Domino's Pizza Inc
Domino’s Pizza Inc
SUMMARY: Domino’s Pizza Inc. has a message to emerging markets: Take me as I am. The chain’s U.S. competitors, namely Pizza Hut, have completely reinvented themselves for China, India and other emerging markets, in order to mesh with the strikingly different consumer trends there. But Domino’s is going in strong with traditional pizza delivery, just as it has in the U.S.
Wall Street Journal Article ? Extra Credit
Domino’s Sticks to Its Ways Abroad
Domino’s Pizza Inc. has a message to emerging markets: Take me as I am.
The chain’s U.S. competitors, namely Pizza Hut, have completely reinvented themselves for China, India and other emerging markets, in order to mesh with the strikingly different consumer trends there. But Domino’s is going in strong with traditional pizza delivery, just as it has in the U.S.
Domino’s has flourished in India, where it has about 440 locations. It says it has the potential to have at least 1,000 locations there.
So far, Domino’s has flourished in India, where it has about 440 locations. India has seen 21% same-store sales growth compounded annually over the last five years. As a matter of perspective, same-store sales rose 6.8% in its international division as a whole in 2011. Domino’s says it has the potential to have at least 1,000 locations in India.
Given its success there, the company said it is increasingly focused on growing in other emerging markets such as China, Malaysia and Turkey. But the competition there is greater, and pizza isn’t exactly a popular meal among locals in those places.
In Malaysia, Domino’s is targeting 100 stores by the end of this year, from around 70, and Turkey is becoming a bigger focus with more than 200 stores,
When rival Pizza Hut ventured into China, parent company Yum Brands Inc. opted to introduce Pizza Hut Casual Dining, a chain that resembles more of a Cheesecake Factory in terms of menu and motif, with a vast selection of American fare, including ribs, spaghetti and steak, as well as cafe latte.
Domino’s isn’t interested in table service, even if that is what locals are used to.
"We go in there with a tried and true business model of delivery and carryout pizza that we deploy around the world," said Domino’s international president, Richard Allison. "In the emerging markets, we’ve got more tables than you would find in the U.S., but we have no plans to lean toward a casual dining model where a server comes out and takes an order."
Some analysts question that my-way approach.
"It is hard to enter China now as a new brand, much harder than 10 or 20 years ago. The consumer culture is well-developed, highly competitive, and really hard to break through the noise," said Sanford C. Bernstein restaurant analyst Sara Senatore. Just because Domino’s has succeeded in India doesn’t mean it will have the same results elsewhere. "India is still very far behind, so it’s easier to enter than China or Brazil. There’s still a lot of low hanging fruit there," she added.
Meanwhile in China, more fast-food shops?including McDonald’s Corp., Pizza Hut and KFC?are offering delivery service, moving into Domino’s turf. Pizza Hut Home Service in China has roughly 135 stores that deliver. Domino’s has no more than two dozen stores there.
As Domino’s goes further in to China, it could potentially piggy-back off the delivery business’ recent traction, said Scott Setrakian, managing director at market testing firm Applied Predictive Technologies.
"But the acceptance of pizza by consumers is still up for debate. They’re going to have to compete for a local palate that is unaccustomed to it," he said.
Domino’s has blamed its struggles in China in part on the fact that cheese and bread aren’t traditional staples of the Chinese diet and also on some of its own "self-inflicted wounds."
"We brought in a new partner in China about a year and a half ago, and have been working with them on redoing the brand’s products, pricing and image," said Mr. Allison. "We are now well on our way of re-launching in that market, and we see substantial opportunity."
Russia and Brazil are two other emerging markets that Domino’s concedes it has some work to do to improve their brand awareness and capitalize on the potential.
As Domino’s turns its attention to emerging markets, the risk it takes, in addition to facing a different dining environment and increasing competition, is that other U.S. chains that have done the same are seeing sales slip domestically.
Albeit, Domino’s is going in with a franchised model, which helps mitigate a lot of the risks.
"One advantage of delivery and carryout versus table service is that it requires a low investment cost up front and the operating economics are very strong, making it attractive to franchisees," Mr. Allison said.
Domino’s uses "master franchisees" in emerging markets, which means they collect a smaller percentage of sales as a royalty fee, in return for the franchisees’ local expertise and ability to provide both the capital and the employees to build the business.
"Pizza is a product that lends itself to innovation," Mr. Allison said. "India has a lot of vegetarian pizzas; Malaysia has a pizza with prawns on it. With the help of our franchisees, we’re able to adopt it to the local tastes."
A version of this article appeared April 17, 2014, on page B10 in some U.S. editions of The Wall Street Journal, with the headline: Domino’s Sticks to Its Ways Abroad.
1. How is Domino’s strategy for pursuing the Chinese market different than Pizza Hut’s?
2. If you worked in Domino’s corporate office and were asked to lead the team that is pursuing the Chinese market, with whom would you build your team? For example, what proportion of your team would come from Domino’s in the U.S. compared to hiring new team members from China?
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