Unit 4 Case Study
emmanuebboyton
Dominoes.pdf
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Domino’s Pizza, Inc., 2013
www.dominos.com, DPZ
Based in Ann Arbor, Michigan, Domino’s is the largest pizza delivery company in
the USA having a 22.5 percent share of the pizza delivery market. Domino’s digital
ordering channels include online ordering at www.dominos.com, mobile ordering
at http://mobile.dominos.com, and ordering on iPhone, Kindle Fire, and Android
apps. More than $2 billion of Domino’s pizza is ordered online annually. There are
more than 10,300 Domino’s stores in over 70 countries. Domino’s had sales of over
$7.4 billion in 2012, with $3.6 billion of that coming from the USA.
Copyright by Fred David Books LLC. (Written by Forest R. David)
History
Growing up in foster homes most of their childhood, Tom Monaghan and his
brother James borrowed $900 in 1960 to purchase a mom-and-pop pizza store in
Ypsilanti, Michigan, named Domi-Nick’s. After trading his brother James a
Volkswagen Beetle for his half of the business in 1961, Tom changed the store name
in 1965 from Domi-Nick’s to Domino’s Pizza Inc. The company experienced steady
growth during the 1960s, and by 1978, there were 200 Domino’s stores in the USA.
During the 1980s, the company expanded rapidly both in the USA and
internationally. By the end of the decade, Domino’s had more than 5,000 stores in
the USA, Canada, United Kingdom, Japan, Australia, and Colombia. By 1998, there
were more than 6,000 Dominos, with 1,500 located outside the USA. Tom Monaghan
retired in 1998 and sold 93 percent of the company (worth $1 billion) to Bain
Capital Inc. In the six years following the sale, Domino’s enjoyed great success
under Bain Capital and in 2004 Domino’s became a publically traded company on
the New York Stock Exchange under the ticker symbol DPZ. The initial stock price
was $16 per share and placed a value on the company at more than $2 billion
(double the price Bain paid).
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Domino’s changed its 49-year-old recipe at year end 2009 and started a heavily
advertised marketing campaign called “new inspired pizza.” Domino’s stock price
appreciated from around $8 a share at the start of 2010 to $60 in mid-2003. Fueled
by the new recipe and new products, Domino’s celebrated its 50th anniversary in
2010 and was awarded best pizza chain in 2010 and 2011 by Pizza Today magazine,
marking the first time ever that the same pizza chain had received the award in
consecutive years. Domino’s CEO Patrick Doyle was named the best CEO of 2011 by
CNBC. Domino’s was recently ranked number 1 in Forbes magazine’s “Top 20
Franchises for the Money” list.
About 96 percent of Domino’s stores are owned by franchisees. There are very few
company-owned Domino’s stores.
Corporate Philosophy and Mission Statement
Domino’s does not have a stated vision statement, but the company mission
statement is as follows: “Exceptional franchisees and team members on a mission
to be the best pizza delivery company in the world.” Domino’s “guiding principles”
are based on the concept of one united brand, system and team:
• putting people first;
• striving to make every customer a loyal customer;
• delivering with smart hustle and positive energy; and
• winning by improving results every day. (2012 Annual Report)
Organizational Structure
As indicated in Exhibit 1, Domino’s has 11 top executives, mostly executive vice-
presidents (EVPs). It appears that Domino’s operates from a functional
organizational structure with Doyle being “where the buck stops,” although for a
firm of this size, a divisional or strategic business
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unit type structure by region (or by franchised versus company owned) may be
more effective in promoting delegation of authority, responsibility, and
accountability.
EXHIBIT 1 Domino’s Organizational Chart
Business Segments
Domino’s provides financial information for four key business segments: (1)
domestic company-owned stores, (2) domestic franchise stores, (3) domestic supply
chain, and (4) international. Note in Exhibit 2 that the largest revenue-generating
segment is the domestic supply chain with more than 50 percent of all revenue.
