Franchising- Dominos Pizza Free Essay Example

I would sincerely like to give my heartfelt acknowledgement and thanks to my parents. Any amount of thanks given to them will never be sufficient. Iwould liketothank theUniversity ofMumbai,for introducing post graduation Course in Accountancy, thereby giving the student a platform to abreast with changing business scenario, with the help of theory as a base and practical as a solution. IwouldsincerelyliketothankourPrincipal. Iwouldalsoliketo thank my project guide for her valuable support and guidance whenever needed. Last,butnottheleast,Iwouldliketothankmyfriends& colleagues for always being there.

4 INDEX.

Chapter No Title Page no 1. Introduction to Strategic Management 6-7 2. Meaning of Growth and Diversification Strategy 8-11 3. Introduction to Domino’s Pizza 12-13 4. Growth Strategy of Domino’s Pizza 14-25 5. Diversification Strategy of Domino’s Pizza 26-27 6. Franchising of Domino’s Pizza 28-32 7. SWOT Analysis of Domino’s Pizza 33-35 5 Chapter 1. Introduction to Strategic Management Strategic management is understood as a process of information and decision-making, which is supported by the management functions of planning, organization, motivation and control.

Its purpose is to rule on key business issues, company’s survival and development, with particular emphasis on environmental impacts and crucial factors of productive capacity. Strategic management is the art and science of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives. It involves the systematic identification of specifying the firm’s objectives, nurturing policies and strategies to achieve these objectives, and acquiring and making available these resources to implement the policies and strategies to achieve the firm’s objectives. Definition.

Strategic management is a continuous process that involves attempts to match or fit the organization with its changing environment in the most advantageous way possible.

-Lester A. Digman. 6 Levels of Strategies Functional Strategies 7 Production or Operation Strategy Marketi ng Strateg y Human Resource Strategy Financia l Strateg y Chapter 2. Meaning of Growth and Diversification Strategy Growth Strategy: Growth strategy is the means through which an organization plans to achieve its objective to grow in turnover and volume. There are four broad growth strategies which include product development, diversification, market development and market penetration.

It is a style that seeks stock with future investment rates of return being great than the stocks. 8 Growth strategy is also called as expansion strategy. When a firm aims at substantial growth, it adopts growth strategy. According to William Glueck “A growth strategy is one than an enterprise pursues when it increases its level of objectives upward in significant increment, much higher than an exploration of its past achievement level. The most frequent increase indicating a growth strategy is to raise the market share and or sales objectives upward significantly”.

The growth strategy aims at higher objectives than before such as substantial increase in market share and/or increase in sales targets. In order to achieve higher targets than before, a firm may enter into new markets; introduce new product lines, serve additional market segments, and so on. This strategy involves greater effort and risk as compared to stability strategy. The growth strategy can be further classified into: •Internal Growth Strategies, which include diversification strategy and intensification strategy. •External Growth Strategies, which include mergers, acquisitions, amalgamation, and joint ventures.

Diversification Strategy: Diversification is a corporate strategy to increase sales volume from new products and new markets. Diversification can be expanding into a new segment of an industry that the business is already in, or investing in a promising business outside of the scope of the existing business. The notion of diversification depends on the subjective interpretation of “new” market and “new” product, which should reflect the perceptions of customers rather than managers. Indeed, products tend to create or stimulate new markets; new markets promote product innovation. 9.

Product diversification involves addition of new products to existing products to existing products either being manufactured or being marketed. Expansion of the existing product line with related products is one such method adopted by many businesses. Adding tooth brushes to tooth paste or tooth powders or mouthwash under the same brand or under different brands aimed at different segments is one way of diversification. These are either brand extensions or product extensions to increase the volume of sales and the number of customers. Different types of Diversification Strategy:

The strategies of diversification can include internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products line manufactured by another firm. Generally, the final strategy involves a combination of these options. This combination is determined in function of available opportunities and consistency with the objectives and the resources of the company. There are three types of diversification: concentric, horizontal, and conglomerate. 1. Concentric diversification.

