Will franchisee’s refusal of opening new stores affect Domino’s Expansion strategy and Profits in UK and Republic of Ireland?
Introduction
The bright and cheerful colours of red and blue squares with white dots instantly symbolizes the incredible Domino’s Pizza. it has a history of more than 40 years of quality service committed to product and delivery. It has been one of the largest of all the restaurant chains in the world standing in the 5th[1] position. Dominos crispy and thin crust topping is well known among the Pizza lovers in countries such as UK and Ireland. Along with these compliment bread sticks, double cheesy bread and buffalo wings. Dominos holds and exclusive franchise license to own, operate and franchise the Domino’s brand and 63 Franchisee owners in the country operate 1,109 stores[2] across British Isles with the market size of GBP 15 bn[3] in 2018
However, the growth story of Dominos started facing competition for last two years (2017-2019) leading increasing running costs, falling Profits[4] margins due to change in customers tastes and other socio-economic dynamics[5]. Franchisee’s Profits margin is constantly falling due to increasing operation costs pressure from competitors. Franchisees are not ready to invest in new stores. Meanwhile, local restaurants are attracting more customers as they know what the diners want to eat rather monotonous menus of Dominos forcing the Franchisees to rethink their further investment plan in American Fast food chain. Thus, this commentary will make an effort to answer the RQ, “Will franchisee’s refusal of opening new stores affect Domino’s Expansion strategy and Profits in UK and Republic of Ireland” Don't use plagiarised sources.Get your custom essay just from $11/page
Primary Article: https://www.theguardian.com/business/2019/oct/13/dominos-pizza-rival-deliveries-consumer-habits-chaning
Methodology
This commentary will discuss how the refusal of UK franchisees to open new stores in British market will affect the growth and expansion strategy of Dominos. The analysis is based on the article published in the British Daily Guardian on Oct 13, 2019[6] and other related articles from different published sources. To have an insight and analyse various aspect of the topic following business tools will be used.
SWOT to assess Dominos internal resources and external position. PEST to analyse British market and its external environment. Accounting Ratios to analyse its financial strengths. BCG matrix to assess the Investment positions and strategies to be followed.
Insight through Analytical Tools
SWOT[7] Profile of Dominos
| Strengths | Weakness |
| · Global Brand Image[8] · Large Customer Base[9] | · Monotonous Food Menu · Depends on own delivery supply chain[10] |
| Opportunities | Threats |
| · Access to Global market · Use of ICT for getting quick orders and delivery to customers[11] | · Change in customers tastes[12] · Competition from local and Global fast food Chains[13] |
Analysis:
Dominos being one of the leading fast food chains has good Brand image. Its 40-year-old[14] market standing makes customer easily choose Dominos store to order foods to dine. Through years, it has invested in marketing strategies and acquired a large customer base in UK, Ireland and many other countries. The Global brand image helps Franchisees to attract more customers. However, in 2019, British customers are showing interests for local foods as they provide quick delivery with mobile apps and supply chain management.
Domino’s monotonous menu is no more in the preferred lists of English and Irish customers. Though use of Mobile Applications[15] for getting customers’ orders and locating the delivery points through Google Maps has given advantages, yet the competitors are moving faster to deliver food items of their choice giving tough competition to Dominos franchisees. The opportunities and threats can also be seen through various components of external business environment of PEST. So, for further analysis, PEST will be used.
PEST [16]Analysis
| Political | Societal |
| · UK’s decision for exit from EU[17] · Liberal trade policies[18] | · Change in dinning habits of customers[19] · Change in preference of dining with Favorite TV shows
|
| Economic | Technological |
| · Higher per capita incomes in UK, Ireland[20] · Developed infrastructure[21] | · Use of Mobile Apps and ICT[22] · Electronic payments methods |
Analysis:
Liberal trade policies of UK and Ireland with developed economic infrastructure always attract Global players and Food chain like Dominos has been benefitted for years of such trade policies. However, recent decision of UK’s exit[23] from European Union has created sentiments among British customers to go for local restaurants and eateries encouraging their business.
British customers are inclined more towards Chines, Indian and other regional tastes reducing demands for eateries of Global fast foods such as Dominos resulting a reduction in the sales of Dominos Franchisees Technology also plays important role placing orders and delivering to the customers. Availability of mobile apps has extended opportunities to other competitors to penetrate into the market segment previously dominated by Dominos.
