Dominos Case Analysis
Strategic Profile and Case Analysis Purpose Dominoes was found in 1960 and headquartered in Ann Arbor, Michigan. Domino’s Pizza Inc. is the market leader in the United States pizza delivery and second largest pizza company in the world based on number of units.
The company offers a wide variety of pizza products as well as pasta, bread sticks, boneless chicken and wings, desserts and soft drinks. As of the beginning of this year, 2012, Domino’s had 394 company-owned stores and 4,513 franchised Domino’s units in the U. S. and 4,835 franchised stores internationally.
Domino’s strategy is to use its superior supply-chain to provide its franchises with lost cost inputs so the franchises may focus on sales and service. Through the online world, Domino’s customers began to share their dissatisfaction with Domino’s products, such as pizza lacked taste and quality and poor quality delivery pizzas. Over the past 3-5 years Domino’s has made an effort to improve the palatability of their core products, and in 2009 introduced a new and redesigned crust recipe, fresh ingredients, a new sauce, and real shredded cheese.
This effort, along the successive marketing campaigns has increased brand loyalty and customer preferences which has had a profound effect on increases in revenue and number of franchise openings. I believe that this strategy that is currently implemented is working, but for Domino’s to remain an industry leader and prolong the current trend of success, Domino’s needs to focus on the demographic and technological changes in the market. Focusing on the changes and reevaluating their current strategy will help Domino’s remain a leader within the industry. Situational Analysis
General Environment Analysis: Demographic | -Pizza remains a very popular product appealing to a wide demographic of Americans that consider restaurants an essential part of their lifestyle. -According to Rasmussen Reports 40% of American eat pizza at least once per month w/adults ranging 30-49 yrs. of age; 21% of young adults (18-24) purchase pizza more than three times a week. Pizza is an integral part of American culture and shows no sign of exciting the market. | Economic | Domino’s is not immune to market trends; its revenues are directly affected by how the economy is doing.
As the labor force progresses closer to full employment, consumer spending will increase and real GDP will be boosted. As a result, Domino’s Pizza will benefit from the increase of consumer spending as more consumers will likely spend more money at quick-service restaurants than dinging at home. To retain consumer’s quick-service restaurants should not worry as much about pricing but about expanding their menus. | Political/Legal| The political and legal conditions that could affect the business of Domino’s Pizza are the policies of the local and national government towards business.
If the government is more open to the establishment of numerous restaurants, then more restaurants will be established. Laws in favor of employees will be a factor for Domino’s. In each state/country they operate in they will have to provide proper employee training, as well as the minimum wage that are in compliance with state and federal regulations. Wages increasing can have a negative impact on revenues. | Sociocultural| Households are more likely to have a double income these days, resulting in families going out to eat more often. No time to cook at home) Media is growing at a fast pace means that Domino’s need to be part of this trend and keep up with the technological changes when comes to their online and app. options. Providing healthier options can be a potential competitive advantage for Domino’s. More people are concerned with their health and are becoming more aware of nutritional facts. Organic and gluten free products are gaining popularity. | Technological| The fast changes in technology nowadays have far-reaching effects.
The factors that have a huge impact are: research and development, internet and e-commerce, and new technologies. The research and development has effects on Domino’s Pizza because through R&D new products are developed for the business, the internet and e-commerce also contributes to the technological factors because through them customers can give feedback regarding the products. Technology will assist in developing the firms’ strategies and strategic competiveness. | Global| More and more industrialized countries are emerging.
Current and potential political events can affect the potential growth of Domino’s. | Physical| Creating and using products that are bio-gradable and promoting recycling can save Domino’s money, and differentiate themselves from their competitors. | Industry analysis: The restaurant industry was projected to have $604 Billion sales in 2011, which is approximately 4 percent of the projected total GDP of the United States according to the estimate from National Restaurant Association. The industry has been expanding since the 1960s, mainly due to the boom of quick service restaurants such as Yum!
Brands Inc. and McDonald’s. The long term expansion of the restaurant industry is expected to continue as the major players in this industry are focusing on providing healthier and less expensive food for both Americans and customers’ abroad. The restaurant industry provides two categories of services: fast food and full-service restaurant. The fast food restaurants mainly serve products including sandwiches, and pizza. Those restaurants attract customers by offering convenient, inexpensive and appealing foods.
Fast food restaurants will still perform comparatively well during financial downturn (see graphs below) because customers will switch from full-service restaurant to the cheaper fast food restaurants. Threat of new entrants| ? Economies of Scale: The saturation of the pizza industry is a huge limiter of how much an advantage can be attained by economies of scale.? Product Differentiation: Differentiation is a necessary expense in the pizza industry but it is not difficult to overcome so we can say it is not a significant barrier to market entry.?