This means that there is a technological similarity between the industries, which means that the firm is able to leverage its technical know-how to gain some advantage. For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the marketing effort would need to change. It also seems to increase its market share to launch a new product that helps the particular company to earn profit. For instance, the addition of tomato ketchup and sauce to the existing “Maggi” brand processed items of Food Specialties Ltd.is an example of technological-related concentric diversification.

10 The company could seek new products that have technological or marketing synerg ies with existing product lines appealing to a new group of customers. This also helps the company to tap that part of the market which remains untapped, and which presents an opportunity to earn profits. 2. Horizontal diversification The company adds new products or services that are often technologically or commercially unrelated to current products but that may appeal to current customers. This strategy tends to increase the firm’s dependence on certain market segments.

For example, a company that was making notebooks earlier may also enter the pen market with its new product. Horizontal integration occurs when a firm enters a new business (either related or unrelated) at the same stage of production as its current operations. For example, Avon’s move to market jewelry through its door-to-door sales force involved marketing new products through existing channels of distribution. An alternative form of that Avon has also undertaken is selling its products by mail order (e. g. , clothing, plastic products) and through retail stores (e. g. , Tiffany’s).

In both cases, Avon is still at the retail stage of the production process. 3. Conglomerate Diversification The company markets new products or services that have no technological or commercial synergies with current products but that may appeal to new groups of customers. The conglomerate diversification has very little relationship with the firm’s current business. Therefore, the main reasons for adopting such a strategy are first to improve the profitability and the flexibility of the company, and second to get a better reception in capital markets as the company gets bigger. Though this strategy is very risky, it could also, if successful, provide increased growth and profitability.

11 Chapter 3. Introduction to Domino’s Pizza Domino’s Pizza is an American restaurant chain and international franchise pizza delivery corporation headquartered at the Domino Farms Office Park (the campus being owned by Domino’s Pizza co-founder Tom Monaghan) in Ann Arbor Charter Township, Michigan, United States, near Ann Arbor, Michigan. Founded in 1960, Domino’s is the second-largest pizza chain in the United States (after Pizza Hut) and the largest worldwide, with more than 10,000 corporate and franchised stores in 70 countries.

Domino’s Pizza was sold to Bain Capital in 1998 and went public in 2004. 12 Domino’s Pizza is the recognized world leader in pizza delivery operating a network of company owned and franchise owned stores in the United States and international markets. Domino’s Pizza’s vision illustrates a company of exceptional people, on a mission to be the best pizza delivery company in the world. The company delivers on an average over 1 million pizzas a day, and operates more than 8,500 owned and franchise stores in the United States and 64 international markets.

Domino’s vision is focused on Exceptional people on a mission to be that best pizza delivery company in the world! Domino’s is committed to bringing fun and excitement to the lives of customers by delivering delicious pizzas to their doorstep in 30 minutes or less, and all its strategies are aimed at fulfilling this commitment towards its large and ever growing customer base. History: In 1959, Tom Monaghan and his brother, James, purchased Dominick’s, a small pizza store in Ypsilanti, Michigan, near Eastern Michigan University. The deal was secured by a $75 down payment and the brothers borrowed $500 to pay for the store.

Eight months later, James traded his half of the business to Tom for a 13 used Volkswagen Beetle. In 1965, Monaghan renamed the business Domino’s Pizza, Inc. In 1967, the first Domino’s Pizza franchise store opened in Ypsilanti. The company logo was originally planned to add a new dot with the addition of every new store, but this idea quickly faded, as Domino’s experienced rapid growth. The three dots represent the stores that were open in 1969. Reflecting Domino’s growth, the company had expanded to 200 stores by 1978. Chapter 4. Growth Strategy of Domino’s Pizza Despite or perhaps because of difficult economic times, the pizza delivery company Dominos UK & Ireland has enjoyed rapid growth over the last couple of years.

The company, which owns the Master Franchise to the Domino’s brand in the UK and Ireland, now operates through over 130 franchisees with an average of 4. 5 stores each. And their long-term strategy contains the target of rolling out at least one new Dominos store per week in each of the next ten years, growing the business into a billion pound brand in the UK – almost double the current size. 14 The sheer scale of the Dominos operation is a vital part of its competitive advantage. In the year ended December 27, 2009, it delivered to 3.