Note also the large revenue numbers for the relatively few company owned stores,
because each Domino’s domestic franchisee owns his or her own store(s) and
reports their revenues on their own personal financial statements rather than
Domino’s. From franchisees, Domino’s reports only the royalties and advertising
fees it receives from franchisees as revenue. The financial data for the
international supply chain centers are included in the international division, not
under the domestic supply chain division. Also note in Exhibit 2 the slight revenue
decline in 2012 for domestic company-owned stores.
Exhibit 3 reveals that for 2012, Domino’s international stores had the highest
growth in revenue, followed by U.S. company-owned stores. However the sales
growth among all three segments slowed in 2012.
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Exhibit 4 reveals that Domino’s growth in number of stores is highest outside the
USA, with the actual number of company-owned stores in the USA falling to 388.
About 10,000 employees work for Domino’s, but counting all workers for all
franchisees, this number is closer to 205,000.
EXHIBIT 2 Finances by Segment (in millions)
Business Segment
Revenue, 2012
Revenue, 2011
Revenue, 2010
Revenue, Increase (%)
Domestic company- owned stores
$324 $336 $345 (3.6)
Domestic franchise
195 187 173 4.3
Domestic supply chain
942 928 876 1.5
International 217 201 176 8.0
TOTAL $1,678 $1,652 $1,571 1.6
Source: Company documents.
Note: Domino’s 2012 year ended 1-31-13.
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EXHIBIT 3 Same Store Sales Growth (Percent)
U.S. company- owned stores
U.S. franchiseowned
stores
International stores
2008 −2.2 −5.2 6.2
2009 −0.9 0.6 4.3
2010 9.7 10.0 6.9
2011 4.1 3.4 6.8
2012 1.3 3.2 5.2
Source: Company documents.
EXHIBIT 4 Growth: Total Number of Domino’s Stores
U.S. company- owned stores
U.S. franchiseowned
stores
International stores
2008 489 4,558 3,736
2009 466 4,461 4,072
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U.S. company- owned stores
U.S. franchiseowned
stores
International stores
2010 454 4,475 4,422
2011 394 4,513 4,835
2012 388 4,540 5,327
Source: Company documents.
Domestic Supply Chain
Domino’s domestic supply chain supplies franchisees with dough, vegetables,
ovens, uniforms, and much more, enabling better control, pizza consistency, and
timely delivery of products. This backward integration strategy enables Domino’s
to offer pizza at lower prices and allows store managers to focus on store
operations rather than mixing dough on site, prepping vegetables, and bargaining
with independent suppliers for ingredients. Domino’s has 16 regional
doughmanufacturing and supply chain centers and leases a fleet of more than 400
trucks to aid in delivering products to stores twice a week. However, Dominos’
franchisees are not required to purchase supplies from Domino’s, but interestingly
more than 99 percent do purchase all its supplies from the company’s domestic
supply chain segment. To ensure this division remains viable, Domino’s provides
profit-sharing incentives to franchisees to buy its products from Domino’s. In
addition to the 16 domestic supply chain centers, Domino’s also operates 6 supply
chain centers outside the USA.
Domestic Stores
The company’s domestic stores division includes a network of 4,540 stores operated
by 1,026 franchisees and 388 company-owned stores in the USA. Domino’s desires
to have all of its stores owned and operated by franchisees, but if certain stores are
underperforming, Domino’s often will purchase these stores in hopes of turning
them around and then refranchising them at a later date. Domino’s uses company-
owned stores as test sites for new products, promotions, new potential store layout
improvements, and as test sites for prospective new franchisees.
Although the typical franchisee of Domino’s operates 4 stores, the nine largest
franchisees operate more than 50 stores, including the largest domestic franchisee
that operates 135 stores. Currently, Domino’s has 1,077 different domestic
franchisees with the average franchisee being in Domino’s system for an
impressive 14 years. Much of this longevity can be attributed to Domino’s requiring
prospective franchisees to manage a store for 1 year before entering into a long-
term contract with Domino’s. Domino’s feels this system is unique to the pizza
industry and provides a competitive advantage over rival pizza firms.
