Domino's Pizza, Inc.

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Domino's Pizza, Inc.

founded: 1960

Contact Information:

headquarters: 30 frank lloyd wright dr.
ann arbor, mi 48106-0997 phone: (313)930-3030 fax: (313)668-4614 email: [email protected] url: http://www.dominos.com

OVERVIEW

As of 1997 Domino's Pizza, Inc. was the largest pizza delivery company in the world and the world's second largest pizza chain, behind Tricon Restaurant Group's Pizza Hut. Domino's had 4,431 pizza delivery stores in the United States and more than 1,521 units in 59 foreign countries by the end of 1997. Its 1997 sales were $3.16 billion, earning Domino's a place as the two-hundredth largest private company on the Forbes Private 500 list. Domino's sells a variety of pizza products, including deep-dish, pan, and thin-crust pizzas, as well as specialty items such as flavored-crust pizzas.

In 1997 Domino's sold over 325 million pizzas, with pepperoni being the most popular topping. The chain used over 27 million pounds of pepperoni that year, as well as over 174 million pounds of part-skim mozzarella cheese and over 3 million pounds of pizza sauce, among other ingredients.

COMPANY FINANCES

Following several difficult years, Domino's annual sales have risen steadily since 1993: $2.2 billion in 1993; $2.5 billion in 1994; $2.6 billion in 1995; and $2.8 billion in 1996. In 1996 the firm saw a 2-percent increase in sales at stores open more than one year. By the end of 1997 Domino's had achieved record sales of almost $3.2 billion, a 14.3-percent increase over 1996. (Because Domino's is a privately held company, it does not issue stock to the public.)

HISTORY

Domino's traces its roots to 1960, when Tom Monaghan and his brother, James, purchased "DomiNick's," a pizza store in Ypsilanti, Michigan. Monaghan borrowed $500 to buy the store, and in 1961 James traded his half of the business to Tom in exchange for a Volkswagen Beetle automobile. Tom Monaghan established the pizza business to support himself while he studied to be an architect. Soon after, however, he dropped out of school to build the business.

By 1965 Tom Monaghan was the sole owner of the company, and he renamed the enterprise Domino's Pizza, Inc. As Domino's grew, its success was attributed to a simple but powerful idea: Monaghan, who had been raised in Catholic orphanages and foster homes, believed that people who ordered pizzas were hungry. To keep them happy a company must not only deliver pizzas, but promise fast delivery. Domino's went on to guarantee pizza delivery in 30 minutes or less.

That 30-minute delivery philosophy began to blossom in the mid- to late 1970s. In 1967 the first Domino's Pizza franchise store was opened in Ypsilanti, Michigan. The franchising concept helped to dramatically accelerate the company's growth. In 1978 the two-hundredth Domino's store opened, and in 1983 Domino's opened its first international store in Winnipeg, Canada. In that same year the 1,000th Domino's store opened. In 1985 Domino's opened 954 new units, making a total of 2,841.

In 1989 Monaghan stepped down as Domino's president for two years to devote himself to philanthropic work. According to some press reports, the company did not do well during that time, but after Monaghan's return the company was able to restore profitability. In 1992 Domino's began the national roll-out of bread sticks, the company's first national non-pizza menu item. In 1993 Crunchy Thin Crust Pizza was introduced nationwide. In that same year the company dropped its 30-minute delivery guarantee in corporate stores following highly publicized accidents involving Domino's delivery drivers.

In 1994 the first Domino's store in eastern Europe opened in Warsaw, Poland. In that same year the first agreement to develop Domino's in an African country was signed by Specialized Catering Services, Inc. In 1995 Domino's Pizza International division opened its one-thousandth store.

STRATEGY

Domino's basic business strategy has been to offer a limited menu through carryout or delivery only. Until 1992 the company's outlets offered just two products: Domino's Traditional Hand Tossed Pizza and Coca-Cola. Beginning in 1992, however, Domino's began to expand its menu options; during the next five years it added bread sticks, Ultimate Deep Dish Pizza, Crunchy Thin Crust Pizza, Buffalo Wings, Roma Herb Crust Pizza, Garlic Crunch Crust, and Pesto Crust Pizza.

In addition to its corporately owned stores, Domino's operates an extensive franchise network, with independent owners operating Domino's stores. According to the company, over 90 percent of its 1,200 franchisees started with the company as drivers. The company's franchising system provides ownership opportunities only to qualified internal candidates, as of the late 1990s. A candidate is required to have successfully managed and/or supervised a Domino's store for one year, and must have also completed required training courses. External candidates are not considered for full franchise status; however, external investors, approved by Domino's, can become 49-percent owners in a franchise supporting an internal candidate.

FAST FACTS: About Domino's Pizza, Inc.