4milllion homes, 500,000 more than in 2008. And their network of stores services between 35-40 per cent of the UK population. They want to grow to over 1,000 stores in five years, drive over the ? 1 billion mark for turnover and make in excess of ? 100m annual profits. One aspect of Dominos success that has impressed stock market investors is the rapid like-for-like growth in sales. “Like-for-like” is a measure of growth in revenues which makes an adjustment for the changing number of stores and sales floor space to give a better indication of business growth from one period to another.

Domino’s has made gains in three key measures: 1. Penetration i. e. the percentage of all households in the UK that has ordered at least once from Dominos in the last year (last year Dominos delivered to 14% of all homes! ) 2. The frequency with which a customer re-orders (about once per month) 15 3. The average value on the receipt ticket from each order (typically around ? 18) For a hugely consumer-centric business Dominos must always be keenly aware of consumer needs and wants and stay tuned to when they change. My own experience is probably not atypical.

I want hot pizza, competitively priced, produced to a consistently good standard, delivered on time and ordered and paid for over the internet with the minimum of fuss! That gives Dominos five operational and quality hurdles to overcome and doubtless there are many more for different groups of consumers – for example the hundreds of thousands of people who enjoy a pizza but who are glucose intolerant. But the challenge is clear – a successful business must innovate and maintain a high quality of product day in day out. The value and sustainability of the brand also depends crucially on the performance of thousands of employees at the front end of the business – Dominos employs over 25,000 people in the UK.

There is a clear link between the quality of Dominos people and the quality of the customer experience and product. Ultimately the success of the brand depends on the people who run it and finding the right franchisees is crucial to the chances of Dominos meeting those ambitious growth targets. The main aspects or strategies leading to the growth of Dominos are as follows: 1. Costs and Efficiency The typical Dominos store has a weekly turnover of ? 17,000 making and delivering close to 1000 pizzas per week. Annual turnover is close to ?

800k per store and each pizza sold makes ? 3 profit. In 2009, 68 stores had sales in excess of ?1 million. A crucial element of the commercial viability of the business is in improving efficiency within the stores and here Dominos focuses a metric known 16 as “out of the door time”– the time it takes between new orders being placed online or in store and the ready to eat pizza leaving the store en route to the customer. Dominos has managed to get this down from 17 to 13 minutes in recent years (typically it takes less than a minute for the pizza to be readied before going into the oven!) and their average delivery times has shrunk to just twenty three minutes.

Once on the road, investment in improving routing software for Dominos vehicles provides another way of cutting costs. Although Dominos cannot be immune from rising fuel and food prices globally, for a pizza delivery business they have become ultra-efficient in getting products to the consumer – in 2009, fuel accounted for only 10% of total distribution costs. 2. Smart Marketing Four and a half per cent of the turnover of each Dominos franchise store goes into a fund used for national marketing of the Dominos brand.

In 2010 the business is expected to spend around ? 40million on marketing, a figure bigger than the top-line revenue of many of their rivals. The marketing fund is used to develop high-profile communications such as the sponsorship of Britain’s Got Talent, The Simpsons and the X-Factor. 17 Television advertising remains the drug of choice for most fast-food businesses although Dominos has also joined the flood of companies seeking to establish and build an effective social media presence through Facebook, Four Square and other social network sites. A case in point is that a Domino’s iPhone app already delivers 3-4% of online sales.

3. Price discrimination Price discrimination has been successful for the business. The Two for Tuesday promotion has been so effective that Dominos now sells as much pizza on a Tuesday (traditionally the quietest night of the week) as it does on a Saturday. Price discounting mid week help to smooth the pronounced ups and downs of daily sales during a normal week. Two for Tuesday generates extra revenue and grows volumes – all helpful to franchisees with large fixed overhead costs. 18 4. Target customers Dominos is also targeting core groups of consumers.

They have sponsored the setting up of Pizza Societies at numerous universities in the UK (how long before the idea takes root in schools? ). And this is a business fully aware of the importance of changing demographics. Pizza eating is less popular among people aged 55 and over, but younger generations have become used to the Dominos model and as this group ages, the commercial opportunities are sizeable. And because forty per cent of their business comes over the internet, Dominos has built up a terrifically valuable database of location-specific customers – a mine of information that can be used to great effect when promoting special offers, new products and reinforcing brand awareness.

