DOMINO’S PIZZA IN AUSTRALIA

Analysis with PESTLE, SWOT, 5 Forces ,and STP

domino’s can use in Australia

INTRODUCTIONF

ounded in 1960, 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.

T

hey pioneered the pizza delivery business, and their total system sells more than 400 million pizzas

worldwide every year. Domino’s currently has over 4,000 stores outside of the United States in over 60

international markets, and they’re still growing!

O

n 16 May 2005, Domino’s successfully listed on the Australian Stock Exchange, following an

oversubscribed offer, becoming the first and only publicly listed Australian pizza maker

INTRODUCTION

• Products Domino’s Pizza offers Crunchy Thin Crust, Ultimate Deep Dish and

Classic Hand Tossed pizzas with a wide variety of toppings. Side items include Bread Sticks, Cheesy Bread, Cinna Stix®, Buffalo Wings and Boneless Chicken. We also proudly serve icy cold Coca-Cola® products. Domino’s has recently expanded its menu significantly to also include Domino’s American Legends™ specialty pizzas, Oven Baked Sandwiches, BreadBowl Pastas™ and Chocolate Lava Crunch Cakes. In late 2009, Domino’s debuted its ―Inspired New Pizza‖ – a permanent change to its core hand-tossed product, reinvented from the crust up with new sauce, cheese and garlic-seasoned crust.

SWOT

S

WOT analysis is a strategic planning method used to evaluate the

Strengths, Weaknesses, Opportunities, and Threats involved in a

project or in a business venture. It involves specifying the objective

of the business venture or project and identifying the internal and

external factors that are favourable and unfavourable to achieve

that objective.

STRENGTH

I

nternational Expansion: On may 12th 1983, Domino’s opened its first

international store in Canada, that same year Domino’s opened its 1000th store

overall and by 1995 they had a thousand international locations. In 1997

Domino’s opened its 1500th international location, opening five stores in one

day across five continents.

P

osition. Presently Domino’s is the second largest pizza chain in US has nearly

9000 corporate and franchise stores in 60 countries and all 50 U S states

STRENGTH

Acquisition Strategy: Domino’s boosted its store numbers with the acquisition of 16 Big

Daddy pizza stores in Melbourne and 30 pizza Haven stores in New Zealand.

O

n march 2008, Domino’s announced it had purchased Pinky’s pizza, a pizza chain which

operates 27 stores in Victoria, New South Wales and South Australia.

H

ealth consciousness: In Feb 2010, Domino’s launched a range of health options. Teaming up

with popular reality show the Biggest Loser and their trainer Shannon Ponton, Domino’s

launch their good choice range consisting of seven nutrition conscious calorie - controller

STRENGTHS

trong Brand: Domino’s pizza Inc strong brand equity gives it a competitive advantage over other

industry players. The intelligent marketing strategy and heavy advertising is a key strength to

make its brand image retained and differentiated in the minds of its customers. In August 2004

Domino’s became the number one Pizza company in Australia in terms of net work store

numbers and the network sales with the opening of its 300th store in Bayswater, Melbourne.

I

nnovative skills: In 2002, Domino’s became the first and only pizza maker in Australia to use hot

cell bags, an electronic portable oven which ensures which ensures pizza is delivered up to

20% hotter. Also in 2002 Domino’s became the first Australian pizza maker to launch the

classic crust.

STRENGTH

Efficient and Effective Supply Chain Management:

Domino’s platform for on line ordering averages 25% of sales generally

Diversification strategy

Fat menu: The Menu features both vegetarian and meat pizzas and including stuffed

crust both chicken wings and boneless chicken , potato wedges, garlic breads and a variety

of dessert items including chocolate pots, cookies and waffles, Ben and Jerry’s ice cream

and a variety of soft drinks coca cola, fanta and sprite. Its core strength is delivering a

quality pizza in a timely manner. Sells over 1 million pizzas a day

Their ability to remain unscathed despite the competition. Hard work, persistence and

thinking outside the pizza box have been their success formula. Domino’s is celebrating its

27th anniversary of selling pizzas in Australia.

WEAKNESSB

ad publicity: The market momentum was quickly lost when a woman in St Louis was involved in an automobile

accident with a Domino’s pizza delivery driver. News turned in to bad publicity and in 1993 the 30 minute was

discontinued.

M

anaging all franchise effectively

T

he company was faced with crucial issues of weakening bottom lines due to slow growth and decline in sales.

The company experienced decline in its operating and net profits during the year 2007 as compared to previous

years report 9.5% drop down in operating profits and about 64.3% decrease in net profits was recorded.

