chains to break into.

McDonald's, Dunkin' Donuts and Burger King — they've all tried and

failed in Iceland. But there's one American fast food chain that

Icelanders are obsessed with — Domino's.

Of the three big international chains with significant presence in

Iceland, the pizza chain has the biggest market share in fast food by

far. Domino's also has a huge footprint for the small island nation.

There is a Domino's restaurant for every 14,000 people.

Its owner says Icelandic Domino's are some of the best performing

Domino's around the world by weekly sales.

So Domino's decided to try to expand into Iceland's neighbors.

In 1997, Domino's opened in Denmark and then in Norway and Sweden in

2014 and 2016.

But other parts of Scandinavia just aren't buying what Domino's is

selling. In early 2019, Domino's Danish business went bankrupt and in

October of 2019, UK-based company Domino's Pizza Group, which owns

stores in Sweden, Iceland and Norway, announced it would exit those

markets. Its business there just isn't profitable.

And now the company is looking for a buyer.

And you know, I think the sale is a preferred option.

But if they don't find a buyer, you know, let's not forget these are

sort of sustained loss-making businesses.

They might not find a buyer for all of the markets, in which case

they simply have to close them down.

Closing those restaurants would be the last resort for Domino's Pizza

Group, considering the chain's track record of success in the UK and

other parts of Europe, why is it that Domino's failed to deliver in

most of the Nordics?

Two Irish-American brothers Tom and James, Monaghan opened the first

Domino's in Michigan in 1960, and by 1967, Domino started opening

franchise locations across the U.S.

By 1978, it had grown to 200 stores.

Domino's first international store opened in Canada in 1983, and as

of 2019 there are 16,500 Domino's in more than 85 countries.

And more than half of its sales come from outside of the U.S.

Domino's has spread around the world thanks to franchising.

The U.S.-based Domino's Pizza partners with master franchisees and

international markets who in turn can subfranchise.

The company looks for partners who have knowledge of the local

market. That model lowers the risk of entering international markets

for Domino's Pizza. Domino's presence in the Nordic region started in

Iceland in 1993 and the brand was a hit.

The local operator thought it could do well in Denmark, too, where it

arrived in 1997.

Domino's opened up shop in Norway in 2014 and expanded to Sweden in

late 2016. But the brand doesn't have a presence in Finland.

The business in Denmark went bankrupt after a TV network exposed poor

hygiene and expired food at the restaurant.

Another franchisee, Australian company Domino's Pizza Enterprises,

paid about 2.8

million dollars to buy stores in April 2019.

The Australian company now operates in six European locations, plus

Japan, Australia and New Zealand.

Of all those European markets, Domino's Iceland is a standout.

Its owner says restaurants there have clocked higher average weekly

sales than any other Domino's on the planet.

But Iceland can't prop up the entire bloc.

In the first half of fiscal year 2019, Domino's Pizza Group's

international markets, which includes Norway, Sweden and Iceland, had

operating losses of 8.1

million dollars.

In fiscal year 2018, Sweden had the lowest average weekly sales per

store for Domino's Pizza Group in the Nordics.

Based on Domino's success in Iceland, the chain seemed poised to work

well in other Nordic countries.

The Nordic bloc is a region of northern Europe that includes Denmark,

Norway, Sweden, Finland and Iceland and their associated territories

like Greenland. They're all independent countries, but they share key

things in common. The Nordic economic model has strong labor unions,

high taxes and provide services like education and healthcare, making

them expensive places to live.

But the five Nordic countries are also wealthy.

Their GDP per capita, a metric that breaks down the country's GDP per

person, ranks within the top 10 in Europe.

The Nordic countries take pride in their culinary traditions.

After a period of industrial food production that brought processed

food to the Nordics, in the early 2000s there is a shift toward more

organic and locally produced food.

Eating habits in the Nordic countries put strong emphasis on families

eating together at home.

Responses to a survey conducted in 1997 and then again in 2012 showed

that family meals hadn't decreased in Nordic homes, despite the fears

that introduction of fast food in the 1990s would drastically reduce

the number of families opting to eat at home.

In the Nordic countries, health and wellness are also important

values. A survey of Nordic people predicted that some of the biggest

Nordic food trends in 2019 will be meat free proteins, holistic diets

and baking pastries with beans.

So where does fast food fit in?

Nordic consumers haven't embraced global fast food chains as fully as

other countries, and when they do opt to eat on the go, more often

than not, they're opting for local chains rather than global fast

food restaurants. Consumers tend to prefer local chains for a couple

of different reasons. Part of it has to do with loyalty and trust.

In both Sweden and Norway, global brands have a stigma of being

unethical and consumers perceive them to be prioritizing profits

above all else as opposed to local brands.

In terms of competition,

these two countries are quite interesting because they have very,

very strong local brands as evidenced, for example, by case of Sweden

and the burger competition in this country.

So there is a big local brand called Max and quite successfully

manages to challenge established players like McDonald's due to local

appeal, local expertise in the market.

Nordic consumers also take pride in supporting local brands.

Analysts say local restaurants have more market knowledge in fast

food than international chains do, and they are faster adapting menus

to local tastes.

Take, for example, the meat free trend in Norway.

Swedish burger chain Max jumped on the trend early, offering

meat-free burgers. It set off a domino effect and McDonald's

ultimately introduced a veggie McSpice and two vegetarian wraps in

2017. In both Sweden and Norway, the pizza market is highly

fragmented, with local and independent chains making up more than

half of the market in the two countries.