Ownership: Domino's Pizza, Inc. is a privately owned company.

Officers: Thomas Monaghan, Pres. & Chmn.; Cheryl A. Bachelder, VP, Marketing & Product Development; Harry Silverman, CFO & VP, Finance & Administration

Employees: 170,000 (1997 est.)

Principal Subsidiary Companies: Domino's Pizza, Inc. operates about 6,000 stores in the United States and 60 other countries. Its main subsidiary is Domino's Pizza International, Inc.

Chief Competitors: Major competitors include the many other pizza chains and fast food operations in the United States and elsewhere, such as: Bertucci's; Little Caesar's; Papa Gino's; Pizza Hut; and McDonald's.

Another key part of Domino's business strategy is the distribution of pizza store products to both corporately owned stores and franchise stores. In the late 1990s the distribution division of Domino's Pizza, Inc. (DPD) operated a network of 18 domestic distribution centers, supplying over 4,200 Domino's pizza stores with more than 150 products, from basic food items to pizza boxes and cleaning supplies. DPD's equipment and supply division also offers items such as counters and ovens. DPD is also a major pizza dough producer, averaging 175 million pounds of dough per year.

A key part of Domino's business strategy in the mid-1990s included intensive lobbying of Congress over tax legislation that affected its operations. In 1996, Domino's and other pizza delivery firms faced a mandated increase in their costs when the U.S. Congress passed legislation raising the minimum wage. Domino's delivery drivers, for example, were frequently paid the minimum wage. However, another bill providing a tax credit for tips collected by delivery drivers was also passed in 1996 by Congress, helping offset the cost of the minimum wage measure. The tax credit, which was strongly promoted by the pizza industry, was an extension of a tax credit already enjoyed by traditional restaurants.

The passage of the tax cut was seen as evidence of the "vast influence" that pizza firms such as Domino's had developed on Capitol Hill and within a national trade group, the National Restaurant Association, according to Glenn Simpson, writing in the Wall Street Journal. The special tax break was expected to cost the U.S. government about $6 million in lost revenue in 1997. Domino's encouraged dozens of its franchisees to lobby for the tax credit, according to Simpson.

INFLUENCES

In the mid-1990s Domino's began to experience some financial difficulty, and in 1993 the company reported a 4.3-percent decline in total sales to $2.2 billion and a 1.2-percent decrease in the number of operating units. According to John McLaughlin, writing in Restaurant Business, Domino's experienced sharp losses in the mid-1990s due to Monaghan's "previous financial excesses," but added that more prudent financial management helped the company regain profitability.

Domino's began to restructure its product and marketing operations, adding new products and changing some of its long-time practices. In 1994 Domino's eliminated its 30-minute delivery guarantee after a jury in St. Louis, Missouri, awarded $78 million to a woman who was injured in a collision with a Domino's delivery van. Other accidents involving Domino's delivery vehicles had led to fatalities. Critics charged that the company's guarantee caused safety problems, and while Domino's denied the charges, the negative publicity prompted the company to abandon its policy.

While Domino's distribution division was a key part of its strategy, some franchisees challenged its business practices in a 1995 anti-trust lawsuit, charging that the company was allegedly overcharging for supplies, including raw pizza dough. The 11 franchisees who filed the suit said they were prevented from contracting with outside raw dough suppliers. The lawsuit claimed that Domino's was charging franchisees five times the market price for pizza dough, and also claimed that Domino's practices added between $3,000 and $10,000 in costs annually to each franchise's costs. Domino's denied the charges in the suit.

CHRONOLOGY: Key Dates for Domino's Pizza, Inc.

1960:: Tom and James Monaghan buy a DomiNicks pizza store
1961:: James sells his part of DomiNicks to Tom
1965:: Company is renamed Domino's Pizza Inc.
1967:: First Domino's Pizza franchise opens in Ypsilanti, Michigan
1978:: 200th Domino's store opens
1982:: Establishes Domino's Pizza International, Inc.
1983:: Opens first international store in Winnipeg, Canada
1985:: Opens 954 new stores
1986:: The Partners Foundation is founded
1992:: Domino's introduces bread sticks on their menus
1993:: Crunchy Thin Crust Pizza and Ultimate Deep Dish Pizzas are introduced nationwide
1994:: Opens store in Warsaw, Poland; eliminates 30-minute delivery guarantee; adds buffalo wings to the menu
1995:: Opens 1000th international store
1996:: Adopts a new logo and new uniforms; introduces flavored crust pizzas
1997:: Becomes the largest pizza delivery company in the world

CURRENT TRENDS

In 1996 Domino's announced that it was planning a new image for the company. Along with adopting a new logo, Domino's began to upgrade its stores' appearance, and its employees began to sport light khaki pants instead of their traditional navy uniforms. With ever increasing competition from both traditional pizza chains and sellers of gourmet pizzas (such as California Pizza Kitchen), Domino's decided both to build up its existing product line and to test some new concepts, such as the flavored crusts introduced in 1996 and 1997. International expansion remained a priority. Founder Monaghan, firmly in control once again, had no plans of retiring after over 35 years with the company.

