Preliminary Business Studies Assessment Task 1

Transcription

1 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:

2 1.0 Executive Summary: History of Domino s: Pre Post Key Developments: International Expansion Franchises Innovations The Business Life Cycle: Domino s in the Post-Maturity stage Domino s Decline: Domino s Renewal: Domino s in Post-Renewal Steady State: 2014-present Technology s influence on Domino s: Technology as an external influence on business: How technology has impacted Domino s: Recommendation: Strategies for growth: Achieving Sustainable Competitive Advantage The Next Step for Domino s Evidence of Success Conclusion 10 References: 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

3 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 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 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

4 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 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 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 ( ). 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) 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 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) 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.

5 3.11 Domino s Decline: Domino s experienced exponential growth from 1960 to 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: 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).

6 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

7 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).

8 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).

9 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

10 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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12 - Nathan, R. (2017). What Drove Domino's Pizza s 2Q16 Same-Store Sales Growth? - Market Realist. [online] Marketrealist.com. Available at: store-sales-growth/ [Accessed 24 Mar. 2017]. - perfil, V. (2017). The History of Dominos Pizza. [online] Dominos-pizza-cobat.blogspot.com.au. Available at: [Accessed 18 Mar. 2017]. - Pizza, D. (2017). Domino's Opens 1,000th Store in India. [online] Prnewswire.com. Available at: [Accessed 24 Mar. 2017]. - Rosengarten, J. (2017). Boost Juice announces drive-thru stores so you can satisfy your cravings 24/7 - Techly. [online] Techly. Available at: [Accessed 26 Mar. 2017]. - Sec.gov. (2017). Form 10-K. [online] Available at: [Accessed 25 Mar. 2017]. - Snopes.com. (2017). End of Domino's Pizza Delivery Guarantee. [online] Available at: [Accessed 19 Mar. 2017]. - Theaustralian.com.au. (2017). Dominos goes after drive-thru giants. [online] Available at: [Accessed 25 Mar. 2017]. - Tutty, J. (2017). Pizza robots - sharing a bike path near you. [online] Couriermail.com.au. Available at: [Accessed 25 Mar. 2017]. - Whitley, A. (2017). Domino's Pizza Enterprises is set on a 3-minute pizza and 2000 new stores. [online] The Sydney Morning Herald. Available at: [Accessed 24 Mar. 2017].