Overview of the Strategic Management Analysis, Diagnosis and Evaluation of Domino Pizza-Australia

Strategic Management Analysis, Diagnosis and Evaluation of Domino Pizza-Australia

Industry Overview

Since its founding in the 1960s, Domino Pizza has expanded steadily, becoming one of the biggest and most recognizable names in the pizza delivery industry. The operation of the company's extensive network of franchises and company-owned stores in different regions of Australia and the world is credited with the growth and success of the business.

In Australia, Domino's Pizza Enterprises Limited (DPE) continues to be the biggest pizza chain in terms of the number of network stores and overall sales. It is the biggest Domino's Pizza franchisee worldwide. The pizza stores are present in over 1500 location in Australia (Dominos.com.au, n.d).

Being a leading home-delivery product, Domino’s Pizza always had useful ideas. They had an option of supplying pizzas to home through the delivery service. In 1967, a 30-minute supply was facilitated by Tom Monaghan; this was initiated due to the high demand of about 20,000 students at the University of Michigan. As to this day, the Domino’s Pizza official website mandate is to satisfy the major wants of a client, provision of the best quality, well prepared, served hot, to be supplied on time, and every time.

Analysis of External Environment

Political Issues/Legal

The major political issue is the supervisory schedule whose operation is mainly in the court systems. Due to this, the business may experience distress in different ways. In Australia, several political factors exist that do not allow domino’s business to prosper. Factors that exist like taxation, employment business rules, and pollution are applied to the business, which affects the operations. Domino’s Pizza is operating in a good political climate as the Australian government supports businesses and trading in the country. Further, the rosy relations that Australian government has with the other governments make it easier for firms such as Domino’s Pizza to relate well with other franchises thus boosting the productivity of the firm. At the moment, the government is fully in control of the first food restaurants due to health concerns.

Analysis of Australia’s Political Landscape

Economic Factors

In Australia, the service sector mainly the financial services is the main contributor to the prosperity of Australia’s economy. Nonetheless, there has been a drop in the commodity prices making Australia slow in its economic progress. Dominos’s Pizza has increasingly enjoyed its operations in this environment owing to the strong FDI that it has compared to other countries as well as a booming and dynamic service sector.

Even though the 2008 economic recession had effects on FDIs of many countries, the Australian government was not severely affected as the FDI inflows remained at $51.85 billion in 2014 as compared to $31.67 billion in 2009. Reviewing through the top five FDI contributors include the US, the UK, Japan, the Netherlands and China. This explains the better position and relations of Australia with other countries from which Domino’s Pizza operates. Nonetheless, the preference of many firms setting up in Australia including Domino’s Pizza is because of the higher FDI and good economic environment. The FDI in Australia was $51.9 billion a figure that was higher compared to other countries like France, Italy, Germany, Japan, India and South Korea. One of the critical economic factors in Australia has been inflation. For a long time, the RBA has struggled to achieve inflation of between 2-3% with the current inflation rate being 2.8%. This economic factor has affected the operations of many businesses in Australia including Domino’s Pizza. Increased inflation rates lead to rising in the cost of raw products, which after that brings a higher price of the processed good. This implies that with increased inflation, the cost of raw materials used to make pizza such as floor increases and ultimately this makes the overall cost of pizza to increase.

Table: Economic Analysis of Australia

Social Factors

Domino’s pizza as a global organization is mainly dominated by the western culture. Due to this, its main office is based in America. The society is divided into distinct forms. There are the upper-class people, middle, and lower classes. Besides, each nation has their diverse cultural, religions, norms, values, and beliefs, which might bring about a worldwide organization distress. In Australia, human development is way better than other developed countries. There are improved living standards and this makes it better for firms like Dominos to take advantage of the demographic composition of the populace.

Table 1: Australia’s Social System

Technological Factors

In the world today, there is improved technology, which is characterized by the use of advanced equipment (Ungson and Wong, 2014). The heating and baking ovens used in Domino’s Pizza are designed to be the most efficient thus provision of quality service. The innovation in technology brings about better ways that one can market various goods and services. Through advanced technology, Domino’s Pizza has largely adopted e-commerce. Publicizing is done through the Internet, telesales, which is the much efficient and fastest way. The business also applies Managing information systems (MIS) through which the consumer data is collected. Additionally, through the advanced technology, transactions can easily be made, and the future of the business can easily be predicted for ease of decision-making. Domino’s Pizza has also invested in efficient and good vehicles that employ some of the best technology which helps in faster deliveries of the Pizzas.