All these factors are resulting a change in market shares for existing players and Dominos has also lost its position in the mind of customers affecting its financial health. To evaluate how the new development in the UK market influencing financial strengths of the American MNC, Accounting Ratios will be used for further comments.
4 -Years Revenue Growth and Profit Analysis through Accounting Ratios[24]
Figure – 1
Analysis:
From figure 1, it can be seen that revenue increases from GBP 877.2 million in 2015 to GBP 1259.5 million in 2018. Although there is a substantial growth in absolute figure of revenue but the Sales revenue Growth rate is declining year on year till the financial year ending 2018. When it comes to Net Profits Margin, it increases from 8.34% in 2015 to 8.53% in 2016. However, next financial year of 2017, NPM falls to 8.15% and the declining trend continues in 2018 coming down to 7.41%.
This shows that Raw material and operating costs of Franchisees of Dominos in UK and Ireland increases[25] resulting a fall in their Profits margin. A long-term trend in reducing profits margin may force Franchisees not to make further investment in new stores. However, this may also make them going for alternate options like local restaurant brands etc.
6-Months Revenue and Profits Analysis[26]
Figure – 2
As the data of 2019 complete year was not available, six months data has been taken for analyses in figure 2. It can be seen here that corresponding six months revenue in June 2019, increased but Profit margin decreased by 0.99% responding the same trend with 2018 and 2019. While a report says that their Pre-tax Profits fell by 27% in first half of 2019. This conforms that Dominos franchisees are under pressure of declining profitability leading not to choose further investment in new stores. What makes franchisees to avoid new investment in Dominos stores can be analysed by using BCG Matrix.
BCG Matrix [27]
Analysis:
Analysing Dominos status in BCG Matrix, most Franchisees see it as a question mark in 2019 because despite higher market growth of fast food industry, Dominos loosing its market shares which makes it as a Question Mark Business unit in UK and Ireland. Annual report of Dominos shows that in the 2018, it could open only 71 stores in UK and Ireland while in 2017, it had opened 112 stores. Which reveals that Dominos marketing strategies and product portfolio has some serious issues and needed to be addressed through revised strategies such as Market development, Product Development, PLC extensions etc. Dominos competitors in UK are using customised services and offering menu as per the customers choice grabing more customers. In long run, Dominos has to consider the socio demographic changes to revise its strategy. Franchisees are cautious to open new outlets as their profit margins are declining. The article[28] reveals that there was also a tension between Dominos workers and CEO David Wild to open more stores in the existing location. Unhappy workers can be another reason of Dominos being seen as a Question mark Business Unit by many Franchises.
Conclusion:
After analysing through different tools, it can be sum up that socio demographic and economic changes in UK and Ireland has influenced Dominos sales and market shares to an extent which resulted in cautious investment strategy by its Franchisees and number of stores opened was less by 41[29]. Customers in UK and ROI are experiencing new changes with their dining habits. Changing tastes in their food habits and moving away from traditional fast food chain as Dominos. Customers expect a new menu on their dining table at their place of choice faster and at reasonable price which can not be matched by Dominos immediately with their existing menu. Pressure from incresing operation costs and workers compensation has reduced the profit margins despite an increase in Sales Revenue year on year. As profit margin is low, Franchisees look for other options which may give them a higher return on their investment refusing for new outlets and stores. Thus, we can conclude that refusal of opening new stores will certainly influence Dominos Growth strategy and Profit margin in UK and ROI.
Unsolved Questions:
- Would changing menu and promotional strategy help Dominos to revive its Market share in UK?
- Should Dominos go for new Market Development in order to increase its market share in UK?
Bibliography
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- Hoang, Paul. Business Management, 3rd Melton, IBID, 2014 . Print
- Lomine, Loykie, Martin Muchena., and Robert A. Pierce. Business Managemnt, 2014th Ocxford, Oxford University Press,2014. Print
- Smith, Peter and Alex Stimpson. Business and Management for the IB Diploma. Cambridge University Press, 2011. Web.