International Division
Domino’s has 5,327 franchise stores outside the USA. The company’s international
revenues as a percent of total revenues increased to 13.0 percent in 2012, up from
11.2 percent in 2010. Exhibit 5 provides is a breakdown of Domino’s stores in the
top 10 markets, which account for
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more than 75 percent of all Domino’s international stores. Note that the United
Kingdom has the most Domino’s of all countries, followed by Mexico. Among the
company’s six “international” supply chain centers, four of these are in Canada,
one is in Alaska, and one is in Hawaii. (It is unclear why Domino’s categorizes
Alaska and Hawaii as international). As with Domestic franchisee stores, most of
the company’s revenue in the international division comes from royalty payments
and advertising, as well as the sales of food and supplies to certain markets
(predominantly Canada, Alaska, and Hawaii). Note in Exhibit 5 the rapid growth in
Domino’s stores in India, Turkey, and Japan. The largest Domino’s franchisee
outside the USA operates 911 stores.
EXHIBIT 5 Top 10 Countries Where Domino’s Are Located
Country Number of Stores, 2011
Number of Stores, 2012
% Change
United Kingdom 670 720 7.5
Mexico 577 581 0.7
Australia 450 464 3.1
India 439 522 25.7
South Korea 358 372 3.9
Canada 354 368 3.9
Turkey 220 284 29.0
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Country Number of Stores, 2011
Number of Stores, 2012
% Change
Japan 205 245 19.5
France 195 215 10.3
Taiwan 141 140 –
Source: Company documents.
Internal Issues
Domino’s has a vertically integrated supply chain where they have backward
control to some extent over many of its supplies such as dough, veggies, equipment,
and uniforms and forward control over around 400 retail stores that are company
owned. Domino’s offers little to nothing in terms of healthy food options on the
menu, such as salads or fruit. Although this approach enables Domino’s to focus
exclusively on pizza, this practice also increases the firm’s vulnerability to the
increasingly health-minded customer and possible government mandates for fast-
food restaurants to stop using certain ingredients and preservatives, and
potentially forcing all restaurants to label all nutrition information on the menu at
the point of sale. Such a law would not be favorable to Domino’s.
Domino’s attributes much of its success to an incentive-based system for
franchisees in which it actively shares in profits through increasing demand for
new stores and through purchasing supplies from the Domino’s supply chain.
Domino’s individual franchisee stores and company-owned stores also enjoy a
simple and effective store layout enabling pizza delivery and carryout orders to be
processed and executed efficiently as compared to many competitors. Unlike
Domino’s, many rival pizza firms use a dine-in business model, which is much
more costly than Domino’s strategy. Competitive advantages such as these make
Domino’s an attractive franchisee option in the quick-service restaurant (QSR)
market because overhead and investment is generally cheaper than competing
firms.
Sustainability
Sustainability refers to the extent that an organization’s operations and actions
protect, mend, and preserve rather than harm or destroy the natural environment.
Many firms today develop an annual sustainability report, similar to an annual
report, to reveal to stakeholders its actions and commitment to sustainability.
However, Domino’s does not produce an annual sustainability report nor does the
company have a sustainability statement on its website.
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Advertising and Sales Force
Dominos domestic stores contributed 5.5 percent of all retail sales to support
national and local advertising campaigns. Domino’s expects this rate to remain
unchanged for the foreseeable future. Much of those monies are devoted to mass-
mail flyers promoting specials at the local Domino’s.
Domino’s Pulse Point-of-Sale System
To maximize efficiencies and provide timely financial and marketing data,
Domino’s requires all stores to install and use its PULSE system that now exists in
all company-owned stores and 98 percent of franchisee-owned stores. The system
enables touch-screen ordering that improves order accuracy and efficiency and
provides the driver with directions and the best route to take for multiple
deliveries, saving time and money. In addition, the PULSE system better enables
Domino’s to ensure it receives full royalties from all transactions in what is often a
cash business, assuming the franchisees are honest and always use the PULSE
system when receiving orders.
Finance
Domino’s recent income statements and balance sheets are provided in Exhibits 6
and 7, respectively. Note that Domino’s revenues increased 2.6 percent in 2012 and
the firm’s long-term debt rose slightly to $1.53 billion. Note the company has zero
goodwill on its balance sheet.
