SWOT Analysis of Domino Pizza Enterprises Limited - Case Study Example

Domino Name Class Unit Executive summary The aim of this report is to conduct a SWOT analysis of Domino Pizza Enterprises Limited (Domino Pizza). Based on the SWOT analysis, the report makes recommendations for the company future action. The report uses information from the company annual reports, magazines, academic journals and relevant books. The report findings show that the company has a strong delivery and distribution systems. Domino Pizza has a strong brand name. The company has been experiencing slow growth and possibility of negative shareholders equity. However, Domino Pizza can make a major turnaround by being more innovative, expanding to new markets, new product development, location based menu and enhancing their net profits. The company is supposed to increase the number of franchises and focus more on strengthening their brand. Table of Contents Executive summary 2 Table of Contents 3 Introduction 3 SWOT analysis 5 Discussion 6 Strengths 6 Weakness 7 Opportunities 7 Threats 8 Recommendations 8 Being more innovative 8 Take advantage of their IT capabilities 9 New product development 9 Location based menu 10 Increasing franchises 10 Focus more on building brand image 10 Solve the challenge of negative shareholders equity 10 References 12 Introduction Domino's Pizza Enterprises Limited (Domino Pizza) is an Australian based company dealing with fast food. The company brand is owned by US Domino Pizza Inc. Through franchising, domino Pizza was able to expand and has over 13,300 stores in seven countries. The company has its headquarters at Hamilton, Queensland (IBIS World, 2013). The company claims that their success is based on a good relationship between the franchisees and the corporate team. The two works together with an aim of enhancing the brand and making it the best pizza delivery company worldwide. At the moment, Domino's Pizza Enterprises Limited employs more than 26,000 employees in their stores. The company menu products are; pizza, pastas, chicken, sandwiches, breads, drinks and desserts (IBIS World, 2013). Domino's Pizza Enterprises Limited faces high competition in the industry. There has been an increase in number of pizza makers operating locally and internationally. Consumers have also become more concerned with their health leading to most pizza companies coming up with cheap and healthy products. Internet has changed the industry with online ordering becoming highly popular (Roth, 2012). Table 1: Competitor comparison for 2013 Company Market Share McDonald's Australia Holdings Limited 15.20 Yum! Restaurants Australia Pty Limited 9.30 Subway Systems Australia Pty Limited 8.80 Competitive Foods Australia Pty Ltd 5.90 5.9 Source: IBIS World, 2013 This report will list and analyse strengths, weakness, opportunities and threats (SWOT) on Domino Pizza. The report will start by giving a brief overview of the SWOT analysis. The report will then discuss in details SWOT and finally give recommendations for Domino Pizza based on SWOT analysis. SWOT analysis Strengths Strong brand name. Leading pizza delivery and strong distribution network. Domino pizza has a global presence. Domino pizza has extensive use of technology. Weakness Slow growth and decline in same store sales. Stiff competition in the industry. Negative shareholders equity. Opportunities Can utilise their well laid infrastructure to improve operations at minimal costs. Emerging economies offers market opportunities. Can use technology to gain a competitive edge. Threats Increase in new pizza business offering delivery services. Consumers are more health conscious affecting operation costs. Increase in regulations and restrictions by government to fast food industry. High cost of labour and food supplies. Discussion Strengths Domino has been able to create a strong brand name. This makes the company to stand out among the competitors. This has enabled Domino to retain their market share. Domino Pizza strong brand equity is supported by their advertising. Domino Pizza is the leading Pizza delivery company worldwide. This gives the company customer loyalty and enhances its brand equity. Consumers can freely make orders from Domino Pizza since the company has already gained reputation on fast and efficient pizza delivery. This is aided by an elaborate supply chain and distribution network (IBIS World, 2013). Domino Pizza has a presence in over 7 countries. The company has been able to expand their franchise operations. In 2011, the company was able to acquire 32 more stores with 16 being in Australia. This has enabled the company to access large market share (IBIS World, 2013). Domino's Pizza Enterprises Limited has been able to keep up with technology. The parent company (Domino Pizza Inc.) had been one of the major contributors to the technology that is used in the food industry today. This has enabled the company to be at par with technology changes in the food industry. This includes the invention of insulated pizza bags and corrugated pizza box. The company was among the first pizza companies to launch online Pizza ordering in 2007 (Dominos, 2014). In 2008, the company came up with pizza builder where consumers could have an online experience in building pizza. The company also came up with Pizza tracker where consumers could track their pizza delivery. In 2011, the company launched two apps on android and iPad. This has helped the company to enhance its online sales. In 2012, Domino launched an app for windows and enhanced their website. The company have also been able to offer its products at lower prices as compared to the competitors (Dominos, 2014). Weakness As mentioned in weakness, Domino Pizza has been experiencing a slow growth. This has been aggravated by the decline in same store sales. The price margin has been declining due to price based competition. Over the recent years, the company have experienced declining sales which have the capability of affecting their brand image. Domino faces stiff competition from Yum Brands, McDonalds, Subway and Competitive Food Australia. The food industry is highly saturated with major players (IBIS World, 2013). Domino Pizza Inc. (Parent company) has been facing negative shareholder equity which implies the industry is not performing well in franchises (Bloomberg Business week, 2013). This implies that the company loses have been higher than the amount payable to the shareholders. In cases where there is negative shareholder equity, the owners owe money in theoretical aspect. Negative shareholders’ equity can be a sign of bankruptcy. This may negatively affect Domino access to cash from credit facilities. The company net income has been growing at a slow rate which can be a sign of financial problems in the future (Bloomberg Business week, 2013). Opportunities Domino Pizza has great opportunities in the pizza market. A key opportunity is the infrastructure which they have laid in delivery. This gives them a platform where they can improve their operations without spending a lot. Another