Analysis of Firm’s Internal Environment

Competitive Environment

Porter's Five Forces Analysis of Market Structure

Porter’s Five Forces can be used to analyze an industry’s competitive organization. The model evaluates the industry’s attractiveness through consideration of five major forces within the market. Porter (1980) notes that industry makes profits in regards to the five factors.

Barrier of Entry

If other firms find it difficult to dominate in the current market, the existing firms are due to make moderately higher gains. It will be more difficult to enter a market if the costs of investments, equipment, and marketing will be high. Some of the major advantages of existing firms are that they have gained experience and had a better understanding of the market.

Foreign firms find it difficult to enter existing market due to the government policies. The law of taxation is put in place and most cases; it limits the quantity of foreign products in the country. Overseas goods to be sold are also limited. This is one of the protectionist measures applied by the government. Existing brands have an advantage, and it may respond aggressively in case of a new competitor. This can be a drop in its price. The dominating firms are known to be the major supply controllers. Risks that may be involved when a potential competitor is introduced is highly dependent on the magnitude to which obstacles to entry occur. The Australian government has departments that restrict limited number outlets of a brand of fast foods. However, this does not hinder one’s entry into the industry. Various factors bring about a lower level of a competitors entry into the market. First, it is vividly known that in the fast foods premises, customers will be glad to try their new delicacies. The second aspect is the capital. Fast food industries require a relatively low capital to set it up. Moreover, the new beginners can start from central prime streets locations rather than access the higher streets to get a firmer establishment. This is because the competitors’ reliability is not high on the current market. In nutshell, there is a higher possibility for firm competitors to join fast food businesses in Australia due to the limitation of barriers.

The Power of Buyers

Prices and profits are highly dependent on consumers in any given enterprise. This power enables the firms to raise or lower its prices so that the industries can gain (Ungson, and Wong, 2014). The buyers’ power shoots if the bigger clients are fewer than the rest. Each buyer is considered important since other providers who have affordable quality goods can easily sway them.

Consumers have the ability to overthrow a firm by their threats in case it provides unsatisfying services. This power will thus bring negotiations that lead to the provision of better services. The buyers have the power to bargain to create suitable conditions for themselves. A more attractive industry is that which its clients have low bargaining chances. However, it is a fact that Domino’s Pizza has its individual customers whose negotiations would not bring influence to its daily operations. The power of clients to bargain is, therefore, medium because of competition from other fast food outlets that comes as an alternative to consumers. Customer who does not prefer Domino have several choices of pizzas from restaurants in uptown streets. This thus brings about the bargaining power due to the large numbers.

The Power of Suppliers

Suppliers have the ability maximize or lower the profits of a firm (Boyes, 2011). They can either deliver orders or not. This is because they adhere to the terms and policies in which businesses are carried out. The power of suppliers comes in when they are fewer. When buyers have the alternative and preference to switch suppliers, the process becomes costly and challenging (Desmond, 2004). The suppliers have the power to impose a threat on the firm in a bid to acquire its ownership. Supplier power is defined as company’s ability to force providers to tolerate the costs. There are two major reasons, which make the bargaining power of Domino’s suppliers medium in the fast food enterprises in Australia. Bargaining power of suppliers is lowered in the Australia due to its vast number of pizza stores. An estimate of 300 pizza stores in growing towns is its large business scale that provides a beneficial trade opportunity. The customers will increase suppliers’ bargaining power due to the uniqueness and demands of their products. For instance, considering the tomato sauce as an example, it is prepared in Portugal, a company familiar with the recipe. Picked tomatoes are processed in the time span of six hours. They manage to extract a kilo of sauce from two kilograms of tomatoes that will be used on pizzas. Having such a higher quality one easily concludes that having just a few suppliers can make a business to deliver easily to the expectations. Therefore, there is a rise in bargaining power. Basing on the above reasons, it is evident that the bargaining power will be medium.

The Degree of Rivalry

This refers to the competition between firms. A higher degree of competition leads to lower profits for the present firms (Hill and Jones, 2011). There will be a higher rivalry if there are several similar firms that compete for the same customers. It is often a bit tricky to vacate to another industry. This makes most firms fight harder for their survival due to the levels of their investments. The capacity utilization boosts their competitiveness. Proper utilization of resources is an efficient way to ensure more sales. The shrinking market makes firms fight tooth and nail to bring back their shares to a satisfying number. Firms are not sure of consumers’ loyalty since they can easily shift to other products.

The rivalry is defined as the competitive nature of enterprises in the same industry to have a significant gain and market share mutually. Fast food industries are known to have an intense rivalry. A survey conducted by market analyst, a Local Research Company in 2009, indicated that 10% of fast food enterprises went to leisure. Nonetheless, there is a whooping increase in Domino’s pizza chain by 50%. The growth in portfolio by the healthy eaters’ fast food was by 36.4% and 29.7 in the sandwich chain. From the research it is also found out that sandwich chains had a rapid growth, therefore leading to the expansion of portfolio.

