Northern Beaches Christian School

Preliminary Business Studies Assessment Task 1 Global Business Case Study-Business Report.

An analysis and evaluation of Domino’s Pizza Incorporated

Ella Thornton - Year 11

Year 11 Business Studies

Mr Sassine

Week 9 of Term 1

Table of Contents:

1.0 Executive Summary: 2

2.0 History of Domino’s: 3

2.1 Pre 2000 3

2.2 Post 2000 4

2.3 Key Developments: 4

2.31 International Expansion 4

2.32 Franchises 4

2.33 Innovations 4

3.0 The Business Life Cycle: 4

3.1 Domino’s in the Post-Maturity stage 4

3.11 Domino’s Decline: 2008-2009 5

3.12 Domino’s Renewal: 2010-2013 5

3.13 Domino’s in Post-Renewal Steady State: 2014-present 6

4.0 Technology’s influence on Domino’s: 6

4.1 Technology as an external influence on business: 6

4.2 How technology has impacted Domino’s: 7

4.3 Recommendation: 8

5.0 Strategies for growth: 8

5.1 Achieving Sustainable Competitive Advantage 10

5.2 The Next Step for Domino’s 8

5.3 Evidence of Success 8

6.0 Conclusion 10

References: 11

1.0 Executive Summary:

The following business report has been written to assess the progress of Domino’s Pizza Incorporated and

its Australian division, Domino’s Pizza Enterprises Limited. The purpose of this report is to recommend a

strategy for Domino’s to undertake to develop a sustainable competitive advantage. This sustainable

competitive advantage will serve to increase customer convenience, cause a growth in sales and maintain

the company’s substantial market share.

The report begins by summarising the history of Domino’s, outlining their key developments. It recounts

Domino’s founding, by the Monaghan brothers in the early 1960’s, and provides a brief timeline since

their establishment. Specific areas of growth, such as the company’s international expansion and

franchises, are discussed. The report also highlights some of Domino’s central innovations; which have

been crucial elements of the company’s exponential growth.

The next section in this report goes on to identify that Domino’s is currently in the post-maturity phase of

the business life cycle. This is justified through the analysis of Domino’s decline, renewal and current

post-renewal steady state. In 2008 and 2009, Domino’s revenue dropped suddenly as the result of

customer dissatisfaction with the poor quality of the product. The implementation of new management,

however, resulted in Domino’s turnaround in 2012. They are currently in the steady-state phase, with

relatively consistent earnings over the last two years. Moreover, Domino’s experience, time since

establishment, number of stores and brand awareness are all indicators of them being in the post-maturity

stage.

Section three of the report (4.0) goes on to identify the influence of Technology on the development of

Domino’s. This section explains how Domino’s has aligned their products and operations with the new

digital age. As technological developments have become available, Domino’s has restructured their

procedures to increase efficiency and customer convenience.

The fourth and final section suggests that Domino’s Pizza Enterprises Ltd should implement drive thru’s

in their larger stores. This will further increase Domino’s customer base and in turn result in a growth in

sales. Other franchised businesses, for example Boost Juice, have identified the demand for convenience

food and it recommended as Domino’s next step. As the leading pizza chain in Australia, they already

have loyal customers and existing strategies for growth; the way to further increase sales is through the

implementation of a drive thru. Domino’s has already begun research into decreasing the time it takes to

create a pizza from scratch, and their results support the viability of Domino’s drive thru stores. This

initiative is difficult to replicate by Domino’s major competitors and requires advanced technology to be

achievable; something Domino’s has already begun trialing and investing into.

2.0 History of Domino’s:

2.1 Pre 2000

Tom and James Monaghan founded Domino’s Pizza in 1960. Their original store was named

“Dominick’s pizza” and was located in Ypsilanti, Michigan. Approximately 8 months after the business

was established, James Monaghan traded his half of the venture to Tom in exchange for the vehicle they

had been using for deliveries (Chris Higgins, 2015). In 1965, Tom purchased two additional pizzeria’s

and renamed the business “Domino’s Pizza Inc.”, officially introducing the brand. The three dots on the

logo are representative of Tom’s three initial stores (Domino’s Pizza Enterprises Ltd, 2015a).