Websites:
- Farrell, Sean. “Domino’s Struggles as Rival Delivery Services Threaten to Topple It.” The Guardian, Guardian News and Media, 13 Oct. 2019, theguardian.com/business/2019/oct/13/dominos-pizza-rival-deliveries-consumer-habits-chaning. Accessed on October 11, 2019
- 2019-02-26T11:39:00. “Healthier Eating Report 2019.” MCA Insight, 26 Feb. 2019, mca-insight.com/market-reports/healthier-eating-report-2019/590669.article. Accessed on October 11, 2019
- “Brexit Remains a Challenge for the UK Food Industry.” Whitehouse, 19 Sept. 2017, whitehouseconsulting.co.uk/blog/2017/09/19/without-clear-strategy-brexit-remains-a-challenge-for-the-uk-food-industry/. Accessed on October 20, 2019
- “Domino’s Pizza Group Plc.” 5-Year Financial Summary | Domino’s Pizza Group Plc, investors.dominos.co.uk/investors/5-year-financial-summary. https://investors.dominos.co.uk/investors/5-year-financial-summary Accessed on October 22, 2019
- “Domino’s Pizza Group Plc.” Interim Results for the 26 Weeks Ended 30 June 2019 | Domino’s Pizza Group Plc, 6 Aug. 2019, https://investors.dominos.co.uk/media/news/interim-results-26-weeks-ended-30-june-2019. Accessed on Nov. 03, 2019
- “Domino’s Pizza Mobile Apps Help Profits Rise 20%.” Future Platforms, 18 Feb. 2019, futureplatforms.com/dominos-pizza-mobile-apps-help-profits-rise-20-3/. Accessed on Nov. 05, 2019
- Flood, Gary. “Why Domino’s Pizza Keeps on Top of What the Competition Is up to in Digital.” Diginomica, Diginomica, 2 Oct. 2018, https://diginomica.com/why-dominos-pizza-keeps-on-top-of-what-the-competition-is-up-to-in-digital Accessed on Nov 07, 2019
- Https://Investors.dominos.co.uk/System/Files/Dominos-Pizza-Group-Plc-ar18_0.Pdf. Accessed on 10, 2019
- Humphreys, Sarah. Changing Tastes: The UK Casual Dinning Market. Deloitte, UK, 2017, Changing Tastes: The UK Casual Dinning Market, https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/ConsumerIndustrialProducts/deloitte-uk-casual-dining-market.pdf Accessed on Nov. 12, 2019
- Jolly, Jasper. “Domino’s Stockpiles Toppings to Beat No-Deal Brexit.” The Guardian, Guardian News and Media, 6 Aug. 2019, theguardian.com/business/2019/aug/06/dominos-stockpiles-toppings-to-beat-any-no-deal-brexit. Accessed on Nov. 12, 2019
- Lock, S. “Fast Food Industry Market Share Worldwide, by Brand 2019.” Statista, 16 Aug. 2019, statista.com/statistics/273057/value-of-the-most-valuable-fast-food-brands-worldwide/. Accessed on Dec. 01, 2019
- Luty, Jennifer. “Fast Food Market Value by Outlet Type 2018.” Statista, 9 Aug. 2019, statista.com/statistics/711976/fast-food-market-value-united-kingdom-uk-by-type/. Accessed on Dec. 04, 2019
- Saker-Clark, Henry. “McDonald’s UK Boosted by Rapid Delivery Growth.” Belfasttelegraph, BelfastTelegraph.co.uk, 22 Oct. 2019, belfasttelegraph.co.uk/business/uk-world/mcdonalds-uk-boosted-by-rapid-delivery-growth-38620224.html. Accessed on Dec. 08, 2019
- Uttley, Hannah, and Daily Mail. “More than £146m Is Wiped off Domino’s Value as Tension Mounts.” This Is Money, This Is Money, 7 Aug. 2018, thisismoney.co.uk/money/markets/article-6036425/Revenge-Dominos-pizza-chefs-146m-wiped-chains-value. Accessed on Dec.17, 2019
[1] Lock, S. “Fast Food Industry Market Share Worldwide, by Brand 2019.” Statista, 16 Aug. 2019, www.statista.com/statistics/273057/value-of-the-most-valuable-fast-food-brands-worldwide/.
[2] Farrell, Sean. “Domino’s Struggles as Rival Delivery Services Threaten to Topple It.” The Guardian, Guardian News and Media, 13 Oct. 2019, www.theguardian.com/business/2019/oct/13/dominos-pizza-rival-deliveries-consumer-habits-chaning.
[3] Luty, Jennifer. “Fast Food Market Value by Outlet Type 2018.” Statista, 9 Aug. 2019, www.statista.com/statistics/711976/fast-food-market-value-united-kingdom-uk-by-type/.
[4] Refer Appendix 4. “Domino’s Pizza Group Plc.” 5-Year Financial Summary | Domino’s Pizza Group Plc, investors.dominos.co.uk/investors/5-year-financial-summary.
