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Domino's (US)

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Domino's is the world's largest pizza delivery service, with a footprint that extends far beyond the US to almost 13,000 stores in 80 countries from Australia to Venezuela and Azerbaijan to Vietnam. It became the world's #1 pizza chain overall for the first time in 2017, overtaking long-time champion Pizza Hut, but virtually all Domino's outlets are kitchen-only, offering only delivery or carry-out service, and no dine-in facilities. Domino's delivers well over 400m pizzas each year. After several years of flat performance in the core US market, sales and profits have grown sharply since 2012, largely at the expense of arch-rival Pizza Hut as well as other quickserve operators. This has been accompanied by strong international growth, although the principal benefits of that expansion is derived by Domino's franchise partners rather than the company itself. Four of its biggest international franchisees are public companies in their own right. Domino's dropped the word pizza from its name in 2015 to reflect its wider menu.

Advertising

Who handles advertising? Click here for agency account assignments from Adbrands.net. Domino's itself declared advertising expense of $32m in 2015, including a contribution of $23m to the Domino's National advertising Fund. Franchisees contributed a further $247m to the Fund. There is no declared figure for the amount spent by franchisees on their own local advertising. The group and its franchisees claim to have spent an average of $280m per year on US advertising between 2009 and 2013.

Competitors

See Restaurants Sector index for other companies

Brands & Activities

Domino's is generally credited with pioneering the concept of pizza delivery, and it has led that market ever since its launch in 1960, extending its service in recent years beyond phone ordering onto the internet, cable and satellite TV. The company made its name by guaranteeing a delivery time within 30 minutes or no charge. However that pledge was discontinued in the US in the mid-1990s after a woman who was involved in an auto accident with a Domino's delivery vehicle sued the company on the basis that the guarantee caused accidents. The company no longer offers a 30-minute guarantee for safety reasons but still aims to make deliveries within that time frame. It launched a new advertising campaign through Crispin Porter & Bogusky in 2007 supporting revised tagline "You Got 30 Minutes". In 2009, a new campaign promoted an enhanced pizza formula and the fact that it invented the delivery concept under the tag line "Oh Yes We Did". The company was named Chain of the Year by trade publication Pizza Today in 2011, for the second consecutive year. It previously received that award in 2003. More recently the group has become a leader in digital marketing within the sector, with a series of innovative ideas including ordering services by voice, text, tweet or even emoji.

Delivery still accounts for the largest proportion of sales, but Domino's also offers carry-out (takeaway) service. It was the #2 pizza chain in the US in 2015, according to NRN, with local systemwide sales rising 17% to $4.8bn, closing the gap with Pizza Hut (up only 3% at $5.8bn) and well ahead of Little Caesars ($3.5bn) and Papa John's ($2.8bn). However, the sector is widely fragmented, with small chains and independents accounting for more than 60% of the total market. Market leader Pizza Hut had only around 17% of the total $32.5bn US quick-serve pizza market, while Domino's was just under 14%. Within the smaller delivery segment, Domino's is the clear leader with almost 28% share by value. In 2008, Domino's took its first steps into a brand new market sector, introducing a range of hot, oven baked sandwiches, in direct competition with Subway and Quiznos. It introduced pasta bowl dishes in 2009 and salads nationally in 2015.

Total worldwide store numbers reached 12,900 by mid-2016. The vast majority of outlets are operated by franchisees, while Domino's itself produces and delivers fresh uncooked pizza dough and pre-chopped toppings through a national distribution network. Marketing is also managed centrally through an advertising fund to which all outlets contribute between 4% and 5% of sales. The US remains by far the biggest market with almost 5,245 stores in June 2016, of which all but 384 are franchised. The company has a long-established policy of awarding all its local franchises to internal candidates, setting up existing store managers with their own outlets, and encouraging them to train up staff to become spin-off franchisees. As a result US franchisees tend to be small businesses, operating an average of three or four outlets each. The largest domestic franchisee has over 190 stores, and only 13 others have 50 or more. More than 300 US franchisees are single-store operators.

Internationally, franchisees tend to be more substantial, and indeed faster-growing. By the end of 2015 the total number of international outlets had grown to 7,330. New countries joining the estate in 2015 included Azerbaijan, Cambodia, Georgia and - for the first time - Italy. Until recently, the biggest single foreign market was the UK & Ireland with almost 950 owned and sub-franchised stores. Local franchisee Domino's Pizza Group is a separate public company. In 2011, it also acquired the master license for Germany and plans to expand the brand's operations there from just two outlets to around 400 by 2020. It also has a minority stake in main local rivals Joey's Pizza and Pizza Sprint. With Switzerland as well since 2012, and a minority interest in the licensee for Iceland, Norway & Sweden, DPG manages 962 outlets in total.