2.2 Post 2000

As of 2014, Domino’s has approximately 11,000 stores, 5000 of them are located in the United States.

(BizDomino’s, 2014). Domino’s experienced exponential growth primarily between 1980 and 2000. In

the early 2000’s the number of Domino’s stores continued to grow, however customer dissatisfaction was

rising for a number of reasons (see 3.11). This led to a decline in sales, and prompted the implementation

of new management and marketing strategies (Tiffany Le/Tom Pashut, n/a). In 2012, Domino’s

introduced an assortment of non-pizza products, resulting in the renaming of “Domino’s Pizza” to simply

“Domino’s”, to emphasize their new range of sides and desserts. Domino’s is currently the leading pizza

chain in Australia and the second largest in the U.S, following its major competitor “Pizza Hut”.

2.3 Key Developments:

2.31 International Expansion

Domino’s first international store was established in Winnipeg, Canada in 1983. In the same year,

Domino’s also opened its 1,000th store. Some of Domino’s key international expansions include;

Australia (1983), United Kingdom (1985), Japan (1985), Dominican Republic (1993), Haiti (1993) and

India (1995). Domino’s had expanded to 1,000 international locations within 12 years (1983-1995). In

1997, Domino’s opened seven stores in one day across 5 different continents, bringing their total store

count to 1,500 (Domino’s Pizza Inc, 2013).

2.32 Franchises

In 1967, Domino’s Pizza opened its first franchise location, and within a 10 year period the business had

expanded to 200 stores. Domino’s predominantly operates through master franchise agreements. The

largest master franchisee is Domino’s Pizza Enterprises Ltd, which owns franchising rights across

Australia, New Zealand, France, Belgium, The Netherlands and Japan. Domino’s Pizza Enterprises Ltd is

regarded as the Australian division of Domino’s Pizza and was publicly listed in 2005. It currently has

more than 2000 stores and owns the right to own, manage and franchise branches of the Domino’s chain

within the aforementioned countries (Domino’s Pizza Enterprises Ltd, 2015b).

2.33 Innovations

Domino’s is largely renowned for their innovative processes and technologically based operations.

Delivery services were always a key part of their business model, however the addition of the ‘Pizza

Tracker’ service in 2015 was hugely successful (Domino’s Pizza Enterprises, 2015c). Their ‘30 minutes

from ordering or free’ policy also had significant contributions to their rapid growth, however this

initiative was discontinued in 1993, as Domino’s became involved in a lot of legal problems that were

closely involved with the policy (David Mikkelson, 2014).

3.0 The Business Life Cycle:

3.1 Domino’s in the Post-Maturity stage

Domino’s is currently in the post-maturity stage, evident through their time since establishment, number

of stores and revenue. The following sections; decline, renewal, steady state; will outline Domino’s

financial hardship, growth and their current post-renewal state of consistent financial earnings.

3.11 Domino’s Decline: 2008-2009

Domino’s experienced exponential growth from 1960 to 2000. As Domino’s entered the new century, the

company had over 6,500 stores (mainly franchises) and sales reaching 3 billion dollars. In 2008,

Domino’s sales began to plateau and their stock was at its lowest, at only $4 a share. These results were a

surprising contrast to their rapid growth of previous years. Domino’s U.S. decline (refer to Graph 1) can

be accredited to the poor quality of their product, and fierce competition from Pizza Hut, causing a

decrease in market share. In 2009, a study conducted by UCLA found that Domino’s 3rd Quarter

revenues dropped by 6.5%, and its shares posted a steeper-than-expected decline of 8% (UCLA Econ,

n/a).

Graph 1:

3.12 Domino’s Renewal: 2010-2013

In 2010, Domino’s responded to their declining sales by appointing a CEO, J. Patrick Doyle, who

implemented new management strategies and reassessed both their products and processes. The

revitalization of the Domino’s brand by Doyle was highly successful, as is evident in Graph 1. The

company worked from 2010 to 2012, updating its technology and developing new pizza recipes to

become more attractive to customers. Domino’s had their new pizza recipes tested on random pizza

consumers from the U.S.A. The results demonstrated that Domino’s had now surpassed their major

competitors, Papa John’s and Pizza Hut, in flavour and quality. As a result of these changes, Domino’s

experienced an astronomical turnaround (Tiffany Le/TomPashut, n/a).