[5] 2019-02-26T11:39:00. “Healthier Eating Report 2019.” MCA Insight, 26 Feb. 2019, www.mca-insight.com/market-reports/healthier-eating-report-2019/590669.article.
[6] Farrell, Sean. “Domino’s Struggles as Rival Delivery Services Threaten to Topple It.” The Guardian, Guardian News and Media, 13 Oct. 2019, www.theguardian.com/business/2019/oct/13/dominos-pizza-rival-deliveries-consumer-habits-chaning.
[7] Appendix 01
[8] “All Fast Food Restaurants in the UK (2019).” Fast Food Menu & Prices UK, fastfoodprice.co.uk/fast-food-restaurants-uk/.
[9] Domino’s Pizza 2018 Annual Report, accessed December 21, 2019,
https://investors.dominos.co.uk/system/files/dominos-pizza-group-plc-ar18_0.pdf
[10] “Domino’s – Supply Chain Centres.” Image of a Pizza, corporate.dominos.co.uk/Supply-chain-centres.
[11] “Domino’s Pizza Mobile Apps Help Profits Rise 20%.” Future Platforms, 18 Feb. 2019, www.futureplatforms.com/dominos-pizza-mobile-apps-help-profits-rise-20-3/.
[12] 2019-02-26T11:39:00. “Healthier Eating Report 2019.” MCA Insight, 26 Feb. 2019, www.mca-insight.com/market-reports/healthier-eating-report-2019/590669.article.
[13] Flood, Gary. “Why Domino’s Pizza Keeps on Top of What the Competition Is up to in Digital.” Diginomica, Diginomica, 2 Oct. 2018, diginomica.com/why-dominos-pizza-keeps-on-top-of-what-the-competition-is-up-to-in-digital.
[15] “DOMINO’S PIZZA ORDER & DRIVER TRACKING APP.” Future Platforms, www.futureplatforms.com/case-study/dominos-pizza-app/.
[16] Appendix 06
[17] Jolly, Jasper. “Domino’s Stockpiles Toppings to Beat No-Deal Brexit.” The Guardian, Guardian News and Media, 6 Aug. 2019, www.theguardian.com/business/2019/aug/06/dominos-stockpiles-toppings-to-beat-any-no-deal-brexit.
[18] “Brexit Remains a Challenge for the UK Food Industry.” Whitehouse, 19 Sept. 2017, www.whitehouseconsulting.co.uk/blog/2017/09/19/without-clear-strategy-brexit-remains-a-challenge-for-the-uk-food-industry/.
[19] 2019-02-26T11:39:00. “Healthier Eating Report 2019.” MCA Insight, 26 Feb. 2019, www.mca-insight.com/market-reports/healthier-eating-report-2019/590669.article.
[20] Humphreys, Sarah. Changing Tastes: The UK Casual Dinning Market. Deloitte, UK, 2017, Changing Tastes: The UK Casual Dinning Market, pdf.
[21] “Domino’s – Supply Chain Centres.” Image of a Pizza, corporate.dominos.co.uk/Supply-chain-centres.
[22] “Domino’s Pizza Mobile Apps Help Profits Rise 20%.” Future Platforms, 18 Feb. 2019, www.futureplatforms.com/dominos-pizza-mobile-apps-help-profits-rise-20-3/.
[23] Appendix 02
[24] “Domino’s Pizza Group Plc.” 5-Year Financial Summary | Domino’s Pizza Group Plc, investors.dominos.co.uk/investors/5-year-financial-summary.
[25] Domino’s Pizza 2018 Annual Report, accessed December 21, 2019, p-102-pdf
https://investors.dominos.co.uk/system/files/dominos-pizza-group-plc-ar18_0.pdf
[26] “Domino’s Pizza Group Plc.” Interim Results for the 26 Weeks Ended 30 June 2019 | Domino’s Pizza Group Plc, 6 Aug. 2019, investors.dominos.co.uk/media/news/interim-results-26-weeks-ended-30-june-2019.
[27] Appendix 03
[28] Uttley, Hannah, and Daily Mail. “More than £146m Is Wiped off Domino’s Value as Tension Mounts.” This Is Money, This Is Money, 7 Aug. 2018, www.thisismoney.co.uk/money/markets/article-6036425/Revenge-Dominos-pizza-chefs-146m-wiped-chains-value.
[29] Appendix 04