Retail Management Dr. Anshu Arora November 25, 2012 WRITTEN BY: Reginald G. Walker, Jr.
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Tables of Contents I. Company Background...... 4 II. External and Internal Environmental Analysis ............. 4 a. SWOT Matrix 4-5 III. Competitor Analysis................................................................................................. 6-9 a. Direct Competitors 6 i. Pizza Hut 6 ii. Papa J ohns.6-7 iii. Little Caesars 7 b. Indirect Competitors.. 7 i. Subway.. 7-8 ii. Firehouse and Baldinos Subs........ 8 iii. McDonalds. 8-9 IV. Market/Submarket Analysis...................................................................................... 9-12 V. Customer Analysis.........................................................................12-14 VI. Comprehensive Strategy Assessment....................................14-19 a. Driving sales, traffic with digital...14-15 b. The Strategy...15-16 c. Key strategies maintain consistency.. 16-18 d. Marketing focus on product upgrades... 18 e. What Dominos is doing right... 18-19 f. Key Competitors & their Competitive Advantages.. 19-20 VII. Future Strategies/Recommendations..........................................................................20-21 VIII. References..................................................................................................................22-23
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Company Background The World Leader in Pizza Delivery was founded in 1960 by two brothers, Tom and J ames Monaghan, who borrowed $500 to purchase a pizza store. After a whole year, J ames sold his part of the store to Tom for a Volkswagen Beetle automobile. Tom then renamed the company, Dominos Pizza, Inc. Now Dominos Pizza is the second-largest pizza company in the world today. Although Dominos is the second-largest pizza company, they lead the pizza market in annual sales, franchises and number of stores. Simplicity is a driving and primary factor in why Dominos Pizza, Inc. is the world leader in pizza delivery. They once only focused on pizza delivery and customer carryout rather than the standard dine-in seating areas like other fast-food chains like competitors McDonalds and Pizza Hut. Dominos menu used to only consists of one type of hand-tossed pizza dough available in two sizes (12- and 16-inch), 11 toppings and bottled Coca-Cola as the only beverage option. However, Dominos was focused to change in response to consumer preferences and competitors offerings. Now, Dominos Pizza leads the pizza market in a variety of major categories and are looking to occupy the #1 position in all categories in due time (Dominosbiz.com, J une 2010). External and Internal Environmental Analysis
Internal Factors & Strength-S S1 Product Price S2 Sales Promotion S3 Various Store Locations S4 Delivery S5 Renovation of Taste (Product Quality) Weakness-W W1 Major Direct Competitors W2 Previous Bad Taste Quality (Loss of some previous customers due to bad taste) W3 No changes in taste and preferences due to region or country (same taste everywhere) W4 Brand Image not as strong 5
External Factors SWOT Analysis
S6 Positioning in Pizza Market (2 nd
behind Pizza Hut) S7 Annual Sales S8 Constant Innovation S9 Strong Brand Image Domestically internationally Opportunities-O O1 Continuing to develop taste O2 Enhancing Taste Quality of minor products (sandwiches, wings, breadsticks, etc.) O3 Expanding Growth in developing countries like China & India O4 Improving Online Ordering Procedures SO Strategies SO1 Potentially pondering upon purchasing the declining sales privately-owned company, Quiznos Subs S1S3S6S7O1O2
WO Strategies WO1 Change in taste and preferences in different regions and countries W304 Threats-T T1 Indirect Competitors T2 Potential Competitors T3 People becoming more aware of their health
T4 Change in Economy and Increases in operating cost(s) ST Strategies ST1 Developing a vegetarian pizza and menu selection for these customers conscious of their diet and health S5T3 WT Strategies WT1 Various Healthy Choices on menu(s) in all regions and countries offering Dominos Pizza services W3T3