3.13 Domino’s in Post-Renewal Steady State: 2014-present

As shown in the graph below, Domino’s (DPZ) is no longer in renewal and heading into a steady state.

Graph 2 assesses Same-Store sales growth (SSSG), which is a measure of the increase in revenue over a

certain period from a company’s existing restaurants. As displayed below, in 2Q16 (2nd Quarter, 2016),

SSSG was 9.8%, 9.1% and 7.1% for its company-owned, domestic franchised and international

franchised restaurants. This only indicates a slight decrease since 2Q15, at which time Domino’s Pizza

had SSSG of 12.8%, 12.5% and 6.7%. Restaurants in international markets have maintained steady SSSG

and domestic company-owned restaurants and domestic franchised restaurants have only fluctuated by 2-

4% between each quarter over the last year. Though Domino’s is continuing to open new stores and

expand internationally, the business is stagnating (Ralph Nathan, 2016).

Graph 2:

4.0 Technology’s influence on Domino’s:

4.1 Technology as an external influence on business:

Businesses are consistently influenced by new technological advancements and developments.

Technology is often used as an innovative way of simplifying the operations of a business. It improves a

business's ability to communicate and the efficiency of this communication. With the new digital age,

technology has become a prevalent component of every business. As technology continues to change, the

business model will also shift and it is imperative that businesses keep up with new innovations to

maintain their competitive advantage.

4.2 How technology has impacted Domino’s:

Domino’s has always prided themselves on their use of technology. It is a fundamental part of the

Domino’s ethos and has been a consistent framework for their operations and efficiency. As stated in

2.33, the Domino’s GPS Driver Tracker technology of 2015 was one example of their utilization of

technology as both an efficiency tool and an advertising strategy: as customers could keep track of their

pizza at any given stage. As new technology has become available, Domino’s has used it to modernise

their operations and customer relations. Some key technological milestones for Domino’s includes;

launch of their website (1996), creation of Australia's-first online ordering website (2005), introduction of

their online ordering iPhone Application (November, 2009), the running of their mobile public website

(February 2012), Domino’s launch of their interactive website and their Pizza Mogul application (July,

2014) (Domino’s Pizza Enterprises Ltd, 2015d). With online ordering, mobile ordering and the Domino’s

apps, they have created a digital based business culture, and become renowned for their focus on

customer convenience through technology. Over the past two years, Domino’s has introduced 3 key

technological innovations:

1. Emoji Ordering: Allows customers to order their pizza by tweeting a pizza icon.

2. Amazon Echo application: Enables users to order their pizza through voice command.

3. No-Click Ordering: Consumers pre save info and preferred orders, so that food can be summoned

simply by opening the app. 10 seconds after opening the app the order has been placed.

The latest breakthrough for Domino’s however, comes in the form of DRU (Domino’s Robotic Unit).

DRU is the world’s first autonomous delivery vehicle, with no technology similar in the field of

commercial delivery. The robotic unit has an inbuilt navigation system and is able to sense any obstacles

in its path (Domino’s Pizza Enterprises Ltd, 2016). Though it has not been actively tested yet, it has been

said to be in service on Australian streets in 2018 (Angus Whitley, 2016). This machine is a significant

breakthrough for Domino’s and the future commercialisation of this technology (Jacinda Tutty, 2016).

Domino’s digital strategies are paying off, with their technological platforms (app and website) receiving

over $2 billion, which doubles their delivery revenue (Mark Wilson, 2016). Domino’s recently announced

that 40 new digital projects will be released in the next financial year (Tracy Stephenson, 2016).

4.3 Recommendation:

Through utilising technology, Domino’s has managed to decrease production time, which creates

opportunities for higher volume of production. In turn, this creates the potential for revenue growth as a

result of the time saved. Through the use of technology there is less scope for human error and greater

opportunity for efficiency, two aspects of business that have a direct impact on revenue and quality.