EXHIBIT 6 Domino’s Pizza, Statements of Income (In thousands, except per share amounts)
2010 2011 2012
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2010 2011 2012
REVENUES:
Domestic company-owned stores
$ 345,636 $ 336,349 $ 323,652
Domestic franchise
173,345 187,007 195,000
Domestic supply chain
875,517 927,904 942,219
International 176,396 200,933 217,568
Total revenues 1,570,894 1,652,193 1,678,439
COST OF SALES:
Domestic company-owned stores
278,297 267,066 247,391
Domestic supply chain
778,510 831,665 843,329
International 75,498 82,946 86,381
Total cost of sales
1,132,305 1,181,677 1,177,101
OPERATING MARGIN
438,589 470,516 501,338
2010 2011 2012
GENERAL AND ADMINISTRATIVE
210,887 211,371 219,007
INCOME FROM OPERATIONS
227,702 259,145 282,331
INTEREST INCOME
244 296 304
INTEREST EXPENSE
(96,810) (91,635) (101,448)
OTHER 7,809 – –
INCOME BEFORE PROVISION FOR INCOME TAXES
138,945 167,806 181,187
PROVISION FOR INCOME TAXES
51,028 62,445 68,795
NET INCOME $ 87,917 $ 105,361 $ 112,392
EARNINGS PER SHARE:
Common Stock—basic
$ 1.50 $ 1.79 $ 1.99
Common Stock—diluted
$ 1.45 $ 1.71 $ 1.91
Source: 2012 Form 10K, p. 50.
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EXHIBIT 7 Domino’s Pizza, Balance Sheets (In thousands except share and per share amounts)
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2011 2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$ 50,292 $ 54,813
Restricted cash and cash equivalents
92,612 60,015
Accounts receivable, net of reserves of $5,446 in 2011 and $5,906 in 2012
87,200 94,103
Inventories 30,702 31,061
Notes receivable, net of reserves of $324 in 2011 and $630 in 2012
945 1,858
Prepaid expenses and other
12,232 11,210
Advertising fund assets, restricted
36,281 37,917
Deferred income taxes 16,579 15,290
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2011 2012
Total current assets 326,843 306,267
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 23,714 24,460
Leasehold and other improvements
79,518 80,279
Equipment 171,726 168,452
Construction in Process 6,052 9,967
281,010 283,158
Accumulated depreciation and amortization
(188,610) (191,713)
Property, plant and equipment, net
92,400 91,445
OTHER ASSETS:
Investments in marketable securities, restricted
1,538 2,097
Notes receivable, less current portion, net of reserves of $1,735 in 2011 and $814 in 2012
5,070 3,028
2011 2012
Deferred financing costs, net of accumulated amortization of $25,590 in 2011 and $5,201 in 2012
16,051 34,787
Goodwill 16,649 16,598
Capitalized software, net of accumulated amortization of $51,274 in 2011 and $48,381 in 2012
8,176 11,387
Other assets, net of accumulated amortization of $4,070 in 2011 and $4,404 in 2012
8,958 8,635
Deferred income taxes 4,858 3,953
Total other assets 61,300 80,485
Total assets $ 480,543 $ 478,197
LIABILITIES AND STOCKHOLDERS’ DEFICIT CURRENT LIABILITIES:
2011 2012
Current portion of long-term debt
$ 904 $ 24,349
Accounts payable 69,714 77,414
2011 2012
Accrued compensation 21,691 21,843
Accrued interest 15,775 15,035
Insurance reserves 13,023 12,964
Legal reserves 10,069 5,025
Advertising fund liabilities
36,281 37,917
Other accrued liabilities
29,718 34,951
Total current liabilities
$ 197,175 $ 229,498
LONG-TERM LIABILITIES:
Long-term debt, less current portion
$ 1,450,369 $ 1,536,443
Insurance Reserves 21,334 24,195
Deferred income taxes 5,021 7,001
Other accrued liabilities
16,383 16,583
Total long-term liabilities
1,493,107 1,584,222
2011 2012
Total liabilities 1,690,282 1,813,720
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ DEFICIT:
Common stock, par value $0.01 per share; 170,000,000 shares authorized; 57,741,208 in 2011 and 56,313,249 in 2012 issued and outstanding
577 563
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized, none issued
− −
Additional paid-in capital
− 1,664
Retained deficit (1,207,915) (1,335,364)
Accumulated other comprehensive loss
(2,401) (2,386)
Total stockholders’ deficit
(1,209,739) (1,335,523)
Total liabilities and stockholders’ deficit
$ 480,543 $ 478,197
Source: 2012 Form 10K, pp 48-49.