Put simply, Dominos knows where you live and the ever-expanding size of their customer database has great commercial value. Since 2007, 19 Since January 2007, an additional 3million new customers have ordered from Dominos – here is a business that understands a business truism, namely that the cost of selling to an existing customer is always lower than searching for a new one. 5. Expand and optimize our domestic store base Domino’s Pizza plans to continue expanding our base of domestic stores to take advantage of the attractive growth opportunities in U.S. pizza delivery.

They believe that their scale allows expanding their store base with limited marketing, distribution and other incremental infrastructure costs. Additionally, the franchise-oriented business model allows expanding the store base with limited capital expenditures and working capital requirements. While Domino’s plan to expand their traditional domestic store base primarily through opening new franchise stores, they will also continually evaluate the mix of Company-owned and franchise stores and strategically acquire franchise stores and refranchise Company-owned stores. 20 6.

Continue to grow our international business Domino’s Pizza believes that pizza has global appeal and that there is strong and growing international demand for delivered pizza. They have successfully built a broad international platform, almost exclusively through our master franchise model, as evidenced by our 3,469 international stores in more than 55 countries. Domino’s believe that they can continue to have significant long-term growth opportunities in international markets where they have established a leading presence.

In their current top ten international markets, Domino’s believe that their store base in total for these ten markets is less than half of the total long-term potential store base in those markets. Generally, Domino’s believes they will achieve long-term growth internationally as a result of the favorable store-level economics of the business model, the growing international demand for delivered pizza and the strong global recognition of the Domino’s Pizza® brand.

Their international stores have produced positive quarterly same store sales growth for 56 consecutive quarters. Growth Strategy adopted in India: 21 One of the main reasons behind Domino’s success in the delivery market can be traced to the change in the buying behavior of the Indian consumer. First, prior to Domino’s not too many outlets offered free home delivery. Second, the consumer herself was not comfortable with the idea of ordering food from outside and eating it at home.

Domino’s made ordering pizzas a lot simpler by introducing a single number across the country. Domino’s strategy became a huge success in India. Every few blocks have a Domino’s store and people are going crazy for it. Things that Domino’s changed to fit in India: 1. Veg Friendly 50% of the entire menu is vegetarian. They clearly specify which menu items are vegetarian by showing you a green dot next to the item. 10% of India is completely vegetarian and 30% of India is vegetarian due to religious reasons at least 5 days out of the month.

2. Moped Delivery The traffic in Mumbai (one of the biggest cities in India) is really bad, much worse than Los Angeles. It takes 20 minutes to go a mile – this is due to over population, 22 bad roads, animals roaming the streets, and people crossing the road whenever they want. Mopeds are definitely the fastest way to get around the city because they can easily weave through traffic. 3. Spicemix Indians like things spicy.

Instead of including Parmesan cheese packets Domino’s includes an “Oregano Spice Mix”. They have also spiced up their pizza recipes to please the Indian palette. The spicy Sriracha sauce that we all use to in America is water compared to the spice level in India. A spiciness level of 2 stars in India is 4 stars in the US. 23 4. The Domino’s Pizza Brand Name The Domino’s brand name is strong. They have been featured in hundreds of movies and have run gazillions of TV ads. Even though Domino’s was new to India a few years ago millions of Indians heard about it before hand allowing them to have a massive launch.

Domino’s India is ran and managed by an Indian based company called Jubilant Food works The best decision Domino’s made in their India strategy is understanding that they are not an expert in India, so they partnered with a strong team that truly understands India to help grow their business there. 24 Chapter 5. Diversification Strategy of Domino’s Pizza Domino’s Pizza competes head on in the fast food industry, among companies like McDonald’s, KFC, Chick-fil-A, etc. However, more specifically, Domino’s serves in the pizza delivery restaurants. These restaurants include Pizza Hut, Papa John’s, and any other local pizza delivery brick and mortar.