Domino’s is encouraged to maintain their current approach to technology and continue to develop current

digital projects. For further growth in the field of technology, it is recommended that Domino’s continue

to build and implement the DRU self-driving delivery vehicle. They should also seek to further personal

customisation for the ‘no-click ordering’ initiative, as this will be attractive to customers and maintain a

similar if not greater level of convenience for consumers (Mark Wilson, 2016).

5.0 Strategies for growth:

5.1 Achieving Sustainable Competitive Advantage

Sustainable Competitive Advantages are often achieved when a business has a distinguishing feature/s

that persuades a consumer to purchase their product over competitors. To be sustainable it requires a

unique and exclusive element that is difficult to replicate. The following section will outline Domino’s

recommended strategy for growth and how they are able to achieve a sustainable competitive advantage.

Domino’s is an extensive group, and as such 5.0 will focus specifically on the Australian Division of

Domino’s: Domino’s Pizza Enterprises Ltd. (DPE)

5.2 The Next Step for Domino’s

DPE is a master franchisee of the publicly listed company in the United States, Domino’s Pizza Inc.

Contrary to Domino’s U.S. division, who is second behind Pizza Hut, DPE is the largest pizza chain in

Australia. They manage the Domino’s brand and network in Australia and New Zealand, as well as many

countries in Europe (refer to 2.32). As the leading international Domino’s franchise they already have

loyal customers and existing campaigns to gain competitive advantage, however in order to maintain their

high market share it is imperative they introduce something new and sustainable. Therefore, the

recommended next step for DPE is the implementation of ‘Drive Thru’s’ in their larger stores.

5.3 Evidence of Success

In April 2016, an article was released showing that DPE was focused on developing a 3-minute pizza.

This meant that the turnaround time from order to delivery would occur in a 3 minute period. According

to the chief Executive of DPE, specific technology would be required to cook a pizza from scratch in

three minutes. In trials conducted, the new ovens used halved the cooking time to four minutes. As is

evident in this research, a pizza that takes 3-minutes is potentially achievable. From a systems

perspective, this implies that the concept of a drive thru in these stores is by extension similarly

achievable. If Domino’s is already working to develop the technology to create a pizza in such a small

time frame, then the procedures will already support the viability of a drive thru (Angus Whitley, 2016).

“The Weekend Australian” recently stated that Domino’s was set to ‘expand its successful online order

services and target people using fast-food drive-through outlets’ (Lucy Hughes Jones, 2015). Some

Domino’s stores in the United States have already put in drive throughs, hence why it is the next best

initiative for DPE. The image below displays one of the Domino’s America drive thrus. This is a

significant addition to the possibility of Australian and European drive throughs, because it shows that

DPE can leverage off of the established practices in the U.S. stores to further refine and develop the idea.

Image 1:

Existing Drive Thru at Domino’s Pizza Outlet

The international company, Boost Juice, recently announced the implementation of drive thru stores.

Their customer base was increasing exponentially, and founder Janine Allis believed that the only step

forward was a drive thru (Jake Rosengarten, 2017). This new initiative highlights that other franchised

businesses have noticed the demand for convenience food, and responded through the form of drive

thru’s. As this is a new development for Boost Juice, there is little evidence to prove its success. This

being said, drive thrus have historically been a successful addition to fast food restaurants, for example

McDonald's.

DPE is encouraged to implement this strategy in their larger stores to further revenue growth. This

strategy is not easy for competitors to replicate and these barriers to entry will solidify the competitive

advantage for Domino’s. Though it is a costly initiative, Domino’s has the financial reserves to introduce

drive thru’s and will be entering a new market of customer convenience which will result in an increase of

sales (Domino’s Pizza Enterprises Ltd, 2016).

6.0 Conclusion

Domino’s already have significant market dominance and online presence and should therefore work to

improve on a combination of established and new initiatives, as stated in 4.3 and 5.3. Online ordering for

Domino’s has already proven to be very successful, specifically in international markets. Their thriving

digital platforms exemplify their definitive advantage over their competitors. Customisation of their

existing technology and development of their DRU machine will further increase sales. As they are

currently in the post-maturity stage, Domino’s will best be able to avoid heading into decline through the

introduction of drive thru stores. By developing and implementing new technological equipment, the

company will have a new platform to build off of over the next few as the demand for convenience food

grows.

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