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Competitor Analysis In 2010 there were 67,554 pizza stores in the United States. The number of pizza restaurants is pretty large; on that behalf Dominos will forever have strong competition. The competition is fierce in the pizza market because of the major franchised stores but even the smaller independent owed stores. All the pizza restaurants are fighting for the consumers dollars and try their hardest to stay on top of the market. Dominos direct competitors are Pizza Hut, Papa J ohns Pizza and Little Caesars. Direct Competitors Pizza Hut The first direct competitor of Dominos is Pizza Hut. In 2010 Pizza Hut was leading the market with over five billion dollars in U.S sales. Pizza Hut was founded 1958 in Kansas by Dan and Frank Carney. Pizza Hut has over 11,000 locations in the United States with over 140,000 employees. Pizza Hut is an American restaurant chain and international franchise that has been leading the pizza market. Other than Dominos Pizza Hut is split into several different restaurant formats; the original family-style dine-in locations; store front delivery and carry-out locations; and hybrid locations that offer carry-out, delivery, and dine-in options. Papa Johns
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The second direct competitor is Papa J ohns. Papa J ohns is the third largest pizza restaurant chain in the United States. Their slogan is Better Ingredients. Better Pizza. Papa J ohns. Papa J ohns is rarely new compared to Pizza Hut and Dominos being founded 1984 in Kentucky by J ohn Schnatter. There are over 4,000 locations across the world and have over 16,000 employees. Papa J ohns has been through numerous of lawsuits and been in controversy since they opened. Little Caesars The third direct competitor is Little Caesars. Little Caesars is the fourth largest pizza chain in the United States but is not too far from its competitors. Little Caesars was founded 1959 by the Illich family in Michigan. The name of Little Caesars was thought of by Marian Illitch and it came from the nickname she called her husband Mike Illitch. The company is famous for its advertising catchphrase, "Pizza! Pizza! that was introduced in 1979. The phrase refers to two pizzas being offered for the comparable price of a single pizza from competitors Little Caesars are known for their Hot-N-Ready pizzas thats cost $5 plus tax, this is extremely cheaper than the competitions prices. Indirect Competitors
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Subway Even though Dominos have some direct competitors they also have some indirect competitors. One of their indirect competitors will be Subway strangely but true. The reason why Subway is one of Dominos competitor is because of the Dominos entered the sandwich market as well. Becoming a competitor during the lunch period Dominos seen an opportunity to take and gain profit from. Dominos introduced their oven baked sandwiches in 2008, which came in four different styles. Early marketing for the sandwiches made varied references to its competition, such as offering free sandwiches to customers named "J ared," a reference to Subway's spokesman of the same name. Firehouse & Baldinos Subs There were other restaurants that were affecting by Dominos new menu change in 2008. Fire House Subs and Baldinos are indirect competitors of Dominos Sales were decreasing tremendously due to the big buzz about Dominos oven baked sandwiches. Firehouse sandwiches US-based, fast casual restaurant chain that specializes in hot subs. Founded in 1994 in J acksonville, Florida by former firefighter
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brothers Robin and Chris Sorensen, Firehouse Subs serves sandwiches with meats and cheeses, "steamed" hot and placed on produce on a toasted sub roll. Locations offer a family-oriented atmosphere, with a firefighter theme that includes fire equipment throughout the store and a menu that features. Baldinos is very similar to Firehouse Subs. McDonalds A massive worldwide franchise that specializes in the fast food industry is McDonalds. In 2008, McDonalds revenues exceeded $23 million. McDonalds brand image is a major strength for them as people of all ages across the globe recognize the golden arches logo. With their well- recognized logo, McDonalds has been involved in many legal issues such as being accused for false advertising and violation of fraud acts (Henry, 2010). Due to the fact that McDonalds is a highly profitable and recognizable fast food chain industry, they are an indirect competitor to Dominos because of them being a part of the same industry, which is the fast food industry.
Market/Submarket Analysis 10
The pizza industry is a highly competitive and mature market. There are more than 150 well known pizza franchises, which account for 60% of the entire market. It is also an ever- changing market with constant new and fierce competitors entering the market at various times which could consume some profits from the other many pizza franchises throughout the country and world. This also causes for more competition throughout the pizza and fast food industry (Henry, 2010). The industry has faced some hardships with the trends of society and declining economy.