25 An innate strategic advantage that Domino’s has over its competitors in the fast food restaurant industry is their 10,255 operating stores in the U. S. and international countries. As reported in their 10K report, Domino’s operates at three different segments along the business line. The first segment is domestically owned and franchised stores. This consists of the 4,540 franchised stores and 388 company-owned stores in the United States (“Domino’s Pizza, Inc. ” 2012). The second segment that they operate in are their domestic supply-chain stores.

“Domino’s supply-chain segment operates dough manufacturing and supply-chain centers, one thin-crust, one supply, and one vegetable center” (“Domino’s Pizza Inc. ”, 2012). The third, and final segment that the company uses are their International operating stores, which conclude at a tally of “5, 327 stores outside of the contiguous United States. (“Domino’s Pizza Inc. ” 2012). Domino’s is using the product development strategy by selling new types of pizza, the thin crust and deep dish, along with the pasta bowls, chicken wings, and deserts to the same market of pizza consumers.

This strategy allows Domino’s to diversify 26 and strengthen their menu while appealing to a larger market of people that not only enjoy eating pizza but also other entree’s that Domino’s has implemented into their menu. The above examples are just a few ways in which Domino’s effectively used various means within the concentration strategy to target a vast amount of people and allow Domino’s to become the number one pizza delivery company in the United States with a 22. 5% share of the pizza delivery market based on reported consumer spending. Chapter 6. Dominos Pizza Franchising.

1. Franchise Details Domino’s Pizza is the recognized world leader in pizza delivery! Their strong operating model, history of industry innovations, corporate support teams, delicious products and ability to take great care of their customers are just some of the reasons Domino’s Pizza is an excellent place to franchise. Domino’s works hard 27 to build and maintain strong relationships with their franchisees with worldwide conventions, local group meetings, one-on-one meetings, franchisee advisory boards, open communication and publications that promote best practice sharing, positive energy and strategic planning so the company and their franchisees can achieve success together.

If you are passionate about customer service, love pizza and great people – open your door to franchising opportunities at Domino’s Pizza. 2. Financial Investment A Domino’s Pizza franchise is an investment in your future. An initial financial investment is required, and is not the only investment you will make. As you build your Domino’s Pizza business, your greatest investment is your personal commitment to the store. Thus, Domino’s urge you to take a moment to assess your personal and financial abilities.

An estimated investment in setting up a typical 1100 square foot Domino’s Pizza unit is $200,000 to $300,000 and actual costs will vary depending on the physical size and current condition of the premises. This amount includes the initial franchise fee of $25,000. 00, construction, equipment, legal and accounting costs, grand opening advertising, working capital, and other miscellaneous start-up costs. A franchise candidate will be required to invest a minimum of $80,000. 00 in unencumbered personal cash with the balance being financed through the financial lender of their choice. 3. Royalties and Marketing.

Royalties are 5. 5% of Royalty sales (gross sales less taxes & discounts), paid weekly through pre-authorized payment and Advertising Royalties are 4% of Royalty sales. These are paid weekly through pre-authorized payment to The 28 National Advertising Trust Fund. The marketing team drives advertising and promotions that promote Domino’s Pizza and help portray their high-quality products. Domino’s Pizza also provides the opportunity for each local market to pool funds and optimize local marketing opportunities. These may require a contribution of up to 1% of Royalty Sales. 4. Succeeding Together.

Every Domino’s Pizza franchisee is assigned to a franchise business consultant (FBC). This person provides operational, business and local store marketing consultation to the franchisee and also acts as a liaison between the franchisor and franchisee. The FBC is responsible for maintaining their high standards and evaluates every store twice a year and provides ratings on a 5-Star system. FBCs will advise franchisees and store general managers on tactics to improve store operations and evaluation scores. 5. Becoming a Franchisee 29 Domino’s Pizza takes great care in selecting Franchisees.

Likewise, you should be equally sensitive to whether a Domino’s Pizza franchise is right for you. A Domino’s Pizza franchise can provide substantial rewards; pride of ownership, self-reliance and potential for greater future earning, to name a few. Please carefully consider your commitment to achieving your goals before embarking on the entrepreneurial adventure of operating a Domino’s Pizza franchise. To succeed you must build for the future. This commitment to the future is expected of every Domino’s Pizza Franchisee, and every Franchisee can expect no less from Domino’s Pizza.