Competitors
Competition in both the USA and international pizza-delivery and carry-out
business is extremely intense, with Pizza Hut (owned by Yum Brands) being the
largest competitor in the industry. Pizza Hut’s revenues are more than 60 percent
greater than Domino’s. Papa John’s and Little Caesars are also fierce rivals in the
industry. In fact, Little Caesars was listed as the fastest-growing pizza chain in
2010, with revenues up 13.6 percent over 2009, followed by Pizza Hut’s 8 percent
increase and Domino’s 7.2 percent increase. In addition to the three main rivals,
Domino’s faces intense competition from many local mom-and-pop pizza stores,
frozen pizzas from the grocery store, as well as hundreds of non-pizza fast-food
options. Pizza Hut, Domino’s, and Papa John’s account for 51 percent of all
consumer spending on pizza delivery stores in the USA, with the other 49 percent
coming from regional or mom-and-pop establishments.
Internationally, Pizza Hut and Domino’s are the main players in the industry, but
various countries have numerous national companies and thousands of mom-and-
pop pizza and Italian restaurants vie for business as well. As with the domestic
market, some customers consider local pizza stores to offer better quality products
than large chains and are willing to pay marginally higher prices for this perceived
quality.
Another competitor is Pizza Inn Holdings, Inc., based in The Colony, Texas. Pizza
Inn owns 10 stores and franchises out 300 more stores.
Pizza Hut
A division of Yum Brands, Pizza Hut is based in Plano, Texas, and operates more
than 7,200 restaurants in the USA and more than 5,600 restaurants internationally
in more than 90 countries. In contrast to Domino’s, almost all Pizza Huts are dine-
in restaurants. Pizza Huts serve pan pizza, as well as its thin n’ crispy, stuffed crust,
hand tossed, and sicilian. Other menu items include pasta, salads, and sandwiches.
Pizza Huts offer dine-in service at its famous redroofed restaurants, as well as
carryout and delivery service. About 15 percent of all Pizza Huts are company-
operated, whereas the remaining stores are franchised. The world’s largest fast
food company, YUM Brands also owns and operates Kentucky Fried Chicken (KFC),
Long John Silvers, and Taco Bell. Pizza Hut is Domino’s major pizza rival outside of
the USA.
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Papa John’s International, Inc.
Headquartered in Louisville, Kentucky, and founded in 1985, Papa John’s operates
3,883 pizza restaurants with 3,255 of these being franchisee-owned and 628 being
company-owned stores. Papa John’s has restaurants in all 50 U.S. states and 32
foreign markets. The company currently has 16,500 full-time employees and
markets its pizza under the slogan “better ingredients, better pizza.” Between 2001
and 2012, Papa John’s was ranked number one (by the American Customer
Satisfaction Index) among national pizza chains for 10 of the 11 years during this
period. The company reported revenue of more than $1.2 billion for year-end 2011,
and consistent with the industry, it shows no revenue allocated to research and
development. Papa John’s carries $75 million in goodwill on its balance sheet;
founder and CEO John Schnatter owns more than 20 percent of the chain. Papa
John’s offers several different pizza styles and topping choices, as well as a few
specialty pies such as The Works and The Meats. Papa John’s stores typically offer
delivery and carryout service only.
Exhibit 8 provides a comparison between Domino’s and Papa John’s. Note that
Domino’s appears to generate more revenue with less employees, but that is not
true because employees at franchised stores are not Domino’s employees. Pizza
Inn’s 57 employees work at company-owned restaurants, not franchised stores.
Pizza Inn Holdings, Inc.