This graph symbolizes U.S. Pizza Companies Sales and their percentages in the pizza market out of 100 percent total. Dominos is second among mainstream pizza companies. 11
Consumers now are requesting healthier choices for themselves and their families. Many people are also more interested in where the products are produced and what ingredients go into making their food. To combat this health awareness among consumers, pizza restaurants are trying to change their dough by having healthier fats, which is done by incorporating more whole wheat into their crusts. The pizza toppings are also becoming healthier, and some pizzerias are introducing salads into their menus. The rise in minimum wage has also posed obstacles for the industry, requiring more of their operating
This graph symbolizes U.S. Pizza Companies Stores and their percentages in the pizza market out of 100 percent total. Dominos is second among mainstream pizza companies stores. However, Dominos Pizza has franchised the most stores in the pizza market and the largest growth of stores of all pizza restaurants. 12
income to be dedicated to labor costs. The increase in the price of inputs has also changed their profitability. The cost of wheat has tripled, cutting the amount of profit per pizza (Henry, 2010). In 2010, Forbes ranked Dominos the number one franchise for the money and Pizza Today, a leading industry publication, named Dominos the chain of the year, an honor that was repeated in 2011 (Franchise Times, October 2011). Also in 2010, there were 67,554 pizza stores in the U.S., which represented 12% of all restaurants in the market. Franchised or chain stores made up 60% of the units and generated half of the revenue; the remainder came from independently owned stores which were often referred to as mom and pops restaurants. Independent pizza shops had always been a strong source of competition for consumer dollars even though these (usually) single units did not have the purchasing power or the advertising ability of the large chains (Franchise Times, October 2011). By J uly 2011, Dominos had grown to 9.436 company-owned and franchised stores in all 50 U.S. states and across 65 international markets, making it the second-largest pizza company in the world behind Yum Brands Pizza Hut. Dominos had approximately 10,900 employees, referred to as team members, spread across company-owned stores, supply chain centers, the World Resource Center, and regional offices. The company estimated that another 185,000 individuals were employed by independent Dominos franchisees worldwide. For the first time in Dominos history, international retail sales eclipsed U.S. sales in the second quarter of 2011 when overseas markets generated 51% of total company sales (Franchise Times, October 2011).
Customer Analysis Despite Dominos' negative experience with social media earlier this year, which involved the explosion of a YouTube video showing two employees doing repulsive things with Dominos 13
ingredients, the brand is now embracing the channel to promote its brand with its new Pizza Turnaround campaign. For a brand, one advantage of social media involvement is the opportunity to generate instant customer feedback. Dominos' new strategy is a great example of a company using social media to listen to and react to its customers in order to solve a problem. The Problem: Dominos has had the same pizza recipe since they launched 50 years ago, and while it finished first in pizza delivery and value according to a 2009 Brand Keys survey of national restaurant chains, it also finished dead last in consumers' taste preference. With pizza deliveries down 6% compared to last year according to USA Today, Dominos knew it needed to make a change. The Solution: Dominos decided to completely change its pizza recipe, hoping to reinvent its brand and change its reputation for taste. Based on two years of research involving customer taste tests of 50 blends of seasonings, 15 sauces and dozens of cheeses, Dominos launched its new recipe to
This graph depicts customer preference in product quality and taste between various pizza restaurants in market. Dominos was not near the top so a change HAD to be made to maximize product quality, taste and customer satisfaction and to aggrandize profitability. 14
customers yesterday, featuring a sweeter sauce, a newly seasoned crust and a different blend of cheeses (Seiple, 2009).
Comprehensive Strategy Assessment Dominos Pizza said a combination of new digital-marketing technologies and social media, coupled with consistent menu pricing strategies, will help maintain the sales momentum the pizza chain has enjoyed over the past two years. Executives of the Ann Arbor, Mich.-based chain credited its new, inspired pizza, launched at the end of 2009, as the main driver of its same- store sales growth. However, they also underscored the importance of marketing innovation over that time (Brandau, 2012). Driving sales, traffic with digital The marketing investments, chief marketing officer (CMO), Russell Weiner has pushed since joining Dominos in September 2008 include a mobile-optimized website for online ordering, new audible formats for the chains popular Pizza Tracker, smart-phone and table apps for ordering, and the Pizza Hero game for the iPad launched in November. We couldnt do just another ordering app, Weiner said of Pizza Hero. It needed to take advantage of interactivity available on an iPad, and we think this really does. Online ordering represents a significant portion of Dominos sales and mobile and tablet app ordering also are building momentum, he said. Sales from apps are approaching $140 million per year, or about 5 percent of Dominos top line. The brand also has grown its Facebook and Twitter fan base by more than 400 percent in the past 12 months, Weiner added. Last year, Dominos integrated social media into its national Pizza Turnaround advertising campaign, setting up the Times Square Tracker, which shares all 15
