Domino's Pizza - Strategies to Tackle Global Economic Slowdown
"Ultimately, this franchise-only business model is what helps Domino's rake in the cash even in a downturn. Restaurant chain Pizza Hut may have a strong brand, but it is weighed down by its portfolio of managed restaurants; Domino's has none. It also means Domino's has its strategy laid out not just for the next year, not even for the next five years, but until 2017. The company wants to open hundreds of new stores until then, at a rate of around 50 per year, before taking a breather."1 - Lionel Laurent, Markets Reporter for Forbes.com, London, in January 2009. "Domino's Pizza's same-store sales should still relatively outperform those of other quoted restaurant companies because they will, amongst other reasons, benefit from people tightening their belts rather than eating out at restaurants."2 - John Beaumont, Analyst with Singer Capital Markets Limited3, in January 2009.
Introduction
As of mid-2009, US-based Domino's Pizza Inc. (Domino's), was one of the world's largest pizza chains. In fiscal 20084, the company reported global retail sales of US$ 5.5 billion 5 which included retail sales of both company-owned and franchise stores. The company reported revenues of US$ 1.425 billion and net income of US$ 54 million for the fiscal year 2008. As of December 2008, Domino's operated 8,773 stores across 60 countries and had approximately 170,000 employees worldwide (Refer to Exhibit I for number of stores and their classification according to domestic and international, company-owned and franchises). Domino's reported improved fourth quarter results for its international business. This marked the 60th consecutive quarter of growth in international same store sales 6. However, it announced a decline in domestic growth for the last quarter of 2008 (Refer to Exhibit II for Domino's Same Store Sales Growth and Retail Sales Growth in domestic and international markets for 2008 and to Exhibit III for Selected Financial Data of Domino's). Commenting on the fiscal 2008 financial results, David A. Brandon (Brandon), Chairman and CEO, Domino's, said, "Throughout 2008, we battled many external challenges while laying the groundwork for better future results. I have mixed feelings about our overall results. I am disappointed with our domestic sales performance and the pressure this created on our short-term profits. However, I am excited about the aggressive steps we have taken to improve our franchise system, expand our menu and lunch day-part, and strengthen our marketing. And, our International business continues to expand and grow. The current economic crisis has been challenging and at times, painful. However, I am convinced we will come out of this a stronger brand, stronger system of stores, and a stronger company."7...
Background Note
Domino's Pizza originated as a small pizza store owned by Dominick Di Varti at the Michigan University campus in the US under the name 'DomiNick's Pizza'. The pizza store was bought by
two brothers who were students at the University, Thomas S. Monaghan (Tom) and James S. Monaghan (James) in 1960...
Domino's Master Franchise Model
Industry analysts believed that Domino's master franchise model was one of the reasons for its success in international markets in light of the global economic slowdown in 2008... How Domino's International Bucked the Trend The strong performance of Domino's international master franchises in the midst of the global economic slowdown was a widely debated topic among analysts. While some analysts believed that the recession had helped the growth of these chains due to the 'trading down factor' of people preferring to eat at home rather than dine out at expensive restaurants, others believed it was a combination of aggressive marketing and the franchise model that had helped the company buck the trend... Promotional and Advertisement Campaigns The pizza delivery business had traditionally been promotion driven. Coupons and discounts were offered by all pizza delivery chains to woo customers. Since its inception, Domino's had been known for its unique promotions that included fast delivery and innovations to cater to a varied palette... The '30 Minutes' Promise In the year 1973, Domino's began a guarantee scheme that its pizzas would be delivered in 30 minutes or less of ordering failing which the customer would receive the pizza free... Use of Technology At DPG, online sales accounted for over 70 percent of its total sales in 2008. DPG planned to further exploit the increasing potential of the online medium as one of the promotional and distributional channels in the downturn, "This is the 10th year we have had an e-commerce platform. We were the first to it back in 1999. We do a number of different activities online to increase sales but there are other things we will be launching this year."...
Domino's US - Experiencing the Downturn
While Domino's was successful in international markets, the company experienced a slowdown on the domestic front. In the US, in 2008, the pizza industry was witnessing a slowdown due to recession in the economy. As a result, a significant number of people remain unemployed while others had to suffer pay cuts...
