Demand Estimation and Forecasting

“Domino’s Barbeque Chicken Pizza”

By Group 14

2

• Introduced to Sri Lanka in 2011 by Jubilant Food Works with their strong strategy of ‘think global and act local’.

Vision

“Exceptional people on a mission to be the best pizza delivery company in the world!"

• Currently, they operate 20 outlets in Colombo with more than 400 employees.

Domino’s Sri Lanka

3

Product : Domino’s Barbeque Chicken Pizza- Large

Considered only “Colombo area” due to there is an increase in demand.

Substitute: Assume Domino’s Spicy Chicken Pizza- Large portion as the substitute as information are not available for Pizza Hut.

Selections Used for the Assignment

4

Why We Selected “Domino’s Barbeque Chicken Pizza- Large”?

Due to the expansion of number of outlets to fulfill pizza demand

The price is set by Domino’s

Accessibility to information

Apparently, the demand for pizza depends advertisements, speed delivery service and promotions.

5

Demand for Domino’s Barbeque Chicken Pizza- Large Depend on,

Price of the product Prices of the

substitutes

No. of outlets in Colombo

Advertisement cost

No. of promotions

Disposable incomeConsumer expenditure on Food

Delivery Service

Women employment

No. of product varieties

Performance incentives

Other factors

6

The Demand Function

• Price of Domino’s Barbeque Chicken Pizza- Large portion - Pb• Price of Domino’s Spicy Chicken Pizza- Large portion ( price of

the substitution) - Ps• Number of outlets in Colombo - O• Advertisement cost - A • Number of promotions conducted - R• Consumer expenditure on food per household in Western

Province- C• Disposable income per person in Western Province- I

Qd = Pb+Ps+O+ A + R + C + I

7

Sources and Units of MeasurementData Collected from Units of measurement

Qd Domino’s Sri Lanka NumbersPb Domino’s Sri Lanka LKRPs Domino’s Sri Lanka LKRO Domino’s Sri Lanka NumbersR Domino’s Sri Lanka NumbersA Domino’s Sri Lanka LKRI Department of Census and Statistics LKRC Department of Census and Statistics LKRCCPI Central Bank of Sri Lanka (http://www.cbsl.gov.lk). LKR

8

Relevancy of the Sample Period and Frequency

Analyzed quarterly data from 2012 to 2015

Frequency: 16 quarters considered

Since pizza is a seasonal product to Domino’s, quarterly information represent entire population.

9

Estimation of Demand Functional form:

Linear function used as R2 Value is 0.9708 and elasticity of Pb is varying

Statistical Software: MS Excel

Estimation Process:

Obtain raw data Adjust raw data for CCPI

Run the regression in MS Excel (data analysis)

10

Results of the Demand Estimation

Regression Statistics

Multiple R 0.9853

R Square 0.9708

Adjusted R Square 0.9452

Standard Error of the estimate 1,059.38

Observations 16

Model Summary

11

Results of the Demand Estimation ( Cont.)

  Coefficients Standard Error

t Stat P-value

Intercept -35,557.30 14,081.45 -2.5251 0.0355Pb -807.9744 281.8357 -2.8668 0.0209Ps 848.9894 290.7003 2.9205 0.0192 O -148.1808 357.2717 -0.4148 0.6892A 0.0001 0.00008 1.2225 0.2563P 912.7613 186.2663 4.9003 0.00119C -0.0641 0.2871 -0.2232 0.8290I 0.1773 0.1871 0.9476 0.3711

12

Interpreting Parameters

Qd = -35,557.3 – 807.974 Pb + 848.9894 Ps – 148.1801O + 0.0001 A + 912.761 R - 0.0641 C + 0.1773 I

• R2 value is 0.9708

• Coefficient of Pb is negative

• Coefficient of Ps is positive

• Coefficient of O is negative

• Coefficient of A is positive

• Coefficient of C is negative

1 Price 808 Qd1 Price 849 Qd

1 Outlet

148 Qd

1 Ad. 0.0001 Qd

1 C 0.0641 Qd

13

Interpreting Parameters (Cont.)1 R 913

Qd 1 I 0.177 Qd

• Coefficient of R is positive

• Coefficient of I is positive

Since P Value is greater than 0.05, number of outlets in Colombo, advertisement cost, consumer expenditure on food per household in Western Province and disposable income per person in Western Province I are not statistically significant.

After removing all insignificant factors the demand function is,

1 R

Qd = -52299.5939 – 683.9388 Pb + 740.78809 Ps + 962.6143 R

14

Elasticity of Demand

4720 6334 4947 9011 6790 11988 7112 14123 11665 12442 10001 17012 10317 15330 11712 21133125013001350140014501500155016001650

Demand Curve

Quantity Sold

Pric

e of

BBQ

Piz

za

• Price Elasticity of Demand is - 49.9%

It towards perfect elasticity

• Demand is mainly depend on promotions. Promotion Elasticity of Demand is 0.44%

15

Demand ForecastingForecasting Techniques :Linear trend forecasting & Time series forecasting (simple moving average method)

Qt = 4449.47 + 760.62 t

year Quarter T T^2016 Q1 17 17380

Q2 18 18141Q3 19 18901Q4 20 19662

year Quarter T^ S^ Y ̂= T^ x S^2016 Q1 17380 1.0008 17393.90

Q2 18141 1.0774 19545.11Q3 18901 0.7109 13436.72Q4 19662 1.2109 23808.72

74184.45Total sales in 2016

Adjusted Forecast

Trend Forecast

Year Q1 Q2 Q3 Q42012 0.7597 1.20512013 0.8031 1.2802 0.6701 1.25222014 0.9973 1.0019 0.7930 1.32862015 1.3286 1.0866

Total 3.1290 3.3687 2.2228 3.7859 TotalAverage 1.0430 1.1229 0.7409 1.2620 4.1688Adj. S 1.0008 1.0774 0.7109 1.2109 4

Seasons Seasonal Adjustment Table

16

Assumptions and Limitations 10% increment in consumer expenditure on food for

western province after 2013

10% of Sri Lanka per capita income is considered as, per capita income of western province after 2013

Qualitative factors which are significant cannot be used for demand estimation

Time constraints

17

THANK YOU