Pizza Inn is a relatively small chain of franchised quick-service pizza restaurants,
with more than 300 locations in the USA and the Middle East. Pizza Inns offer
pizzas, pastas, and sandwiches, along with salads and desserts. Most locations offer
buffet-style and table service, whereas other units are strictly delivery and
carryout units. The chain also has limited-menu express carryout units in
convenience stores and airport terminals, and on college campuses. Pizza Inn’s
domestic locations are concentrated in more than 15 southern states, with about
half located in Texas and North Carolina.
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Little Caesars
Headquartered in Detroit, Michigan, and privately held, Little Caesars is famous for
its advertising slogan, “Pizza! Pizza!” which was introduced in 1979. The phrase
refers to two pizzas being offered for the comparable price of a single pizza from
competitors. In November 2010, Little Caesars introduced Pizza! Pizza! Pantastic,
denying that the return of “Pizza! Pizza!” had any relationship to the recent success
of Domino’s. Little Caesars operates under its parent Little Caesars Enterprises and
is estimated to be the fourth largest pizza chain in the USA. Little Caesars operates
in 30 foreign countries.
External Issues
EXHIBIT 8 A Comparison Between Domino’s and Papa John’s
Domino’s Papa John’s Pizza Inn Holdings
Revenue 1.65B 1.24B 43.5M
Market Capitalization
1.76B 1.16B 20.1M
Gross Margin 0.29 0.31 0.12
Net Income 98.99M 55.97M 888K
EPS 1.63 2.24 0.10
Price/Earnings Ratio
18.67 21.69 24.51
Domino’s Papa John’s Pizza Inn Holdings
Number of Employees
10K 16.5K 57
EPS, earnings per share.
Source: Company documents.
Domino’s competes in the Quick Service Restaurant (QSR) pizza category, which
consists of two categories: 1) delivery and 2) carry-out. Delivery revenues for the
industry in 2012 were $9.6 billion, up only slightly the last few years. The delivery
portion accounts for 30 percent
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of the total QSP pizza revenues. However, the carry-out portion of the industry
grew revenues from $14.1 billion in 2011 to $14.6 billion in 2012. Domino’s is the
market leader in delivery and second largest in carry-out. Outside of the USA, pizza
delivery is underdeveloped, with Domino’s and one rival being the only firms.
Nutrition Concerns
An area of concern for all fast-food establishments, including pizza stores, is the
growing health-minded customer, as well as the growing pressure from
government agencies to label all products with nutrition information. There have
been battles between the restaurant industry and government agencies for many
years, but much like the tobacco industry (in respect to labeling its products). It
appears the war is close to being lost for the restaurant industry. Domino’s itemizes
nutrition information on its website, but forces the customer to add the calories for
crust, sauce, cheese, and topping, and then divide by the number of slices to derive
the total calorie count per slice. After doing the calculations, one large slice of
hand-tossed pepperoni pizza for example has 300 calories and 12 grams of fat, and
there are 8 slices in a pizza. To complicate matters for restaurants such as
Domino’s, it is difficult to provide accurate nutrition labels when there can be an
almost endless combination of ingredients on a pizza. For example, someone may
order a large sausage pizza with onions and olives whereas someone else might
order extra cheese and tomatoes. Having to print out nutrition labels for all these
combinations would be quite costly as opposed to a restaurant like McDonald’s
where it can print the nutrition label on the Big Mac because there is uniformity in
ingredients and the label is understood to be for the base item. However, Domino’s
PULSE system could possibly be adjusted to resolve this potential issue.
Chipotle Mexican Grill claims to only use meat and dairy products from free-
ranging cattle, as opposed to cattle injected with growth hormones. Domino’s Pizza
markets its pizzas as having gluten-free crust. This is an attempt to win over health-
conscious customers, comply with government regulations, and make current
customers feel a little less guilty about eating pizza. The tug of war between
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customers, governments, lawyers, and the restaurant industry on health issues is
likely to continue for some time.