It is a reciprocal relationship, a perfect blend of commitments and capabilities. Domino’s Pizza franchises are strengthened by consistency throughout the stores. Uniformity is a key element in the franchise recipe for success. At the same time, Domino’s recognize that being successful is a dynamic and personal process. They encourage input from all Franchisees. Their combined successes depend on our co-operative efforts. Cooperation, capability and a firm commitment yours and theirs create the perfect Domino’s Pizza recipe for success.

If you feel you’ve got what it takes and you are confident that you can meet the financial obligations, Domino’s would encourage you to complete and submit an application. 6. The Process The Domino’s Pizza development team will help you through the process: ?Submit an application with personal history and funding ?Meet with a member of the development team for a detailed discussion of the franchise opportunity ?

Meet with a member of the operations team for an in-store orientation and final interview 30 ?Prepare and submit a business plan for review The development team works with a proven formula to award an exclusive delivery & service territory in which to locate a Domino’s Pizza store.

This area is created to maximize our ability to safely deliver a hot, fresh order to the customers’ door in a timely manner. A Standard Franchise Agreement incorporating the exclusive territory is executed and the franchise fee paid. Domino’s Pizza assists in determining an appropriate location and in lease negotiations and provides construction management services. Once a location has been finalized, an estimate for the overall costs of construction, renovation and equipment is provided. Before you open your very first Domino’s Pizza location you will be required to successfully complete an initial 6 week training program in a designated training center.

From best practices, computer operations, human resources, leadership, to financial analysis, Domino’s has a training program to fit your needs. In addition, 31 the Domino’s Pizza training team has created materials to help you train your managers, assistant managers and other team members on the basics of working in and running a Domino’s Pizza store. The Domino’s Pizza team provides a wide range of ongoing support services to assist you in the operations of your Domino’s Pizza store. Chapter 7. SWOT Analysis of Domino’s Pizza.

It is important to consider Domino’s SWOT analysis before considering making any action recommendation for the company. In order to achieve workable strategies, it is essential that a business or an organization consider its weaknesses, opportunities, threats, and strengths. Some of the strengths that are evident in Domino’s business include the fact that the business or incorporation owns stores, which are located in over 60 countries and it has a well-established network connection for both segments of the business: company owned and franchised. It has also been rated the most popular and leading pizza delivery companies within the United States borders and employs about 10,500 employees. 32 STRENGTHS.

1. Domino’s Pizza Incorporation has a strong brand equity, which gives it an overall advantage over other industry players in the industry. 2. Other significant strength is the intelligent marketing services adopted by the company. These advertising strategies have contributed to its brand image in the company, which has an effect of instigating a sense of retention and differentiation. 3. One vital factor that needs to be carefully taken into consideration by the company is the highly dynamic socio-cultural change or the changing lifestyles of the people in the United States and the across the globe as well.

Their products should reflect these changes if the business is to achieve continuity 4. Domino’s Pizza has made significant investments to push innovation, including a cutting-edge e-commerce site and mobile apps. Domino’s actually is one of the world’s largest digital operators, with $1 billion in sales in the U. S. as well as the same amount in foreign markets WEAKNESS 1. One major weakness of Domino’s is mainly the weakening or decreasing bottom line due to decline in sales and slow growth.

2. Dominos Incorporation should consider utilizing their intelligent advertising techniques to focus on all the players or competitors in the market other than only focusing on one competitor 3. Costs have been moderate over the past year, but that can quickly change. Domino’s Pizza relies heavily on such things as cheese, wheat and sauces, which are subject to periodic jumps in prices. 4. Domino’s Pizzas stock isn’t cheap, trading at 27 times earnings, which could put Domino’s stock at risk should the company suffer a dip in growth. 33 OPPORTUNITIES.

1. The company should concentrate on increasing its network coverage in India and China in order to seize the looming opportunity in the two emerging economies. 2. The company has an opportunity to introduce new products in its existing menu especially pizza toppings and flavor additives that are specified for a given region, this will give the much needed impetus 3. Domino’s should focus entirely on customer loyalty through insisting on quality and ensuring that all stores deliver the best delicacies.