tweets positive and negative customers write about Dominos when they order online (Brandau, 2012). The Strategy To launch its "turnaround," Dominos has created a new website, www.pizzaturnaroun d.com, which features a new video documentary on YouTube (see above) that uses real Dominos employees to tell the story of how Dominos listened to its critics and is changing its pizza recipe for the better. The site also includes a Twitter stream showing people's reactions to the new recipe (via the hashtag #newpizza). Dominos is encouraging consumers to try the new pizza and offer feedback via social media like Twitter,
This graph depicts Dominos Pizzas Income Statement and Statement of Cash Flows. 16
Facebook and YouTube. Perhaps an even bolder approach, the brand is also reaching out to food bloggers who have previously made negative comments about the pizza's taste, asking them to publicly review the new recipe (Seiple, 2009) Weiner said the Times Square Tracker has given Dominos a few hundred million mystery shoppers around the country, and motivated crew members to perform better, reducing service times and driving customer satisfaction scores as a result. Doyle added that the comments also are factored into store audits used to evaluate company-owned and franchised units. They still get the traditional physical audits measuring cleanliness and the condition of the pizzas they deliver, but part of that score now includes the online feedback as well, Doyle said. You can even take it down to who the manager was running a shift that got a lot of comments, he continued. The correlation between that and the sales results of the stores is very high (Seiple, 2009). Key strategies maintain consistency
This ad symbolizes Dominos Pizzas effort to promote their on the social media and attempting to utilize online purchasing for the convenience of their customers. 17
For all of the benefits that investing in new technologies has brought, Dominos plans to keep several key marketing strategies consistent, Weiner and Doyle said. Beginning in 2010, Dominos also reformulated its required franchisee contribution to the national marketing fund. Instead of a 6-percent royalty split between a 4- percent contribution to Dominos for national ads and 2 percent required to be spent on local and co- op advertisements the company required a 5.5- percent contribution that funded only national ads. Franchisees could continue to spend additional funds on local ads, Weiner said, but none was required to do so. The chains executives did not disclose any plans to change the contribution rate. When asked if Dominos would consider changing its $5.99 price point for national promotions, Weiner replied that the brand could advertise its brand attributes better by keeping its prices consistent. Price is the tie breaker, but if you dont have the other pieces to your brand, all you have is price, he said. If you shout that you have $10 pizza, the next guy shouts about $9 pizza and so on, and that destroys the category. Were bigger believers in brand stories. If the price doesnt stay constant in a 15-second spot, I cant tell you about all this stuff going on, like our new pizza or new chicken (Brandau, 2012). Doyle reiterated that Dominos has no plans to increase the price of its popular $5.99 medium two-topping pizza introduced in late 2009 with the reformulated pizza. The offer drives the most cash profits for Dominos domestic stores, he said, even though it occasionally gets some pushback from franchisees concerned with the offers lower margins. Are franchisees always
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happy with [the price]? Doyle said. When cheese prices spiked last summer, the answer was no, they werent. They would have liked us to take it up more, and there was a lot of debate with the system, and that continues. We do it to drive maximum dollars, not maximum percentages, to our franchisees. He added that national offers, like the two medium, two- topping pizzas for $5.99, comprise between 20 percent and 30 percent of sales for the system. So 70 percent to 80 percent of sales will come from local coupons and local menu prices, Doyle said. Those franchisees can control directly (Brandau, 2012). Marketing focus on product upgrades For the near future Dominos will continue to focus its advertising on new products aligned with the corporate goal of continually improving its offerings, as reflected in current commercials for the chains new Stuffed Cheesy Bread, Weiner said. He added that he would keep the emphasis on the brand and its products, rather than fall back on marketing tie-ins, because he considered that borrowing equity from some other brand and not emphasizing Dominos strengths. If you dont have enough news on your brand to talk about, you need to change the news, he said. Dominos Pizza operates or franchises 9,541 restaurants in the United States and 70 foreign markets (Brandau, 2012). What Dominos is Doing Right The Dominos' campaign can be respected for numerous reasons. One reasoning is---they're doing a great job of taking advantage of multiple social media channels (e.g. YouTube, Twitter, Facebook) to accomplish their goal. Secondly, they're actually listening to what their customers are saying in order to improve their brand and their customers' experiences. They're also being extremely transparent in their approach by asking their customers and critics to offer their feedback, whether positive or negative. While it's too soon to tell if the company is benefiting 19
financially from its new reinvention, Dominos' marketing approach is definitely admirable and unique. In the very least, it's certainly generating some initial buzz and curiosity (Seiple, 2009).