OPPORTUNITY

O

pportunity for growth on its on line business since there is easy internet access

across Australia – use of mobile internet, making it easy and convenient for

customers

U

se of iPhone apps:

D

omino’s target market in Australia is the general population especially the youth. Its

opportunity in Melbourne is the faster growing population than any other Australian

city ( Australian Bureau of Statistics). The figures show Melbourne's population

boom accounted for one third of the nation’s growth 2009-2 2010.

THREATC

ompetitors: Domino’s operates with Quick Service Restaurant (Q S R) Pizza segment of the first food market in

Australia. The company’s biggest threats on the pizza segment are Eagle Boys and Pizza Hut

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ther Quick service Restaurant threats on other food segments include Subway, Mc Donald's, KFC, Red

Rooster , Hungry Jack’s and Chicken Treat Domino’s is the 6th largest QSR chain in Australia by net work sales

behind Mc Donald’s, KFC, Hungry Jack’s, Subway, Red Roster and Chicken Treat

D

omino’s diversification strategy would be seen as threat since it increases chances of rivalry in the market

T

he major threat of Domino’s pizza inc is the increasing consumer awareness about harmful health implications

high calorie fast food items, in addition potential harmful effects associated with the

THREAT

artificial additives, flavours and preservatives added to fast foods pose a threat to Domino’s

like all fast food restaurants

Rising food and Energy costs shrink margins

Domino’s margins are dependant on food prices. Particularly wheat, corn, beef, poultry.

The prices of these key inputs can rise significantly, impacting on the company’s margins

Rising energy costs: Domino’s is also affected by the prices of oil which has risen four –

fold since 2001. Oil is used to produce food as well as to transport it all over the world. More

importantly the company covers over 10 million miles per week in pizza deliveries, making it

a large consumer of gas. Because of this, increased costs shrink margins and hurt profitability

PESTLE

P

ESTLE analysis, an acronym (Political, Economical, Social,

Technological, Environmental, and Legal) that help to understand

the overall market environment (market risks, market growth or

decline, etc.) for a particular industry, business, product, or project.

It is often a key part of strategic, marketing, and/or business

planning.

POLITICAL

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he Australian government support trading and business

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ustralian government in good relationship with the USA and UK

government

C

urrently government are controlling the marketing of fast food restaurant

because of health concerns.

ECONOMICAL

R

ise on energy and gas cost.

F

uel price increase

T

he value of Australian food exports declined largely due to drought and changes in import demand from

overseas countries.

S

ince the early 1990s, inflation targeting has been the main objective of Australia's monetary policy

framework as controlling inflation preserves the value of money.

T

he current inflation rate is 2.80% and the RBA has set policy to achieve an inflation rate of 2-3 per cent

on average.

SOCIAL

A

ustralia has a diverse cultural and life style with 22million

population.

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ealth concern

A

gricultural country

TECHNOLOGY

Research and development:

●Australia’s strong business performance in recent years was due to record of

innovation and a longstanding commitment to research and development (R&D),

aimed at increasing productivity, building new markets and boosting international

competitiveness.

●The Australian Government supports R&D through direct funding as well as

providing significant tax concessions to encourage private sector investment.

●Australia got great communication technology

●Online ordering has also been great in this era of time, where internet has completely

taken over communication.

ENVIRONMENT

●A

ustralia has a business-friendly regulatory environment and

favourable time zone.

●

The Australian Government has announced its plan for a clean

energy future to help Australia meet the environmental and

economic challenges of competing in a low-pollution world.

LEGAL

M

ust be licenced to operate:

PORTER’S 5 FORCES

5 forces was developed by M.E.Porter in 1979. This helps

organizations to analyze its competitive strength and position in the

industry. According to Porter, ’the state of competition is an

industry depends on five forces’

THREAT OF NEW ENTRANTST

hreat of new entrants -Barriers to entry- High

The level of profits the industry is earning and the entry barriers are the factors that will determine the attractiveness of the industry for a new entrant (Wickham, 2000)

1) Market share (as of 2010)

Domino’s Pizza 46%

Pizza Hat 29%

Eagle Boys 17%

Others 8%

There are over 3500 independent pizza shops and 3,000 chain pizza shops in Australia

2

)Brand Identity- The existing market leaders (the brands mentioned above) have strong brand identification and royal customers

ENTRY BARRIER

A

ccess to distribution- It is difficult for new comers to access the distribution channel

T

he Government policy: The government’s dialogue to work with quick service restaurant sector and public

health groups to help all Australians to improve their poor dietary habits and to make healthier food choices.

