auckland, was on Sunday selling pizzas for $2. Photo / Aimee Shaw

Other fast-food operators such as Pizza Hut, Burger King and McDonald's also offer low-priced food items on their menus.

Burger King has its $5 'stunner meals' made up of a burger, fries, drink and ice cream sundae and McDonald's has a similar meal, minus the sundae.

Hobson Wealth Partners senior equity analyst Grant Cotty said Domino's was unlikely covering its costs, such as ingredients used on the pizzas, with its $2 deal.

And likely only just selling above the costs of ingredients for its $5 pizzas.

Cotty said Domino's low-cost sales was based on the idea of "selling cheap food, and selling lots of it".

"You can make money as long as you sell enough to cover your fixed costs such as rent, electricity. Domino's does have a premium pizza range, which is for less price-sensitive customers, and is intended to entice customers coming in the door for a lower margin pizza to upgrade to a higher margin pizza," he said.

Fast food stores have tried to reduce overheads with smaller footprints, better systems and fewer staff to reduce the level of volume required to cover their fixed costs.

SHARE THIS QUOTE:

"Many fast food stores have tried to reduce overheads with smaller footprints, better systems and fewer staff to reduce the level of volume required to cover their fixed costs and thus the threshold from which they start making profit."

In July, two former Auckland Domino's franchises were fined for underpaying their staff. The Henderson and Te Atatu stores were both ordered to pay $16,200 by the Employment Relations Authority for failing to comply with minimum standard employment obligations, breaches that affected around 112 staff.

At the time the Labour Inspectorate said the penalties should serve as a warning to consumers: "Be mindful about whether your money is going into the right pocket. For a five dollar pizza, workers shouldn't have to pay the price."

Labour Inspectorate national manager Stu Lumsden said the Labour Inspectorate had not received any complaints relating to Domino's $2 promotion.

"Despite the low price of a business' products, all employers in New Zealand are responsible for ensuring their employees receive their minimum employment rights including minimum wage," Lumsden said.

The Labour Inspectorate inspected eight Domino's franchises last year. All were found to be compliant with minimum employment standards.