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To Grow or not to Grow

Dominos V/s Pizza Hut

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Matter of Discussion:

Expansion strategy of two pizza giants.

Steps taken by their CEO and a mixsupportive and opposition response.

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Facts of Case

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About Domino's Pizza

Domino's Pizza, Inc. is an international pizzadelivery corporation headquartered in AnnArbor, Michigan, United States of America.

Founded in 1960, Domino's is the second-largest pizza chain in the United States andhas over 9,000 corporateand franchised stores in 60 countries and all

50 U.S. states. Domino's Pizza was soldto Bain Capital in 1998 and went public in2004.

The menu features both vegetarian and meatizzas, chicken win s and boneless chicken,

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About Domino's PizzaCont Type Public

Industry Restaurants

Founded Ypsilanti, Michigan, UnitedStates (June 10, 1960)

Headquarters Ann Arbor, Michigan,United States

Area served Worldwide

Key people Tom Monaghan, Founder

J. Patrick Doyle, CEO

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Dominos

Pavan Bhatia the CEO of Dominos India wentfor expansion strategy which was notconsidered appropriate for the Companysbenefit.

The strategy included opening various outletsin small towns and cities.

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Roller coaster ride withPavan Bhatia: 1999 he joined Dominos as CEO and went

about opening Domino's outlets across thecountry.

From an average of four stores every year in itsfirst four years of operation, Domino's expandedto more than 100 outlets in 10 months across 30cities.

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Between March 2000 to January 2001 from anaverage of four stores every year in its firstfour years of operation, Domino's expanded to

more than 100 outlets in 10 months across 30cities.

It was the fastest growth Domino's had in anyof the 63 countries it operated in.

Dominos entered into an agreement with areal estate consultant C. B. Richards Ellis tohelp with location feasibility studies and

construction management.

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Dominos opened outlets at large corporateoffices, cinema halls and university campuses.

Wanted to expand outlets via tie-up withairport, railway stations and petrol pumps.

Entered into contract with Indian OilCorporations to set up 7500 outlets acrosscountry.

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About Pizza Hut

Pizza Hut (corporately known as Pizza Hut,Inc.) is an American restaurant chain andinternational franchise that offers different

styles of pizza along withsidedishes including pasta, buffalowings, breadsticks, and garlic bread.

Pizza Hut is a subsidiary of Yum! Brands,Inc., the world's largest restaurant company.According to its corporate website, there aremore than 6,000 Pizza Hut restaurants in the

United States, and more than 5,600 storelocations in 94 other countries and territories

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About Pizza Hut Cont

Type Wholly owned subsidiary

Industry Restaurants

Founded Wichita, Kansas(1958)

Founder(s) Dan and Frank Carney

Headquarters Plano, Texas, U.S.[1] Key people David C. Novak,

Chairman

Scott Bergren, President

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About Pizza Hut Cont

Entered India in 1996 and operated bycompany own outlets.

Pizza hut made a shift to franchisee run outlets

gradually with time owing to incur hugeinvestment in company own outlets.

By March 2001, Pizza Hut had 20 outlets. In

the same month, Pizza Hut announced its planof opening 30 more outlets in India by 2001end, through franchisee route. By March 2001,Pizza Hut had 13,000 outlets across 90

countries.

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What went wrong forDominosDomino's operated on company-owned outlets

basis, rather than franchisee route or a mix ofboth, because of this the operating costincreased and they were not able to meetexpenses.

There was increase in overheads like salaries,inventory cost and marketing expenses.

Opening outlets in non lucrative markets forPizza sales like Merrut and Ghazibad.

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Some outlets were far from easily accessible

commissary which hiked transportation costand logistic lapse.

Worst mistake was investing U.S $ 2 mn toopen up 6 outlets in Sri-Lanka

For this project to be viable the averagefootfall was expected to be 100-160 per daywhich doesnt occurred.

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Strategy to have single toll free no. to order

pizzas has made the situation worse as manycities were not having outlets but still calling upon the no. to order pizzas.

Money was spend lavishly on marketing byopening every outlet by a celebrity to createbrand hype.

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In the opinion ofexperts:

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The combination of national advertising and the

single toll-free number led to discontentamongst customers who were attracted to dial,but discovered that no outlet existed in their cityor town.

The toll-free number would have worked ifDomino's had 1000 outlets.

The all-India campaign did not justify the needsof specific outlets or regions.

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Pavan Bhatia supportersviews:

Domino's officials who supported PavanBhatia's expansion plan were of the view thatonly 5% of all stores were located in placeswhere business was poor. This was a globally

accepted trend. The profitable stores cross-subsidizing the

unprofitable ones was also a common practiceglobally.

Gautam Advani, former Chief of Marketing,Domino's explained, it was the advertisingblitzkrieg that helped the company move to the

first place from the sixth in both Mumbai and

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Pavan Bhatia's expansion plan wouldnot have come under criticism hadactual sales matched the projections.

Analysts also felt that Domino's wouldbe back on course soon, as pizza saleswere growing despite new storescoming up near the existing ones, atleast in the metros.

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What should

Dominos do?

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Closing the outlets which are not generatingrevenue and sell out them to obtain cash, to

meet the liquidity crunch. In order to increase the foot falls the ambience

of outlet should be altered i.e. to give it a familyrestaurant look rather than pick up outlet

Along with their owned Restaurants they shouldfollow franchise model

Instead of approaching celebrities forinauguration, they should use that money onimproving their product, pricing and promotionstrategies.