Domino’s Pizza is the number one pizza delivery company in the United States and is one of the most recognizable pizza brands in the world. On average, Domino's across the globe sell over one million pizzas every day, and cover ten million miles per week in pizza deliveries. At the end of 2007, there were 8,624 domestic and international locations- the vast majority of them franchised. In FY 2007, the company generated $1.4B in revenue and over $190M in operating income.
Domino’s faces several headwinds moving forward. Rising food and energy prices, the housing slump and a weakening job market are taking a toll on restaurant spending  in its core domestic market; the company saw a 1.7% decrease in comparable sales in the U.S. in 2007 after a 4.1% decrease in 2006 as consumers reduced their spending on pizza. . Rising food costs, especially the cost of wheat and cheese, have also cut into operating margins. In order to meet these challenges and revive sales growth the company is launching a new marketing campaign under the slogan “You Got 30 Minutes" with the hope that this national advertising effort will help take market share from smaller, local pizzerias. The company is also trying to offset a weak U.S. market by focusing on expanding its international operations which continued to produce positive sales growth throughout 2007.
Domino's was founded in Michigan by Tom Monaghan in 1960; at the end of FY 2007 the company operated over 8000 locations in all 50 states and 55 countries. The company focuses on two core strengths: high quality pizza and fast delivery. Domino's business model sits on three pillars: 1) low cost delivery-oriented store design , 2) franchising and 3) a vertically integrated supply chain . The company operates in three segments: domestic stores, domestic supply chain and international.
About 90% of the company's 5,155 domestic stores are franchised. Domino's uses its company-owned stores as a testing ground for new products and technologies which may then be passed onto franchisees. Domino's generates income from company-owned stores in the form of store profits; income from franchisees mostly comes from royalties. Domestic stores had revenues of $552.6 million and operating income of $128.6 million during 2007.
This segment operates 17 supply chain centers that distribute food, equipment and supplies to almost all Domino's in the United States. A vertically integrated supply system provides two important advantages to Domino's and its franchisees. First, automatic delivery of raw materials cuts out a lot of the "back-of-store" activities letting store operators focus more on sales and customer service. Second, the vertically integrated supply chain lets Domino's leverage the purchasing power of thousands of company-owned and franchised stores nationwide which can help keep down food costs. In fiscal 2007, the domestic supply segment generated revenues of $783.3 million and operating income $49.7 million..
Domino's international segment consists of 3,469 franchised stores outside the United States. Domino's also has a supply chain in a limited number of its international markets; the company operates six supply chain centers which manufacture dough and distribute food and supplies. Domino's international operation have consistently grown as a percentage of company locations and systemwide revenues; in 2007, the international segment accounted for 41% of Domino's store sales worldwide (note: this figure represents percentage of total sales at company-owned and franchise stores and is not percentage of company revenue.) During 2007, Domino's international segment generated revenues of $126.9 million, of which approximately 52% resulted from the collection of franchise royalties and fees, accounting for 93% of the segment's $57.2 million in operating income.
Domino's operating income is dependent in part on royalty fees paid by franchisees. Because these royalties are a percentage of total revenues, same store sales are an important metric of Domino's performance. Increases in same-store sales translate to increased royalties which go right to the company's bottom line.
|Company-owned Stores||7.1%||-2.2% ||-2.4% |
|Franchise Stores||4.6% ||-4.4% ||-5.5%|
|International Stores||4.0%||6.7% ||8.8% |
In fiscal 2007, Domino's hired a new advertising agency meant to lead the company's new marketing campaign and service message: "You've Got 30 Minutes." The "You've Got 30 Minutes" hopes to highlight the value of what pizza delivery really does for consumers – gives them free time. The campaign will generate customer awareness of the company's commitment to deliver a hot, fresh meal in about 30 minutes. Domino's strong national advertising presence may help it lure customers from smaller, local pizzerias; the company estimates that it has spend $1.4B over the last five years on branding and marketing efforts.
Domino's competes in the crowded QSR segment. The QSR segment of the food and beverage industry generated $440B in revenue last year alone. Most broadly, Domino's competes with other QSR's like McDonald's, Wendy's and KFC. More narrowly the company operates in the pizza delivery category which is comprised of Pizza Hut, Papa John's and thousands of smaller, local pizzerias. Pizza Hut, a division of Yum! Brands is the company's largest competitor with 12,877 stores worldwide generating $10B in system wide sales. While Pizza Hut can be considered a casual diner, Domino's differentiates itself from its larger competitor by focusing more on the quick delivery of quality pizza. As of April 2008, Domino's held an impressive 19% market share in domestic pizza deliveries. This dominant market share arises from it's sizable advertising and marketing budget- a key competitive advantage.