In response to these challenges, many restaurants have opted for healthy menu
options. Wendy’s, for example, has promoted several meal combinations that
contain less than 10 grams of fat. All of these items were originally on its menu, just
not marketed in that manner. Wendy’s has added side salads and fruit to help cut
down on calories, fat, and sodium. Subway is also famous for marketing its
products as healthy alternatives to other fast-food options. Domino’s, and many
pizza competitors, offer few to no menu options for the health-conscious consumer.
Barriers to Entry
Barriers to entry are relatively low for the restaurant industry, but rivalry
(competitiveness) among firms is exceptionally high. One large contributing factor
for the low barriers to entry is many small entrepreneurs can open mom-and-pop
establishments and bypass the franchise fees, royalties, selection process, and so on
of owning a franchised restaurant and lease an existing building relatively cheap.
However, even avoiding high fixed costs, variable costs are often high and small-
scale entrepreneurs are not able to compete with larger franchise stores, who can
better negotiate pricing on food, packaging, and other supplies. In the QSR
industry, the bargaining power of consumers is quite powerful, availability of
restaurant options in most places is abundant, and consequently there is intense
price competitiveness among rival firms. Even if you are sure you want pizza for
lunch or dinner, you likely have many options.
Economic Factors
The current landscape in the QSR business is a bimodal population distribution
with a large population of bargain-minded customers seeking deals on cheaper end
fast food options, and another population of more affluent consumers targeting
middle to higher-end restaurants. Domino’s is well positioned strategically to target
the first group of consumers because there are many more of them; Domino’s often
has excellent sales and discounts to target this group.
Among the subset of customers who are value shoppers, many of these are also
shoppers of quality and are willing to wait in line a little longer or pay a little more
for better quality
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food products. Domino’s has recently capitalized on this well with the introduction
of its artisan pizzas and new recipes (or higher quality products) for its crust,
sauce, and cheeses. In addition, Domino’s offers many pick up specials. Although
an inconvenience over delivery, many customers in today’s climate are willing to
tolerate a degree of inconvenience that they historically were not if they can get a
better deal.
Similar to Domino’s, many restaurant owners in the fast-food industry have
experienced stronger growth in international markets than domestic markets. This
trend is expected to continue, especially in China and other developing nations
because many U.S. fast-food options are still novel, even in Europe. According to
the S&P Industry Surveys, QSRs are expected to see a sales increase of 3 percent in
2012 and orders to increase 1.5 percent as a result in large part of consumers
trading down to cheaper restaurant alternatives. There also is a steadily growing
international appetite for U.S. fast food and an improving global economy. These
positive trends are expected to continue into 2013 and should bode well for
Domino’s with its strong international presence.
Ethics and Corporate Citizenship
Domino’s has two extensive “Code of Ethics” documents on its website: one
statement for its employees and one statement for its executives. The documents
outline matters such as: conflicts of interest, how to report unethical conduct, fair
dealing with all employees, compliance with laws, proper way to use company
assets, and much more.
In addition to Domino’s Code of Ethics statements, the company is noted for its
corporate citizenship record in particular with St. Jude Children’s Research
Hospital. Since 2006, Domino’s has donated more than $12 million to St. Jude and
has hosted pizza parties for patients and its families on St. Jude properties.
In 1986, Domino’s launched its Pizza Partners Foundation with a mission of “team
members helping team members.” The foundation is 100-percent funded by team
member and franchise contributions and has disbursed nearly $12 million to aid
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team members facing crisis situations such as fire, illness, or other personal
tragedies.
The Future
As CEO Doyle and his management team contemplate the future direction of
Domino’s, it has much to consider. Should the firm continue its aggressive market
development strategies and accept the risk associated with expanding into markets
it has little expertise operating within? What new geographic locations or regions
should Domino’s focus? Should Domino’s simply follow Pizza Hut’s international
rollout of stores? How would this expansion affect the corporate structure of
Domino’s? Would restructuring by geographic division and thus establishing
offices in Asia, the Middle East, and South America better enable them to manage
these more risky environments? Can Domino’s afford this financially? Should
Domino’s consider offering salads or a line of healthy menu options? Should
Domino’s purchase trucks to deliver its products rather than incurring such heavy
leasing expenses?
Domino’s needs a clear three-year strategic plan. Prepare this document for the
company.
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