Future Outlook
Domino's forecast flat same store sales for domestic and international markets combined in the fiscal year 2009. The company reported that it was not sure whether the increase in sales in international markets would be sustainable due to the adverse foreign currency movements that would impact the royalties from franchises...
doc_857684653.pdf
"Ultimately, this franchise-only business model is what helps Domino's rake in the cash even in a downturn. Restaurant chain Pizza Hut may have a strong brand, but it is weighed down by its portfolio of managed restaurants; Domino's has none. It also means Domino's has its strategy laid out not just for the next year, not even for the next five years, but until 2017. The company wants to open hundreds of new stores until then, at a rate of around 50 per year, before taking a breather."1 - Lionel Laurent, Markets Reporter for Forbes.com, London, in January 2009. "Domino's Pizza's same-store sales should still relatively outperform those of other quoted restaurant companies because they will, amongst other reasons, benefit from people tightening their belts rather than eating out at restaurants."2 - John Beaumont, Analyst with Singer Capital Markets Limited3, in January 2009.
Introduction
As of mid-2009, US-based Domino's Pizza Inc. (Domino's), was one of the world's largest pizza chains. In fiscal 20084, the company reported global retail sales of US$ 5.5 billion 5 which included retail sales of both company-owned and franchise stores. The company reported revenues of US$ 1.425 billion and net income of US$ 54 million for the fiscal year 2008. As of December 2008, Domino's operated 8,773 stores across 60 countries and had approximately 170,000 employees worldwide (Refer to Exhibit I for number of stores and their classification according to domestic and international, company-owned and franchises). Domino's reported improved fourth quarter results for its international business. This marked the 60th consecutive quarter of growth in international same store sales 6. However, it announced a decline in domestic growth for the last quarter of 2008 (Refer to Exhibit II for Domino's Same Store Sales Growth and Retail Sales Growth in domestic and international markets for 2008 and to Exhibit III for Selected Financial Data of Domino's). Commenting on the fiscal 2008 financial results, David A. Brandon (Brandon), Chairman and CEO, Domino's, said, "Throughout 2008, we battled many external challenges while laying the groundwork for better future results. I have mixed feelings about our overall results. I am disappointed with our domestic sales performance and the pressure this created on our short-term profits. However, I am excited about the aggressive steps we have taken to improve our franchise system, expand our menu and lunch day-part, and strengthen our marketing. And, our International business continues to expand and grow. The current economic crisis has been challenging and at times, painful. However, I am convinced we will come out of this a stronger brand, stronger system of stores, and a stronger company."7...
Background Note
Domino's Pizza originated as a small pizza store owned by Dominick Di Varti at the Michigan University campus in the US under the name 'DomiNick's Pizza'. The pizza store was bought by
two brothers who were students at the University, Thomas S. Monaghan (Tom) and James S. Monaghan (James) in 1960...
Domino's Master Franchise Model
Industry analysts believed that Domino's master franchise model was one of the reasons for its success in international markets in light of the global economic slowdown in 2008... How Domino's International Bucked the Trend The strong performance of Domino's international master franchises in the midst of the global economic slowdown was a widely debated topic among analysts. While some analysts believed that the recession had helped the growth of these chains due to the 'trading down factor' of people preferring to eat at home rather than dine out at expensive restaurants, others believed it was a combination of aggressive marketing and the franchise model that had helped the company buck the trend... Promotional and Advertisement Campaigns The pizza delivery business had traditionally been promotion driven. Coupons and discounts were offered by all pizza delivery chains to woo customers. Since its inception, Domino's had been known for its unique promotions that included fast delivery and innovations to cater to a varied palette... The '30 Minutes' Promise In the year 1973, Domino's began a guarantee scheme that its pizzas would be delivered in 30 minutes or less of ordering failing which the customer would receive the pizza free... Use of Technology At DPG, online sales accounted for over 70 percent of its total sales in 2008. DPG planned to further exploit the increasing potential of the online medium as one of the promotional and distributional channels in the downturn, "This is the 10th year we have had an e-commerce platform. We were the first to it back in 1999. We do a number of different activities online to increase sales but there are other things we will be launching this year."...
Domino's US - Experiencing the Downturn
While Domino's was successful in international markets, the company experienced a slowdown on the domestic front. In the US, in 2008, the pizza industry was witnessing a slowdown due to recession in the economy. As a result, a significant number of people remain unemployed while others had to suffer pay cuts...
Future Outlook
Domino's forecast flat same store sales for domestic and international markets combined in the fiscal year 2009. The company reported that it was not sure whether the increase in sales in international markets would be sustainable due to the adverse foreign currency movements that would impact the royalties from franchises...
doc_857684653.pdf