The UK was overtaken as biggest market in 2015 by India, now with almost 1,030 outlets managed by local master franchisee Jubilant FoodWorks (also the local operator of Dunkin Donuts). This is followed by Australia & New Zealand (714 stores), run by local franchise leader Domino's Pizza Enterprises (DPE), which also controls Japan (453 stores), France, the Netherlands and Belgium. Next comes Mexico, with 625 Domino's outlets, managed by franchise holder Alsea, which also operates local outlets of Starbucks and Burger King among others, and is also the head franchisee for Colombia and Spain. Other major markets are Turkey (465), South Korea (422) and Canada (412). No other market has more than 270 outlets. DPE of Australia is the group's biggest franchisee now with 1,980 stores.

Financials

Despite the growth in its international system, Domino's financial performance remained flat for the latter part of the 2000s, partly as a reflection of global economic problems, but it has shown solid growth since then. For 2015, company revenues rose by 11%, topping $2bn for the first time at $2.22bn. Net income jumped 18% to $193m, also a best-ever performance. Global system sales rose 11% to $9.90bn, including $4.81bn in the US. Domestic same-store sales jumped by 12% that year, almost twice the year before, and by 38% since 2012. Even after recapitalisations in 2007 and 2012, the group is burdened by debts of $2.24bn, more than its annual revenues.

System sales for Domino's Pizza Group in the UK and its other markets were £877m in 2015, up 16%. DPE of Australia generated network sales of A$1.96bn, up 32% as a result of the acquisition of the local operations in Japan.

Until recently, Domino's had a loose connection with fast-food restaurant chain Burger King. Investment company Bain Capital was a leading shareholder of both companies, and Domino's former chairman-CEO David Brandon sits on Burger King's board. Both companies entrusted their advertising to Crispin Porter & Bogusky. That connection was ended in 2010 following the sale of Burger King. Bain no longer holds any significant stake in Domino's.

Background

Domino's is largely the work of one man, orphan and college dropout Tom Monaghan, who with his brother James purchased DomiNick's, a small pizza store in Ypsilanti, Michigan, in 1960. He changed its name to Domino's in 1965, and set up his first franchise two years later on the other side of town. The company's domino-piece logo was introduced the same year. Initially the plan was to add a dot for each new store, but that plan quickly proved impractical, and the company stopped at three dots. Monaghan established delivery as the main focus for his stores, and introduced the 30-minute delivery promise in 1967. (Later, the company changed the offer from no charge to a $3 discount on later deliveries). Monaghan also invented a corrugated cardboard pizza box, which would keep the pizzas warm during delivery.

The business expanded quickly during the 1970s, locally at first and then in neighbouring states until there were around 200 stores across the country by 1978. The pace of expansion slowed towards the end of the decade while Domino's fought a US copyright infringement lawsuit brought by the makers of Domino Sugar, then increased significantly during the 1980s after that suit was dismissed. The company opened its first international outlets, in Canada and Australia, in 1983. In 1985 alone Domino's opened almost 1,000 outlets, bringing its total to well over 2,000 stores, with new operations in the UK, Japan and other countries. A key initiative was to ensure that pizzas were delivered fresh, especially in the face of heightened competition from other pizza chains. Domino's introduced its 30-minute guaranteed delivery in 1995, followed by HeatWave hotbags in 1998 to keep the product hot right to the customer's door.

Founder Tom Monaghan retired that year, selling the business to investment group Bain Capital for around $1bn, although he retained a small stake. Since then, the chain has continued to expand its presence internationally, while also reducing the number of company-owned stores by selling outlets to managers. In 2004, Bain reduced its stake with an IPO of around 55% of the group's shares. Since 1998, Tom Monaghan has ploughed much of his fortune into Roman Catholic educational and community-oriented charities.

In 2009, Domino's public image was badly damaged by two employees who uploaded videos to YouTube in which they indulged in various unhygienic acts including sneezing on food before it was sent out to customers. They were dismissed by the company as soon as the videos were discovered, but the resulting impact on Domino's image was less easily repaired.

Domino's opened its 10,000th store in 2012, and 12,000th three years later.

Last full revision 19th August 2016

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