DOMINOS PIZZA CASE ANALYSIS
Field: Business Finance – Management
Posted: 29 minutes ago
Introduction to Management Case Study: Mixed Fortunes at Domino’sThis case study is based on a compilation of investigative reports by Fairfax media.Names of franchisees and employees have been changed.
Domino’s is an Australian pizza chain with a network of franchises and over 600 retail storesnationally. It has been hailed as a success story since it was listed on the Australian StockExchange in 2005. In just over a decade, Domino’s shares have surged more than 2500 percent, making it one of the best performers on the market and making a lot of people wealthy.In 2016 the company generated total revenue of $939,976,000 .
Background of Domino’s
Domino’s has the world’s biggest pizza menu with more than 200,000 options, helpingboost Domino’s sales to more than 90 million pizzas annually with a guarantee todeliver pizza within 15 or 20 minutes for an extra cost. Domino’s business model is based onfranchisees growing sales, not profit, with head office taking a royalty from every sale asAustralians chomp through 1 million of its pizzas every week. Stores are bought and sold ona multiple of these sales, not on profit. The more stores in the network, means more salesare generated, which results in more profits for head office .
While the business is built on selling affordable pizza to the masses, with Group ChiefExecutive Officer (CEO) & Managing Director Don Meij Domino’s has transformed into oneof Australia’s most intriguing tech companies with operations in New Zealand and Europe.Drones, cutting-edge IT, fast pizzas, happy franchisees and happy workers are all part ofthe Domino’s image. CEO Meij “lives the job” often working undercover in the stores to keepabreast of activities at the store level.To help managers keep track of their best and worstperformers, Domino’s rolled out a new in-store computer system. The screens, whicheveryone in the store can see, constantly update statistics such as the average order size foreach employee and how long it’s taking to get a pizza out the door. Store managers get aquarterly bonus based on how much they improve store earnings.
Domino’s selects its franchisees carefully, those who genuinely believe Domino’s is a highlyprofitable business. However, when the store is not profitable franchisees are held to blamefor bad business management. The stress of making ends meet took its toll on manyfranchisees who realised the business theyhad bought into was not viable, due to thecompany policies, especially on labour costs and a perception that the head office was onlyconcerned about the welfare of people at the corporate level. Whilst Domino’s profit isdoubling the cost of pizzas is getting cheaper due to high competition in the fast-food sector.However, this cheap cost of pizza is borne by the franchisees who are struggling to make adecent profit due to them not being able to pass on the increasing high costs of running thestores.
Understanding the CEO
Influenced by a business-minded father, Meij said he quickly developed an entrepreneurialstreak nurturing both his creative and analytical sides with a mix of arts and economicseducation at university. This shaped his leadership style which is focused on helping staffgrow inside the business. Meij, who started his career as a pizza delivery driver in 1987, is acalculated risk taker, regularly changing Domino’s business model to stay ahead of themarket. “I have been in the business for 25 years and we are in our third major change ofour business model,’’ he says. The latest revolution is the way the company has embracedonline retailing and social media.
Meij believes the only way a business can deal with challenges is to work out ways of turninga negative into a positive. For example, legislation on employee conditions has forced upDomino’s labour costs 100% over the next four or five years. “But that means people aregetting better paid, which means the company is holding on to its employees for longer”, hesays. The result: delivery times have reduced from 32 to minutes to 24. Also, there are fewermistakes in store and staff members are more engaged.Meij uses encouragement and training programs to engage and motivate staff. “Weincentivise people through a range of systems to become better pizza makers, better doughmakers, to become more skilled delivery drivers. There are training classes and we time youand you go through tests and you get different badges on your shirt and so on.” Domino’sstaff respond to his nurturing leadership with loyalty. As a reward every year Meij takes histop team to Silicon Valley in the USA to view new technologies that could be introduced intothe Domino’s business.Meij emphasises the big picture and getting managers to focus on the long term.“In somecases, you have to be a benign dictator, because it’s in the better interests of the group. It’sa combination of being directive on top of co-operation and bargaining and trading withinterested parties in the group, from boards to franchise owners, to managers to leadershipteam members to business partners outside the business. You just have to go and sell yournew strategy.”Meij says his managers are champions of change. But running the team, he says, meansdiscussion, compromise and occasionally, admitting when you were wrong. “It’s important toallow discussion. When you’re dictating new policies, you still have to have enough allies.You can’t be the lone soldier”.Worker unhappinessThe reality of life inside the Domino’s Pizza chain is not what is portrayed to the generalpublic. Many workers are unhappy due to widespread underpayment of wages, thedeliberate underpayment of penalties using a delivery scam and the illegal sale ofsponsorships of workers. Not always paying staff their full entitlements was found to bestandard practice across many stores. Hard-working staff made few tips and often sufferedabuse and danger while delivering food to strangers. He said affected workers werereluctant to speak out for fear of retribution.It took Domino’s store manager Josef Yap three years to get the courage to inform headoffice that his boss Del Santo, who was also one of its biggest most powerful franchiseesand a member of Domino’s influential Franchisee Advisory Committee, was exploitingworkers. Del Santo ran 10 stores on the outskirts of Sydney. Yap was concerned when DelSanto had told him to keep labour costs below 27 per cent of sales by any means possible. Itmeant that in a week of bad sales, Yap was toldto manipulate the store’s payroll systemand lower the number of staff hours worked, and reduce their pay accordingly, including hisown. Every week Yap would send Del Santo’s payroll reports listing employees working lessthan their actual hours.Del Santo maintains he has fostered a “loving” relationship with his staff. “I am not a dictator;I just want my staff to be happy. They are not scared of me … they are very hardworking. Ilove them and they love me”, he said. Del Santo admitted the payroll figures didn’t alwaysmatch the hours recorded on internal “sales reports”, but blamed his employees for thediscrepancies, claiming they often clocked in early or clocked out late. He said sometimesstore managers deliver pizzas and this accounted for the pay-slip differences
DOMINOS PIZZA CASE ANALYSIS
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