DEMAND AND FORECASTING

Making Decisions Based on Demand and Forecasting?



Making Decisions Based on Demand and Forecasting?

Company Overview

Domino's Pizza is considered leader in the United States pizza delivery market with an 18.4% share, and has a strong, growing, presence in the international pizza delivery market, which is still seen as developing. DPZ does not compete in the $9.4 billion dine in sub-segment. System-wide sales were approximately $5.6 billion in 2009, up 2.2% from 2008 on strength in the international segment and the inclusion of a 53rd week during 2009.

Discussion Analysis

Company Segments

Domestic Restaurants: Feature mostly franchised and a small number of company operated locations. As of January 2010, Domino's possessed 466 company-owned and 4,461 franchised locations in the United States. U.S. Domestic company-owned stores accounted for 24% of revenues and 16% of gross profits in 2009. Fees and royalty payments from domestic franchises were responsible for 11% of revenues and 41% of gross profits in 2009. The gross margin for the segment was 100%.

Domestic Distribution: Distributes food, equipment, and supplies to company and franchised stores through the operation of 16 regional dough manufacturing and distribution centers, which accounted for 54% of 2009 revenues and 21% of gross profits. Distribution centers operate on a cost-plus basis, whereby the company can pass through commodity price increases and savings to stores.

International: Includes both franchised and distribution segments and operations accounted for 11% of revenues and 22% of gross profits in 2009.

Corporate Strategy

Cost-efficient Stores: Domino's relies on low cost stores, mainly franchises, which require little capital and focus on affordable pizza along with related product offerings. Due to the high operating margins associated with franchise store sales and subsequent royalty payments, the model works extremely well for Domino's profitability. Domino's reliance on franchises has allowed for the company to expand while keeping capital investment low.

Better Product and Sustainability: As highlighted before, Domino's focus on completely redoing its recipe has worked as seen in the table, which shows Domino's comp sales growth beating its main competitors.

Don Meji, CEO of Domino's has focused on sustaining these comp growths into the future. Given that 3Q10 comp sales grew at 11.7%, we believe that sustainability is more capable and probable than earlier predicted by much of the community.

Simplicity and Efficiency: Domino's focus in delivery alone allows for all operations to be streamlined for this one purpose—thus cutting costs and improving efficiency. The company feels this gives them a substantial advantage over most pizza restaurants that focus on dine-in clients.

Long-term Growth: Domino's long term growth plan consists of growing global retail sales 4% to 6% annually while increasing its total number of units by 200 to 250 each year— primarily in international markets— and by raising its domestic same-store sales 1% to 3% and its international same-store sales 3% to 5%. The charts below show unit capacity for domestic (left) and international (right) while comparing unit growth percentages.

Social Media: Domino's marketing initiative focuses on social media to advertise its products as well as receive consumer ...