Key Competitors & their Competitive Advantages Brand Image
HIGH
Taste Quality
LOW {---The above diagram depicts Dominos Pizza, Inc. positioning within the pizza market, sub market and market of fast food. McDonalds leads the brand image category because, according to InterBrand.com, 20
McDonalds is ranked #7 with a 13% increase from last year to the year 2012. Also, Pizza Hut has a stronger brand image than that of Dominos because they ranked #86 out of the top 100 best global brands, while Dominos was not ranked at all. However, Dominos Pizza is the second-largest pizza company in the world in profitability and rank #1 in stores and franchises. Papa Johns is also a fierce competitors because of their constant effort to promote sales promotion for their customers and out of the top three ranked pizza companies, Papa Johns leads in taste and quality even though ranked #3 behind Pizza Hut and Dominos Pizza. Subway, Quiznos Sub, Firehouse Subs and Baldinos Subs are all indirect competitors because Dominos Pizza is now starting to sell sandwiches so they will be in competition indirectly with local and global sub sandwich companies around the world. Dominos Pizza, Inc. competitors competitive advantages include brand image, profitability, brand taste and brand quality. The competitive advantages that these competitors to Dominos should adapt would be continually to grow and expand globally which would enhance productivity and profitability. They should also consider enhancing their visibility online and within the social media. We would recommend these strategies because it would allow for them to control a good percentage of the market and maximize profitability and customer expectations and satisfaction. These strategies should be implemented by researching global market that they look to and should look to penetrate by understanding the culture and offering some products and services that they are accustom to and familiar with. Their success should be measured by the increase and/or decrease in sales in global market annually and/or biannually and also should be measured upon customer satisfaction.} Future Strategies/Recommendations Our recommendation for Dominos Pizza, Inc. would be to purchase Quiznos Subs since Dominos Pizza is penetrating the sandwich market anyways and Subway is currently an indirect competitor of Dominos Pizza, Inc. The reason being is---an article, titled Quiznos chain faces tough finance issues, indicated the Denver-based Quiznos, a privately-owned QSR sandwich 21
company with 4,000 U.S. stores, was nearing bankruptcy due to sharpening competition, waning sales, and debt woes. One of the problems cited was Quiznos protracted battle with its franchisees over operating costs and profitability, with some franchisees blaming low or nonexistent store profit margins on Quiznos requirement that they buy food at allegedly above- market prices from a Quiznos-mandated supplier network. Analysts also blamed Quiznos problems on rising commodity prices, which had dramatically increased the cost of raw ingredients (Raabe, 2011). This would be vital for Dominos because first, it would increase profit margin and allow for their brand image to matriculate. Due to the fact that Dominos constantly prepares for rising commodity prices unlike Quiznos and the fact that Dominos leads its market in the opening of new stores. This would allow for Dominos Pizza to produce stores for Quiznos after buying out the failing and falling company, which is looking to file for bankruptcy, build their brand image and have a familiar sub sandwich product sold in their Dominos stores courtesy of Quiznos but Quiznos will still have their own store, logo and product but will be sister stores as Pizza Hut, Long J ohn Silvers and Kentucky Fried Chicken (KFC) is with Yum! Brand stores. This will jumpstart profitability and allow for Dominos to potentially reach and hold the #1 position in the pizza market both domestically and internationally.
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References Brandau, Mark, A look behind Dominos marketing strategies: Executives discuss digital marketing, social media as keys to driving sales, Nations Restaurant News, J anuary 13, 2012, http://nrn.com/archive/look-behind-domino-s-marketing-strategies, assessed November 2012. Dominos Pizza, Inc. About Dominos Pizza, Dominos Pizza, Inc. website, http://www.dominosbiz.com/Biz-Public-EN/Site+Content/Secondary/About+Dominos/ History/, assessed August 2011 and November 2012. Dominos, About Dominos Pizza and Mandy Wolf Detwiler, Change is Good, Pizza Today, J une 2010. Henry, J ohn, Dominos Pizza, International Business, March 8, 2010, http://www2.dsu.nodak.edu/users/rbutz/International%20Business/PDF/Sample_S10case. pdf, assessed November 2012. Interbrand, Best Global Brands 2012, Interbrand, 2012 http://www.interbrand.com/en/best-global-brands/2012/Best-Global-Brands-2012-Brand- View.aspx, assessed November 2012. Maze, J onathon, 2010 Franchise Times Top 200 Franchise Systems, Franchise Times, October 2011, http://www.franchisetimes.com/content/story.php?article=02285, assessed September 2010. J argon, J ulie and Spector, Mike, Hamburgers, Fries and a Shakeout, The Wall Street Journal, November 2, 2011, available at 23
http://online.wsj.com/article_email/SB10001424052970203752604576645300258978190 -IMyQjAxMTAxMDAwMTEwNDEyWj.html?mod=wsj_share_email, assessed November 2011. Pizza Franchise Industry Report, Franchise Direct, 2010, available at http://www.franchisedirect.com/foodfranchises/pizzafranchises/pizzafranchiseindustry report2010/80/275, accessed September 2010. Seiple, Pamela, How Dominos is using customer feedback and social media outreach to reinvent its brand, HubSpot, December 28, 2009, http://blog.hubspot.com/blog/tabid/6307/bid/5426/How-Dominos-is-Using-Customer Feedback-and-Social-Media-Outreach-to-Reinvent-Its-Brand.aspx, accessed November 2012.