PRODUCTS

While Domino's' traditional operating strategy had been based on offering a very limited menu, in the mid-1990s the company began expanding its product offerings to meet the changing tastes of its customers. In 1992 it added bread sticks; the next year it introduced Ultimate Deep Dish Pizza and Crunchy Thin Crust Pizza. Buffalo Wings, a chicken product, was added in 1994. In 1995 Domino's (and other pizza chains) began offering these chicken wings as appetizers, in mild, hot, and barbecue flavors.

Domino's also pursued another product trend in the mid-1990s: flavored pizza crusts. Domino's successfully introduced its Roma Herb Crust Pizza in June 1996 and its Garlic Crunch Crust in November 1996, although both were billed as limited-time promotions. In 1997, Domino's expanded its crust offerings with a new Pesto Crust Pizza.

CORPORATE CITIZENSHIP

Domino's has been known as a supporter of many volunteer organizations, and its chairman, Tom Monaghan, has been a major supporter of many Catholic charities. As of 1997 Domino's has been a national sponsor of Project Safe Place, a network of "safe places" where young people in trouble can go to request help. Employees at such safe places offer a secure place to wait while the local youth shelter is contacted. Domino's outlets in cities implementing the program are "safe place" sites. The company also pays for the cost of Safe Place materials.

Domino's also operates its own "Partners Foundation," which provides financial support for Domino's franchisees and employees with special needs caused by natural disasters, on-the-job accidents, family emergencies, and other problems. In 1995, the Partners Foundation addressed 600 cases, of which 579 received support. Funding for the Partners Foundation, which was founded in 1986, was derived mostly from voluntary payroll deductions, functions sponsored by Domino's, and special events. In 1995 Partners assisted Domino's franchisees and employees affected by the Mississippi River flooding in New Orleans, Louisiana, and by Hurricane Opal in Florida and the Caribbean.

GLOBAL PRESENCE

As of 1997 Domino's operations outside of the United States were handled by Domino's Pizza International, Inc. (DPI), a wholly owned subsidiary of Domino's Pizza, Inc. established in 1982. With 150 franchise members, DPI operated 1,521 stores in 59 international markets as of 1997. DPI contributed $440 million to the company's $2.6 billion in sales in 1995.

When Domino's first went international in the mid-1980s, it used the same menu—dominated by large size pizzas—that was successful in the United States. However, that approach was not successful in some international markets such as Germany, where small, individual pizzas were popular. At first, international sales were minimal—amounting to just $16 million in 1986.

However, in the early 1990s, Domino's began modeling its international business on successful overseas operations such as its Japanese franchisee, which was run by a local businessman who experimented with toppings such as squid and sweet mayonnaise. As a result, Domino's began selling international "master franchise" rights to operations that understood local markets. As of 1996 international sales had risen to more than $500 million annually.

DOMINO'S SLICE OF PIE IN THE WOODS

Located one mile off the eastern tip of Michigan's Upper Peninsula and 50 miles east of the Mackinac Bridge, Woodmoor Resort on Michigan's largest island, Drummond Island, was purchased in the mid-1980s by Domino's Pizza as a corporate retreat. The resort, which is now locally owned and operated, contains a large waterfront cottage designed for Domino's Pizza founder, Tom Monaghan. The Monaghan home is built in the Frank Lloyd Wright style, with wood, natural stonework, and glass. The cottage has five bedrooms that each include a private bathroom, a large combination dining and living room, and a full kitchen and mini washer/dryer. The cottage features views of the bay, and a children's "playcottage" connected to the building.

Under the "master franchising" system, Domino's Pizza, Inc. sells the rights to develop Domino's in a country or territory. Domino's stores outside the United States are all franchise-owned. In addition to creating new international franchises, Domino's was also promoting the conversion of local pizza chains to the Domino's Pizza brand in the mid-1990s. For example, in 1994 an agreement was signed with an 88-unit Australian pizza company to convert its units to the Domino's brand. The conversion brought Domino's store count in Australia from 25 to over 100 in two years.

Toppings used by Domino's operations vary considerably in different parts of the world. In the late 1990s pepperoni was the number one topping in the United States, but squid was the leading topping in Japan. Tuna and corn were popular in England, while eggs in Australia and guava in Colombia were leading sellers.

SOURCES OF INFORMATION

Bibliography

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