The biggest pizza chain in Norway is locally run Peppes Pizza, which

has 39.1 percent of the market as of 2018.

Domino's tried growing quickly in Norway by buying another Norwegian

chain called Dollie Dimples in May 2017.

It was a massive expansion of Domino's footprint, but analysts say it

presented some problems, too.

So I think when they acquired the business, they thought it would be

a very simple you're buying a pizza operator, you kind of change the

logos, change the product a bit and suddenly the store goes from

being a local pizza restaurant to a Domino's Pizza restaurant.

Instead, what they didn't realize was that this business wasn't

really set up in the same way as a classic pizza takeaway company.

Analysts say Dolly Dimples wasn't particularly efficient and Domino's

didn't have enough demand to keep up with its new large footprint.

Converting Dolly Dimples stores into Domino's, increase order counts

and sales for the chain, but the stores weren't profitable.

Plus converting them took time and money, which was especially

problematic in an expensive country like Norway.

In the U.S., Domino's won the pizza wars with delivery, but the

Nordic countries are among the smallest markets for food delivery.

That was a big part of the problem in Norway when Dolly Dimples was

taken over by Domino's.

Dolly Dimples was more about dining in rather than taking out for

delivery. Pretty much the opposite of Domino's typical strategy.

The market for delivery in Scandinavia is small.

That's partly due to the fact that population density of the Nordic

countries is low, so delivery drivers have to travel further

distances. It also didn't help that Domino's entered Norway and

Sweden just as the delivery wars were heating up.

While the market for delivery is relatively small there, are a

handful of companies compete for the market share.

If in the past, Domino's Pizza was unique because not many other

restaurants would deliver food to consumers, nowadays, almost every

restaurant — a vast majority of restaurants in Norway and Sweden —

are working with delivery services, which means that their

competition is much wider than it was in the past.

On a call with analysts, the CEO of the local franchise running

Domino's in Iceland, Sweden and Norway said it was considering

eliminating delivery entirely from certain stores at lunchtime in

Norway. Analysts say that this is likely due to lack of demand.

Frozen pizza is also huge in Scandinavia.

Instead of ordering delivery, some people might choose frozen pizza

instead, especially in Norway, which has the highest spending per

person on frozen pizza of any country.

Norwegians spend almost $56 dollars per person on frozen pizza each

year. One frozen pizza brand estimates Norwegians eat approximately

47 million frozen pies every year.

Living in the Nordic countries is relatively expensive compared to

the US. There's a lot to do with higher taxes to pay for social

welfare system and higher costs of goods and services.

Domino's Pizza Group, the franchisee in the Nordic countries, cited

high labor costs as one of the reasons its business was unprofitable.

In Iceland, Norway, Sweden and Denmark, there is no national minimum

wage, but there are very powerful trade unions.

These unions and other employee groups negotiate fair wages by

industry, experience and age.

I mean, even despite the fact that these countries don't have a

minimum wage the basically labor laws, the bargaining power of

workers is very, very strong.

In Nordics, equality are quite strongly embedded their culture

so it's quite hard to optimize and cut down on labor costs.

In the case of Norway, workers above the age of 20 in hotel,

restaurant and catering industry must be paid at least $18 an hour.

That's almost double what minimum wage employees in the UK are paid.

Minimum wage in Britain dictates a worker between the age of 21 and

24 years old must earn just above $10 an hour.

When part of what makes pizza attractive to customers is its

affordability, high labor costs can drag down a business.

You know this model works if you've got relatively cheap labor where

you can get people just to churn out pizzas and you make then quite a

nice margin on that, so they want to sort of pitch it as a as a

mid-market take away or delivery option.

But if the cost of the labor producing that is prohibitive and your

margins get squashed, that I think that is probably one of the big

contributors to the fact that it was loss-making in recent quarters.

Domino's may feel more of a squeeze from high labor costs as the

Nordic economies slow.

Global trade tensions and a variety of domestic problems are causing

a slowdown in the Nordics, according to a 2019 Reuters poll.

Particularly in Iceland, where Domino's has been the strongest, the

chain is struggling due to weak macroeconomic conditions.

While Domino's still makes money there, it's not as profitable as the

market once was.

In the third quarter of fiscal year 2019, same store sales in Iceland

were down 8.2 percent.

Company executives cited a decline in tourism and a weak market

overall. It also shut down one of its locations that quarter.

If you look at the macro data in Iceland, it's certainly not as good

as it's been in previous years.

All of these places, as I said, there's high operating cost markets,

those costs increase every year and you need to be generating more

sales in order to compensate for that.

Domino's Pizza Group, the UK-based chain that owns Domino's in the

Nordics, also has problems at home.

Shares of Domino's Pizza Group have fallen about 25 percent from

their peak in 2016.

It's fighting with sub-franchisees over how it shares the profits and

facing weak consumer confidence as Brexit looms.

Domino's Pizza Group was unable to comment due to the ongoing

transaction, but even its management has said they just weren't the

right ones to be running a business in Sweden, Norway and Iceland.

The CEO of Domino's Pizza Group, which is the master franchisee of

the US Domino's, said that his company was not the best owners of

these businesses. Now Domino's Pizza Group is in the midst of selling