S

ales Growth

Domino’s Pizza announced a $10.2 million half-year Net Profit After Tax, up 16.9% on the corresponding

period previous year. (Feb, 2011). This might attract new entrant as this indicate that the industry is

profitable.

THREAT OF SUBSTITUTE T

hreat of substitute products – Medium

The customer may find that goods from a different industry will serve just as well. (Wickham, 2000)

1)Alternative price: If the price of pizza increases high enough, consumer might switch to frozen pizza from supermarket or other cheaper fast food such as Hamburgers, Fried Chickens and Chinese take away.

2) Change in buyer’s lifestyle and trend

Increase in recent health-conscious lifestyle and government’s engagement to encourage Australian people to have healthier diet, which could lead their consumer to have healthier alternatives.

Healthy noodle and sushi categories are booming.

BARGAINING POWER OF BUYER

‘Customer can force down prices, demand higher quality or more services.’

(Porter,1979)

Change in buyer’s lifestyle (such as increase in health conscious people demands for

healthier options)

Product price; buyers tend to be more price-sensitive especially when they are buying

undifferentiated products. (Pizza tends to be standard product.)

Buyer’s potential to integrate backwardly: If buyer decides to make home-made pizza

The average Australian eats pizza once a month totalling over 264 million pizzas a year

BARGAINING POWER OF SUP.T

he bargaining power of suppliers- Medium

‘Suppliers can exert bargaining power on participants in industry by raising prices or reducing the quality

of purchased goods or services.’(Porter,1979).

1) Suppliers can raise the prices of raw materials

Depends on the commodities that are used in production of Pizza such as wheat, cheese, vegetables and

meat.

E.G. If the wheat harvest performs poorly due to adverse weather, supplier might have to increase prices,

which force Domino’s Pizza to raise their prices or lose their margin.

2) Differentiated raw materials

-Domino’s Pizza is using 100% Aussie beef

-From January 2011, the company switched to new cheese supplier from San Joaquin Valley, which has

14% less fat but still taste full mozzarella cheese.

BARGAINING POWER OF SUPPT

hreat of forward integration

E.G. Their supplier of wheat might decide to produce pizza’s dough and sell them to the customers directly.

1) Suppliers can raise the prices of raw materials

Depends on the commodities that are used in production of Pizza such as wheat, cheese, vegetables and

meat.

E.G. If the wheat harvest performs poorly due to adverse weather, supplier might have to increase prices,

which force Domino’s Pizza to raise their prices or lose their margin.

D

ifferentiated raw materials

-Domino’s Pizza is using 100% Aussie beef

-From January 2011, the company switched to new cheese supplier from San Joaquin Valley, which has

14% less fat but still taste full mozzarella cheese.

RIVALRY R

ivalry among existing firms- High‘Intense rivalry is related to the presence of the factors such as products or service characteristics and differentiation strategy.’ (Porter,1979)

1)Rivals-Other Pizza Brands such as Pizza hat, Eagle boys as well as another brands from Quick Service Restaurant Segment such as McDonalds, Subway, and KFC.

2)Advertisement and promotion to differentiate its products in order to gain edge over its competitors.

E.G.

Use of Social Networking Site such as Facebook and Twitter to connect with their consumers

Domino’s Pizza launched iPhone application for online ordering, which was a big success with 350,000 downloads in the first 6 months, achieving A$2 million in sales in the first 12 weeks.

In March, 2010, Pizza Hut also introduced its own online ordering application and 70,000 of them were downloaded in the first 30 days.

SEGMENTATION

Market condition

More than 6.5 million migrants have settled in Australia since 1945

In good relation with America and UK

21 million population

Domino’s market demographic is culturally diverse. Domino’s

responded by adding several other variations of the basic pizza. Eg.

Hand tossed and thin crust pizzas were added to the menu to satisfy

demand in specific market areas and remain competitive.

SEGMENTATION

Customer segment

Life-style: Different menu to suit every Ability to customise your Pizza Cultural based: Market research had revealed that Domino’s

market demographic was culturally diverse.

Religion Halal meat Vegetarian etc.

TARGET GROUP

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ge: 30years and under are Domino’s major target group

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orking-class

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ime constrain people

POSITIONING A

s customer focused firm: They have been able to succeed in non-traditional markets by

creating a cultural-specific product mix. Their product mix has evolved to include pizza,

salads, sandwiches, chicken wings, and specialty desserts.

P

rice strategy: Domino’s product pricing is competitive with others in the industry.

A

s conveniences firm: Taking advantage of an impatient consumer base, Domino’s touted,

“you get fresh, hot pizza delivered to your door in 30 minutes or less—or it’s free.”