Domino’s Business: An Introduction
Domino’s a leading and well-recognized global QSR brand operating in the QSR pizza category with sales across 90 countries. The company has been around for more than 60 years. Founded in 1960, Dominos has grown into the largest QSR pizza chain worldwide based on retail sales.
The company has survived the impact of the pandemic effectively. Its focus on innovation in recent years paid off during the pandemic. Apart from that, it also made changes to its operating model which allowed the company to respond to the situation effectively. The revenue of the company for 2021 rose to $4.1 billion compared to $3.,6 billion a year ago. To find faster growth, the company is investing in strengthening its supply chain capabilities. Part of its performance during the pandemic can also be attributed to the resilient business model of the company.
At the end of 2020, the company had 17,644 stores operational worldwide of which 11,289 stores were located outside the United States.
In 2020, apart from introducing new products, the company also opened new supply chain centers in the US. Domino’s is operating in a highly competitive industry environment where its growth depends on several factors including quality, marketing, innovation and other factors.
In this swot analysis, we will analyze the key strengths of Domino’s Pizza, its weaknesses, opportunities and threats.
Strengths:-
Brand equity:-
One of the leading strengths of Domino’s is its brand equity. The company has established itself as the leading brand in the QSR pizza category globally. However, its leadership position and strong brand equity are the results of a focus on product quality, customer service, innovation, and marketing.
Domino’s has maintained a strong brand image as a QSR brand. Apart from offering its customers a large range of menu choices, it has also invested in technological innovation to become the customers’ favorite pizza brand.
Global sales network:-
Domino’s has expanded globally to become the largest pizza brand in the world based on retail sales. The company has expanded its footprint to 90 countries worldwide. Not just in the United States, but in other countries too, it has become a well-recognized brand name in the QSR pizza category.
Supply chain management :-
Another critical strength of Domino’s pizza is its focus on supply chain management. In the QSr segment, managing the supply chain is critical to long term success. However, Domino’s instead of depending on external suppliers solely has focused on building its own supply chain capabilities that has enabled after growth of the brand.
Domino’s Pizza operates 21 regional dough manufacturing and supply chain centers in the U.S., two thin-crust manufacturing facilities and one vegetable processing center in the U.S., and five dough manufacturing and supply chain centers in Canada. Its supply chain segment leases 900 tractors and trailers.
Its extraordinary supply chain strengths helped the company maintain its market leading position and sales during the pandemic. Several businesses worldwide suffered due to supply chain disruption during the pandemic.
Marketing:-
Marketing is also a key strength of the company and has helped it grow its business worldwide and acquire a market-leading position in the QSR pizza category. Domino’s has maintained a strong brand image which has helped the company remain the customers’ choice worldwide. Apart from focusing on product quality, its focus on marketing and innovation has also driven higher popularity for the brand.
Each year, Domino’s invests a large sum in advertising and promotions. In the US, each store contributes 6% of its net sales to advertising. The company mainly uses digital channels for promotion including paid digital channels and social media. The Domino’s app has also proved to be a key driver of popularity for the brand.
Technological innovation:
The QSR industry is experiencing intense competition and apart from Pizza hut, Papa John’s and Little Caesar’s there are more big and small brands around the world that compete with Domino’s pizza.
In such an intensely competitive environment, one key factor that can help companies achieve extra growth and build a superior competitive advantage is technological innovation. Digital innovation is critical to Domino’s success and long term growth in the QSR sector.
In 2020, the company achieved more than 50% of its total sales through digital channels. The popularity of digital channels also grew during the pandemic. The company announced a partnership with Nuro in 2019 to further its exploration and testing of autonomous pizza delivery. In 2020, Domino’s added a GPS tracker to its system so the customers can track the progress of their food from the time they placed the order to the final delivery.
Product innovation:
Product innovation has also helped the company expand its customer base and grow its sales and revenue. The company has kept adding new products to its menu to expand the number of choices available to Domino’s customers worldwide. This has helped the company expand its customer base by attracting new customers and by retaining more of its existing customers.
In 2020, it introduced new products to its menu in the United States. These products included new and improved chicken wings and the new chicken taco and cheeseburger specialty pizzas. Each of these products garnered a positive reception from the customers.
Over time, Domino’s menu has grown quite diverse including a vast number of choices for both vegetarian and non vegetarian customers.
Weaknesses:-
Franchising related issues:
Domino’s has established a strong business model which proved its resilience even during the pandemic. However, this business is operated largely by franchisees. Apart from a limited number of company-owned stores (363 in 2020), all the stores are operated by franchisees. However, it also subjects Domino’s Pizza to several franchising-related laws and regulations.
Moreover, there are some inherent problems associated with the franchising model. For example, it does not allow the company the same level of independence and control it enjoys with the company-owned stores. Unless the franchisees cooperated to their fullest with Domino’s it is difficult to guarantee a hundred percent success of its strategies and campaigns.