Capital requirements will dominate the formation of new, national competitors, but is not a significant barrier to private startups.? Cost Disadvantages: The extreme saturation and similarity in product offering make convenient locations essential for quick service restaurants large and small. This is a significant barrier to entry.? Distribution Channels: Speedy and reliable channels are essential among all firms in the industry, they are not necessarily difficult for new comers to attain. Due to the lack of any of the barriers to entry being so significant, we feel the threat of new entrants is high. Power of suppliers| The bargaining power of suppliers shapes the restaurant industry by determining the food commodity costs. Restaurant operators usually negotiate on their purchases through future contracts; however instability in food goods costs can constrain the power to price their products. Suppliers for Domino’s pizza have low bargaining power, due to the high volume of products and the low differentiation level. There are also many substitutes for any particular input. | Power of buyers| Price is a key factor for customers in choosing restaurants.
Consumers compare the values of food and what they pay for the food. Domino’s Pizza customers bargaining power and switching costs are low since a costumer can find a second option easily (frozen pizza or other pizza restaurants and chains). Differentiation levels are created by the consumers and include style of pizza, atmosphere, and location. | Threat of product substitutes| One reason for high competition in the restaurant industry is similar menus among the companies in the restaurant industry. Few restaurants have successfully differentiated menus from others.
The threat this poses on the industry’s’ profitability depend on the price-to-performance ratio, it is also affected by switching costs. Since there are so many firms offer the same basic need the consumer is looking for it results in low switching costs and a high threat of substitution. | Intensity of rivalry among competitors| The rivalry in the restaurant industry is high and gives firms more incentive to differentiate themselves form its competitors and meet customers’ needs. Firms in this industry are competing for the same market share.
Since the customer base is not growing as fast the industry, the growth is slow. | Competitor analysis: With Domino’s Pizza competing in the domestic and global market, its main competitors globally are YUM! Brands, McDonalds, and Wendy’s. Many of these fast service chain restaurants are expanding internationally at a rapid rate. Each competitor offers wide array of products to its consumers, so Domino’s has had to make many menu changes to help keep their loyal customers satisfied. Domino’s main U. S. competitors in the pizza delivery service market are Pizza Hut, Papa John’s, and Little Caesars.
Domino’s is in an industry where it must use its valued brand name as a way of competing with its competitors around the globe. Locally, Domino’s uses its trademark “Domino’s Pizza: You Got 30 Minutes”20 to remind consumers that they are the number one pizza delivery company in the U. S. and use this as a competitive edge against its aggressive competitors. Pizza Hut The number one competitor for Domino’s is Pizza Hut. Pizza Hut operates under Yum! Brands, which also includes four other restaurant chains. Pizza Hut is only two years older than Domino’s and has over 13,000 store locations in 95 different countries.
The main focus of Pizza Hut is letting their customers customize their pizzas; each location is designed to tailor to local tastes and culture. They serve a variety of products ranging from specialty pizzas to pasta, sandwiches and chicken wings. In 2010 the brand reported a 4. 7 percent increase in revenues and sales for Pizza Hut increased by 8. 8 percent in the US. Though Domino’s remains the leader in the US delivery segment, Pizza Hut maintains the top spot in the US pizza segment with a 13. 78 market share as of late 2009.
Pizza Hut’s goal is moving forward, they want to be known not as a pizza restaurant, but as a “pizza, pasta, and wings” brand. To complete their transformation Pizza Hut is working to make its menu items more competitively priced and improve their service times as well as focus on great customer service. Lastly, to help gain market share throughout the world, Pizza Hut is focusing its expansion plans on China, one of the world’s rapidly growing marketplaces. Papa John’s Papa John’s is considered the world’s third ranked pizza delivery and carryout restaurant behind Pizza Hut and Domino’s.
Currently it owns and franchises 3,646 restaurants in which 612 are company owned and 3,034 franchised in all of US and 32 countries worldwide. Papa John’s was founded on the premise that if you make the best pizza and price it competitively, you can sell it. Some of their major products include pizza, bread/cheese sticks, chicken strips, winds, dessert, and beverages. Papa John’s operates through six segments: domestic restaurants, domestic franchising, international operations, variable interest entities, and “all other” business units.
