Yahoo Finance Domino's and Purplebricks are struggling with the same problem
The results of two big UK companies this week throw into sharp relief the dangers of expanding rapidly in new markets.
The UK-based Domino’s Pizza Group (DOM) and online estate agent Purplebricks (PURP.L) both admitted to problems in overseas markets this week.
Domino’s, which has exclusive rights over the brand in the UK, Ireland, Germany, Switzerland, Liechtenstein and Luxembourg, told investors on Tuesday it would not make a profit abroad this year.
Meanwhile Purplebricks’ founder and CEO Michael Bruce stepped down as his chairman apologised to shareholders for overly rapid overseas expansion in Australia and the USA.
Neil Wilson, chief markets analyst at Markets.com, said: “International expansion is not as easy as it looks – just ask the boards of Purplebricks and Domino’s.”
READ MORE: Why Purplebricks founder left after seven years at firm
He said Domino’s investors had been left disappointed by the announcement, especially after a “tough period of trying to get the ducks in a line” on overseas operations throughout 2018.
International sales rose but only by 1.1%, and it was more than offset by the costs of early expansion in new markets.
Wilson said the £4.1m loss recorded by Domino’s internationally last year amounted to “costly growth for a part of the business that is only about 10% of revenues.”
He said tensions with franchisees and greater competition from the likes of Deliveroo and Uber Eats were also growing challenges for the firm.
“There is undeniably a problem in delivering ongoing growth in the UK, whilst in international markets although there is certainly scope for expansion, management is currently finding it hard going, making investors more cautious about the near-term prospects,” said the analyst.
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The exit of Michael Bruce at Purplebricks means a third top-level departure over poor performance at the online estate agent this year. The firm’s US and UK boss both left in February, with shares sliding significantly over the past year.
Wilson said the company, which has taken the UK market by storm since launching in 2012, had tried to expand too fast at a difficult time in the property market.
But he noted that they were now focusing on shoring up their UK core market and growth in promising Canada, while Australian operations are being wound up and the US operations potentially scaled back.
“The UK housing market has softened, prices are falling in Australia and cracking the US is proving very difficult. Purplebricks tried to run before they could walk and are paying the price for being just a little bit too ambitious,” said Wilson.
