CS-Domino-Pizza

DoNotCopyorPostThisdocumentisauthorizedforuseonlybyYudiFernandoatUniversitiSainsMalaysiauntil[e-mail]617.783.7860.9-512-004REV:APRIL10,2013________________________________________________________________________________________________________________ProfessorDavidE.Bell,ResearchAssociatePhillipAndrews,GlobalResearchGroup,andAgribusinessProgramDirectorMaryShelmanpreparedthiscase.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2011,2012,2013PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto’sPizzaBefore2007,wheatpricesdidn’thaveapulse.We’dbuyforthenextsixmonthsandthepricewouldbeplusorminus10centsabusheloverthelastsixmonths.Thenonedayin2008wheatshotup$24abushel!Now,asanorm,westrategicallyconsidercorn,dairy,andwheattobetterleverageoursupplychainexpertiseandimprovestoreeconomics.—JohnMacksood,ExecutiveVicePresident,Domino’sPizzaOnthemorningofAugust22,2011,JohnMacksood,executivevicepresidentforsupplychainservicesatDomino’sPizza,Inc.(Domino’s),wasreadingthedailyheadlineswhilesittinginhisofficeattheDomino’sWorldResourceCenter,thecompany’sglobalheadquartersinAnnArbor,Michigan.Domino’swastheworld’ssecond-largestpizzacompanyandthelargestpizzadeliveryquick-serverestaurant(QSR)chain.OneiteminparticularjumpedoutatMacksood.Anarticle,titled“Quiznoschainfacestoughfinanceissues,”indicatedthatDenver-basedQuiznos,aprivatelyownedQSRsandwichcompanywith4,000U.S.stores,wasnearingbankruptcydueto“sharpeningcompetition,waningsales,anddebtwoes.”1OneoftheproblemscitedwasQuiznos’“protractedbattle”withitsfranchiseesoveroperatingcostsandprofitability,withsomefranchiseesblaminglowornonexistentstoreprofitmarginsonQuiznos’requirementthattheybuyfoodat“allegedlyabove-marketpricesfromaQuiznos-mandatedsuppliernetwork.”2AnalystsalsoblamedQuiznos’problemsonrisingcommodityprices,whichhaddramaticallyincreasedthecostofrawingredients.AsMacksoodfinishedreadingthearticle,hefeltproudtohavebeenpartofateamatDomino’sthathadproactivelyrespondedwhenthepricesofwheat,corn,anddairysoaredin2007and2008.Sincethen,Domino’sseniorleadershiphadmetonthelastThursdayofeverymonthtodiscussthecommoditymarketoutlookanddecidehowpurchasingdecisionsandsupplierrelationshipsshouldbemanagedinanincreasinglyvolatilemarket.Thegoalofthisstrategiceffortwastomaintainanefficientsupplychain,competitiveprices,andqualitymenuitems.“Nowin2011,wehavebecomeawell-informedgroupthatismorecomfortablewithhowwemanagerisk,”Macksoodremarked.Domino’sapproachtomanagingriskandcostsbothwithinthecompany-owneddomesticsupplychainsystemandatthestorelevelwascriticaltoitsapproximately1,150U.S.franchiseesthatcollectivelyownedandoperated4,475domesticstoresin2010.Asacompanybuiltaroundafranchisemodel,Domino’s—whichitselfonlyowned454stores,allintheU.S.—wasattheheartasupplychainandbrandmanagementbusinessfocusedonsupportingthefranchisedstores.“WecallourheadquarterstheWorldResourceCenterbecauseDomino’strulyoperatesasasupportsystemandresourceforallofourfranchisees,”saidJ.PatrickDoyle,CEOandpresidentofDomino’s.“ThereDoNotCopyorPostThisdocumentisauthorizedforuseonlybyYudiFernandoatUniversitiSainsMalaysiauntil[e-mail]617.783.7860.512-004Domino’sPizza2isareasonwedrilledthroughfourfloorsofconcretetoconstructapizzastoreasthecenterpieceofanewatriuminsidetheWorldResourceCenter.NotonlydoweuseittotrainallofourcorporateemployeestooperateaDomino’sstore,butitsvisibilityservesasaconstantreminderthatourbusinesshingesonthesuccessofeachandeveryoneofourfranchisedstores.”MaintainingcostcontrolwasvitallyimportantforDomino’sandthesuccessofitsfranchisees’stores.TheU.S.pizzamarketwashighlycompetitive,withbothchainsandindependent“momandpop”pizzastoresbattlingforcustomers.Therecenteconomicconditionshadmadethefightevenfiercer,withsomerecession-wearydinerstradingpizzadeliveryforless-expensivefrozenofferingsfromthegrocer.3Assuch,companieslikeDomino’scouldnotsimplypassincreasedcostsontoconsumersbyraisingthepriceofapizza.“Domino’swasaheadofthecurvewhenwefirstreactedtohowachangingmarketwouldaffectoursupplychaincosts,”Macksoodsaid.“Chainsthatdidn’ttakeapreemptiveapproacharehurtingandindependentpizzashopsthathavelittleinfluenceoverthepricetheypayforgoodsarereallysuffering.”In2010,Domino’srecordedannualglobalretailsalesof$6.2billion,thehighestincompanyhistoryanda23%increasesince2006.aDomestically,thecompanysawroomforanother1,000storesintheU.S.marketandtheopportunitytoincreasesalesthroughtheadditionofnewmenuitemsandbytargetingdifferenteatingoccasions.Forexample,Domin