great opportunity for growth is the emerging markets. By taking this advantage, the company can be able to increase their market share. Domino has been able to take advantage of technology and have started offering services in Smartphones and computers. This is a great competitive advantage in the market. The company have been able to identity areas they can improve and gain a competitive advantage. Finally, increase in internet purchases presents an opportunity which the company can benefit from. The company can also utilise technology to benefit from better methods of promotions (IBIS World, 2013). Threats The pizza delivery market has become more competitive. There have been an increasing number of new businesses which are formed in the pizza industry. The main competitors have been a major threat to Domino's Pizza. Consumers have become more health aware which can affect the company prices. This is due to more restrictions and regulations being imposed in the industry. Consumers demand for healthy menu implies that Domino have to increase their expenditure in coming up with new menus (Brindal, Wilson, Mohr & Wittert, 2014). Another threat is the high costs of labour and food prices. Governments have been setting minimum wage which have been a major impact on business wage bill. Finally, there has been an increase in food prices leading to the suppliers increasing their prices. This has led to an increase in operating costs for the business. Recommendations Being more innovative To maintain competitive advantage in online sales, Domino has to be more innovative (Freeman et al., 2014). Most of the pizza companies have elaborate online sales strategy which may be a major threat to Domino. The company should come up online plan that can cater for special events and party orders. This may involve the company coming up with an online system where customers can create an event by specifying a date in which they need the order. This may involve the client specifying number of people attending and specify the type of pizza they want. This will make Domino more competitive in online sales. Domino Pizza is also supposed to work on enhancing their pizza delivery strategy. Despite the fact that the company has been a market leader in pizza delivery, they can deliver faster (IBIS World, 2013). Domino Pizza can come up with a means of delivering pizza faster, which will enhance their market share as well as their profits. Take advantage of their IT capabilities Being one of the pizza companies with high technology, Domino Pizza should be using it to expand. The IT capability can be pushed to the emerging markets overseas. This puts the company in a good position to grow their market share and outperform the competitors (Freeman et al., 2014). New product development The industry is at its mature stage of the lifecycle. This makes it to experience slow growth with revenue being expected to grow at a slow rate. Domino's Pizza Enterprises Limited will have to focus more on new product development. This focus will enable Domino to survive in the market. This may also help the company to increase their revenue and eliminate the negative shareholders equity. The new products should reflect the customer needs (IBIS World, 2013). The company should put more focus on customer loyalty. This is by ensuring that they insist on delivering quality menu to their consumers. Location based menu Offering location based menu is can help Domino Pizza to gain market share fast in new markets. This is a strategy that will help the company to have great brand recognition globally (Thompson et al., 2012). This helps to maintain the local culture and enhances consumer experience. For example, when the company expands to a vegetarian country, they have to be sensitive to the culture. Domino Pizza has to continue ensuring that their products are in line with consumers taste and preferences (IBIS World, 2013). This is due to the current trends and consumers becoming more health aware. Increasing franchises At the moment, it is estimated that Domino Pizza hybrid operating model is based on 70% franchises and 30% store ownership. In order to reduce the operating costs, Domino Pizza should increase the number of franchises (IBIS World, 2013). Focus more on building brand image The company brand image is one of its major strengths. Domino Pizza should focus more on building their brand image by concentrating more on continuous strengthening and reinforcing. The company products should be able to reflect the changes that are happening globally in lifestyle (IBIS World, 2013). Solve the challenge of negative shareholders equity To solve the issue of negative shareholders equity, the company can engage in capital contributions. This is by asking the shareholders to invest more funds to the corporation on top of their shares. This is a good solution though it is not optimal (Bloomberg Business week, 2013). Through this, it will be possible to increase the shareholders equity and will appear at the capital contributions. Domino Pizza can pay these funds to shareholders as dividends or return of the shareholders capital invested. Another solution to tackle the negative shareholders equity is increasing net profit. When there is an increase in net profit, it appears as an increase in shareholders’ equity. Domino Pizza can add their profits to retained earnings or pay as dividends. This will help domino pizza solve the problem of having a negative return on equity. When a company is able to grow its retained earnings, they are viewed as stronger firm by investors (Bloomberg Business week, 2013). This is due to fact that investors see it as a company that is capable of distributing its profits to owners. Increase in retained earnings will help Domino's Pizza to grow. If Domino will succeed in increasing their net profits, they will be able to attract more investors (Roth, 2012). The most recommendable way to increase the company shareholders equity is through increasing the net profits. References Bloomberg Business week 2013, Financials-domino's pizza, viewed 31st March 2015, http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=DPZ Brindal, E., Wilson, C., Mohr, P & Wittert, G 2014, “Nutritional consequences of a fast food eating occasion are associated with choice of quick‐service restaurant chain,” Nutrition & Dietetics, Vol.71, no.3, p.184-192. Dominos 2014, Home, Viewed 1st April 2015, http://www.dominos.com/about-pizza/ Freeman, B., Kelly, B., Baur, L., Chapman, K., Chapman, S., Gill, T & King, L 2014, “Digital Junk: food and beverage marketing on Facebook,” American journal of public health, Vol.104, no.12, p. 56-64. IBIS World 2013, Industry outlook, viewed 31st March 2015, http://clients1.ibisworld.com.au.ez.library.latrobe.edu.au/reports/au/enterprisepremium/de fault.aspx?entid=10353 Roth, M 2012, Top Stocks 2013: A Sharebuyer's Guide to Leading Australian Companies, New York: Wiley. Thompson. A, Peteraf, M, Gamble, J, & Strickland, A 2012, Crafting & executing strategy. (18th Ed.) New York City: McGraw-Hill. Read More