The Substitute Threat

Buyers can facilitate shifting to a good that has similar functions with ease. An example is replacing plastics with aluminum cans. Costs and customers perceptions should be put into consideration if one wants to switch products.

Substitute threat refers to replacing other products with the fast food enterprise. Domino’s Pizza substitute may include KFC fried chicken and the McDonald’s burger. However, these substitutes threat is rated to be at low and moderate levels. This is because of these two reasons.

First, Domino has both pizzas, and it is as well delivered to where one wants it. The delivery is, of course, rapid and within a limited time span. Secondly, they satisfy the major wants of a client, provide the best quality, well prepared, nutritious, and it is served hot, to be supplied on time, and every time.

By using Porter’s analysis, there will be an expectation of higher returns in firms if there are limited entry and rivalry. However, the returns can be low if there is ease in industry entrance, rivalry in firms of the same industry is a higher degree, strong buyers and suppliers and ease in shifting to alternatives. Porter’s analysis suggestion for managers is the keen examination of the five factors to enable them to move to a safer industry. They should have very good ideas that will upgrade the factors to be more favorable.

As noted earlier, substitute threat is referred to replacing other products with the fast food enterprise. Domino’s Pizza substitute may include KFC fried chicken and the McDonald’s burger. However, these substitutes threats are rated to be at low and moderate levels. This is because of these two reasons. First, Domino has both pizzas, and it is as well delivered to where one wants it. The delivery is, of course, rapid and within a limited time span. Secondly, they satisfy the major wants of a client, provide the best quality, well prepared, nutritious and its served hot, to be supplied on time, and every time.

Financials

Return on Invested Capitals (ROIC)

To gauge the extent to which the company generates cash flow in comparison to the capital that is invested in the business, this ratio is examined. In the quarter ending Sep 2017, the ROIC was 94.73%. From this figure, it can be concluded that Domino Pizza Inc is in a position to generate higher return on its investment compared to the costs that the company incurs when raising the requisite capital. Indeed, the company is earning so much returns. With this kind of trend for

Return on Invested Capital

(A: Dec. 2016 )

=

NOPAT

/

Average Invested Capital

=

Operating Income*(1-Tax Rate)

/

( (Invested Capital (A: Dec. 2015 )

+

Invested Capital (A: Dec. 016 ))

/2)

=

454.042 * ( 1 - 37.71% )

/

( (307.093

+

261.919)

/2)

=

282.8227618

/

284.506

=

99.41 %

Return on Invested Capital

(Q: Sep. 2017 )

=

NOPAT

/

Average Invested Capital

=

Operating Income*(1-Tax Rate)

/

( (Invested Capital (Q: Jun. 2017 )

+

Invested Capital (Q: Sep. 2017 ))

/2)

=

468.32 * ( 1 - 33.33% )

/

( (325.509

+

333.657)

/2)

=

312.228944

/

329.583

=

94.73 %

Strategic Fit and Recommendations

From the analysis carried out in the above sections, several conclusions can be reached. The conclusions made can help in informing the strategic position and the implications for the plans of the business. Focusing on the macro and micro environmental factors, Domino’s Pizza has favorable macro conditions even though political instability affects the business (Coles and Porter, 2008).

It is recommended that for Domino’s Pizza to compete favorably in the highly intensive industry, it have to formulate the best strategies for reducing the risks of potential competitors.

Reference List

Boyes, W., 2011. Managerial economics: Markets and the firm. Cengage Learning.

Coles, L. and Porter, E. eds., 2008. Public health skills: a practical guide for nurses and public health practitioners. Blackwell.

Desmond, M.J., 2004. Back to Basics: How to Create Good Jobs in the Pacific Northwest. Forestry Financial Services, Inc..

Dominos.com.au n.d. About us: Who Are We? Our Mission, Culture And Priorities. accessed on 4th September 2016 [online] available: https://www.dominos.com.au/

Hill, C.W. and Jones, G.R., 2011. Essentials of strategic management. Cengage Learning.

Porter, M.E., 2008. Competitive strategy: Techniques for analyzing industries and competitors. Simon and Schuster.

Spivak, H.J. and Nelling, E., 2013. A Decision Matrix Approach to Retirement Income Portfolio Design. Journal of Financial Planning, 27(8), pp.54-61.

Ungson, G.R. and Wong, Y.Y., 2014. Global strategic management. Routledge.