In 1999 Papa John’s took over the number three spot in the US market from Little Caesars. But in the early 2000s, Papa Johns hit the wall and put a break on its expansions plans. The economic recession caused a dip in revenues for year-end 2009, and 2010. In effort to re-energize its brand during this period, Papa invested heavily in advertising, becoming the official sponsor for the NFL and the next three super bowls. In addition, Papa John’s launched a highly successfully promotion for consumers, these efforts helped Papa John’s maintain its market share.
Little Caesars Family-owned Little Caesars Enterprises, Inc a subsidiary of Illitich Holdings owns and franchises over 2,600 units in the US and 11 other countries. As of 2010, it owned 4 percent of the US pizza locations and was a major competitor of Domino’s despite its lack of delivery service. It’s considered by Technomic Inc to be the fastest growing pizza restaurant chain in the US. Approximately 80 percent of Little Caesars locations are franchises with many stores located in strip malls or other popular shopping areas.
Little Caesars offers pizzas, crazy bread and sauce, cheese bread, Caesar dips and churros as well as it offers party catering service. Littler Caesars has been following the same marketing campaign since the 70s and is known for its two-for-one “Pizza! Pizza! ” Little Caesars has topped a host of “Best Pizza Value in America” lists for years and years in a row and, despite some setbacks in the 90s as Papa John’s climbed the ladder, continues to offer some hard- to- beat competition. Internal analysis Tangible resources:
Domino’s low cost deliver-oriented store design is a tangible resource. Domino’s franchises approximately 90 percent of their 5,155 stores in the US. The stores are decided small with a focus on delivery, which allows them to cut the cost of having the typical large pizzeria type restaurant. Domino’s also uses their company owned stores as testing facilities for new products and technologies, this allows them to cut cost on having to rent out additional stores. Domino’s has its own supply chain for domestic and internationally franchised stores.
This operation consists 17 domestic facilities/6 international facilities that distribute food, equipment and supplies to the franchised stores nation and worldwide. Having their own supply chain gives Domino’s an advantage, it means automatic delivery of ingredients to stores which eliminates wait time and adds freshness, allowing the store team to focus on its sales and customer service. The vertically integrated supply chain allows Domino’s to leverage the purchasing power of thousands of privately owned and franchised stores nationwide to help food costs low.
Domino’s new smart-phone “pizza tracker” application that is also available on their website, shows customers where the pizza is in the process, and how long it will take for the pizza to be ready and/or delivered. This allows customers be more involved in the process and allows instant communication between the two. In result this will help decrease the number of employees that Domino’s needs to hire, which will increase revenues as well as focus more on the food making process. Intangible resources: Domino’s has multiple intangible resources.
Firstly, Domino’s focuses as a company on two core strengths: high quality pizzas at a competitive price and a fast delivery time, both that are intangible. Secondly, Domino’s strong brand image results in many loyal customers even with the new introductions made to the menu. Lastly, Domino’s has a worldwide presence and have pioneered the pizza delivery industry giving them a strong reputation. Capabilities: Domino’s has five capabilities that were discussed in the analysis. The first is their vertically integrated supply chain. Domino’s is able to drive sales up and costs down.
Secondly, Domino’s focuses on adapting each location to its surrounding environment, such as changing menu options in other countries to adapt to the taste preferences of the population. Thirdly, the new smart phone application, which allows customers order as they go and have more of a connection during the process. Having a strong brand image is another capability of Domino’s, its what allows them to be a direct competitor in the restaurant industry. Lastly, Domino’s is very cost effective, they pre-cut and pre-package all the ingredients, which allow them to be competitive in the market, and in the price they charge their customers.
Core competencies: The last four decades Dominos has proven to be a top leader in the pizza industry, and has created several core competencies. Strong brand presence is what created brand loyalty with their customers and lead them to be one of the major competitors in the industry. Their focus on fast delivery is the foundation of their daily profit margins. Expanding internationally and incorporating online services as well as smart device application is another factor for them staying competitive. Also, Domino’s has a cost leadership business model which allows them to sell their products at a competitive rice. Sustainable competitive advantage: Domino’s has expanded their opportunities for more profit by opening over 3,000 locations internationally. They have built a strong brand image; by incorporating online technology they were able to stay competitive and ahead of some of their competitors. They have sustained their competitive advantage with the incorporation of Internet services as well as their strong brand image, as well as their expansion to over 70 countries. Since 2009, Domino’s stock has grown a remarkable 233 percent by 2011.
SWOT Analysis Strengths| Weaknesses| -Delivery leader in the industry. -Has a strong and diversified franchising network around the world-Massive growth in its expansion across the globe; Dominos international network grew 48% from 2,987 stores to 4,442 stores-Strong brand equity. Known as the “Mega Brand” as defined by advertising brand magazine. Its positive brand image leads to dependable and trustworthy customers -Technology savvy: Online menus, as well as a Domino’s application for the iPhone and iPod.