Low income from international segment:
Domino’s divided its business into three segments that include Domino’s US, Domino’s international, and the supply chain segment. The supply chain segment is the largest segment of the company based on revenue whereas the international segment is the smallest.
While the company has expanded internationally to 90 markets and has more than 11000 stores operational internationally, the problem is that the international segment still generates only a small close to 6% of its total net revenue (as in 2020). Either the company needs to grow its number of stores operational in the international markets or it must run company-owned stores there to grow its revenue from the international segment.
Opportunities:-
Digital technology:-
The pandemic has brought several changes as well as challenges. Some of these changes are lasting and will stay even after the pandemic. For example, during the pandemic, the dependence of people on digital technology for shopping as well as entertainment grew. A larger number of people were ordering essential things and food online.
Domino’s has enjoyed growth during this period driven by increased sales from digital channels. In 2020, more than half of its sales were conducted through digital channels. In the future too, digital technology will continue to play a larger role in people’s lives and as such apart from sales, the use of digital technology for marketing, customer engagement and service is expected to grow. Domino’s should continue to invest in building stronger digital capabilities if it wants to strengthen its business model and acquire superior growth.
Cloud based capabilities:
The cloud industry achieved superior growth during the pandemic and companies across various industries including have turned to the cloud to strengthen their competitive edge. Domino’s also processes a vast amount of consumer data daily. In this regard, cloud technologies can help the company grow the efficiency of its business model and acquire faster growth.
Cloud-based CRM can also help the company achieve more from its existing capabilities and use its consumer data to drive higher ROI on its marketing campaigns. Cloud technology has proved to be a gamechanger across various industries and in the QSR industry too, it can help companies grow their efficiency enormously.
Market research:
Consumer preferences and market trends keep changing and any business that wants to maintain its competitive position and market share needs to focus on what its customers want. Ongoing market research is critical to maintaining a company’s competitive edge irrespective of the industry sector it operates in. Domino’s also needs to focus on market research since it operates in a highly competitive industry sector.
International expansion:
Currently, the overseas business of Domino’s generates a very small fraction of its net revenue compared to the other two segments. Moreover, compared to its nearest rival, Pizza Hut, the international footprint of Domino’s pizza is smaller. Apart from increasing the density of stores in the leading international markets, the company must focus on expanding into newer markets and particularly, the emerging, higher growth economies.
Threats:
Economic threat due to the pandemic:-
Economic factors are a key driver of growth for Domino’s Pizza. However, the pandemic has caused a recession or economic slowdown which could prove dangerous for Domino’s and its rivals worldwide. For example, the pandemic drove unemployment rates higher and that resulted in lower expenditure on nonessential items including fast food.
It is true that people’s dependence on digital technology grew during the pandemic and it helped Domino’s achieve higher sales but simultaneously, if the recessionary impact of the pandemic lasted longer, the result would be lower sales in the longer run. The Indian market is dealing with a second wave of the pandemic and the QSR brands operating there could feel the pinch to a large extent.
Competitive pressure:-
The QSR industry has grown highly competitive and apart from many brands in the industry that operate internationally, there are more local brands operating in various leading economies. Some of the leading rivals of the company include Pizza Hut, Papa John’s, and Little Caesar’s.
Competitive pressure has given rise to a need for a higher focus on quality, product innovation, technological innovation, marketing, and customer service. All these factors drive the operating expenses for Domino’s higher and reduce its profitability.
Apart from that, due to increased competition, maintaining their competitive position and market share requires companies to devote extra capital and resources to marketing, supply chain management, and HR management as well as technological innovation. Competition can also become a barrier to growth in key markets and breaking this barrier will require the company to intensify its efforts in marketing and other areas.
Regulatory threats:-
Worldwide the QSR industry is regulated by several laws and regulations ranging from labor-related regulations to product and environment-related regulations. In the US, there is a complex web of laws related to franchising, labor standards, product quality, etc. Apart from it, tax-related laws and government policies also have a direct impact on Domino’s business and profitability. While the regulatory factors limit the prospects of growth for domino’s noncompliance can also prove very costly for it.
Currency fluctuations:
Domino’s operates a significant part of its business overseas and as such a strengthening dollar can be harmful for its business and profitability.
According to its annual report for 2020,
“Unfavorable currency fluctuations could lead to increased prices to customers outside the U.S. or lower profitability to our franchisees outside the U.S. or could result in lower revenues for us, on a U.S. dollar basis, from such customers and franchisees. A hypothetical 10% adverse change in the foreign currency rates in our international markets would have resulted in a negative impact on international royalty revenues of approximately $22.2 million in 2020.”
Domino’s Annual Report 2020.