Helps customers order quickly and choose to have food delivered; pizza tracker allows the customer to the progress of their food being delivered. | -Compared to competitors it lacks menu options -Weak international presence as compared to peers-Lacks significant amount of profit it earns outs the US compared to its competitors-Weakening bottom line| Opportunities| Threats| -Expand its product outside of its stores and into the frozen food market can be quite profitable and beneficial (good for top line growth)-Introduce new healthier options: organic toppings, gluten free, etc. Entry into expanding markets will like boost revenue growth-Sales growth from online orders and smartphone application| -Faces high competition among other pizza companies domestically and globally. Constantly dealing with new product innovation techniques and pricing pressure among the pizza delivery industry. -Strict govt. regulations poses threat to company’s development plans-Social media can result in a threat due to more people sharing their experiences-bad experiences can influence a prospect client to go elsewhere -Consumers growing more heath conscious| Strategy Formation
Domino’s prides itself on its consistency and logistical operations that keep overhead costs down and provide less expensive pizza. Due to the current demographic changes and methods of communication changing, Dominoes must make changes to it s current cost leaderships strategy in order to gain more market share and stay a top competitor in the industry. Strategic alternatives: A strategic alternative for Domino’s to pursue would be a differentiation strategy. Domino’s could gain more customers from segments of the market that had not considered Domino’s as an adequate meal choice.
If Domino’s chooses to focus on even a lower cost leadership strategy it would help them maintain its current customer base and possible gain more bargain shopper customers by exploiting its already known capabilities and core competencies, resulting in even more market share form this market segment. Pursuing an integrated cost leadership and differentiation strategy, Domino’s will still be able to maintain its competitive pricing while creating new products that will attract new segments of the market. Alternative evaluation: The first strategy that Domino’s could pursue is the differentiation strategy.
Pursing this strategy would mean that Dominos would need to look for new suppliers to obtain higher quality ingredients. The finance support in the value chain would have to examine to see where capital could be found and allocated to make this strategy work. For Domino’s to change to the differentiation strategy, they would need to gain new tangible and intangible resources to achieve this strategy as well as to create new capabilities that would lead to new core competencies, resulting in a competitive advantage in the market. Secondly, Domino’s could purse a even lower cost leadership strategy.
To pursue an even lower cost leadership strategy, Domino’s would have to cut mores cost in areas such as food quality and choice of supplier. This could lead to fewer costs for them but may result going back to their “tastes like cardboard” negative image. Due to the taste aspect of their product, it would be safest for Domino’s to look to make cuts else where such as marketing and advertising in order to keep their even lower cost leadership strategy. Lastly, Domino’s could pursue the integrated cost leadership and differentiated strategy.
This strategy would be the strongest strategy for Domino’s, it could allow them to be the first mover in the industry to use healthier, organic ingredients which would attract a new segment of the market as well as those who might have decided to go else where. Alternative choice: I would choose the integrated cost leadership and differentiated strategy from the three options I listed above. I believe that this strategy allows Domino’s to use its current core competencies and helps develop new capabilities that could lead to even stronger core competencies and a higher competitive advantage in the industry.
Strategic Alternative Implementation Action items: In order for Domino’s to implement an integrated cost leadership and differentiation strategy and gain a competitive advantage in the industry it will need: suppliers that will sell quality ingredients at a reasonable cost, a new structure that is supported by the company, and lastly having the current leader initiate and encourage these changes, or put a new leader that will help implement these changes.
Actions plan: In order for Domino’s to take on an integrated cost leadership and differentiation strategy, they should use their existing connections with suppliers that will help them find new suppliers who can deliver organic, high quality ingredients at a reasonable price. This will assist with Domino’s becoming the first mover in the industry towards healthier, high quality pizzas.
Though this may lead to an increase of price, I believe that because of the current organic foods sector recent growth sprit in our society, there won’t be much of a negative reaction to the price. The current hybrid functional/multidivisional structure may be able to hand the strategy change, but modifications to the value chain would need to take place. Less focus on cutting costs, more of a focus on differentiating the product.
Last of all, the current leader or a new leader would need to me a transformational leader, that would implement and encourage the strategy switch from cost leadership to integrated cost leadership and differentiation. Pursuing this new strategy would lead to numerous opportunities, and benefits for Domino’s now and the future. It would allow Domino’s become a first mover in the industry, and create a new market for other fast food restaurants.