Integrated Company Analysis Domino’s Pizza

Team B6 December 14, 2010

“On my honor, I have neither given nor received unauthorized aid in completing this academic work.”

Tai Adkins Vanessa Bailey Ben Schmidt Ankushh Partap Soni Joe Ypma

Domino’s Pizza – Integrated Company Analysis Team B6 December 14, 2010 TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................. 3 BUSINESS SEGMENTS ................................................................................................................ 3 ACCOUNTING AND FINANCIAL ANALYSIS .......................................................................... 4 Revenue....................................................................................................................................... 4 Cost of Goods Sold ..................................................................................................................... 5 Financial Ratios........................................................................................................................... 5 Inventory Accounting ................................................................................................................. 6 Allowance for Uncollectible Receivables ................................................................................... 6 Long-lived and Intangible Assets................................................................................................ 6 Capital Structure ......................................................................................................................... 7 DCF Valuation ............................................................................................................................ 8 MARKETING ANALYSIS ............................................................................................................ 9 Competitive Analysis ................................................................................................................ 10 Customer Analysis & Market Segmentation............................................................................. 10 Positioning & Marketing Mix ................................................................................................... 10 OPPORTUNITIES FOR GROWTH ............................................................................................. 11 Developing a Loyalty Program ................................................................................................. 11 Increased Expansion in China ................................................................................................... 12 CONCLUSION ............................................................................................................................. 12

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Domino’s has nearly $1. BUSINESS SEGMENTS Domino’s business is comprised of three segments: domestic stores. To continue growing NOI. Domino’s has generated fairly consistent Net Operating Income (NOI) over the past decade. Papa John’s and various local/regional competitors. from nearly 30% of total revenue in FY 2002 to about 25% in FY 2009. Internationally. which were approximately 54% of total revenues.  Domestic Supply Chain – Domino’s supply chain generated revenues of $763. Domestic stores generated revenues of $493. While domestic franchise fees have been a consistent 11% of total revenues for the past decade. Domino’s faces highly competitive markets and challenges from Pizza Hut. including successfully launching a revamped pizza product and increasing its international presence. In the face of its debt. Servicing and paying down its debt will be central to Domino’s again achieving positive shareholder equity. Domino’s carries a negative balance in Retained Earnings and a Stockholders’ Deficit. revenues from domestic companyowned stores have been decreasing as a percentage of total revenue. See Appendix A for a breakdown of revenues by business segment. Even with these challenges. Domino’s has undertaken several initiatives to grow NOI. Domestic supply chain Page 3 of 20 .6 million in FY 2009.5 billion in debt on approximately $450 million of assets.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. we recommend Domino’s consider initiating a loyalty program for its domestic customers and as well as broader expansion into China. domestic supply chain and international.7 million in FY 2009. This steady NOI has been necessary to service the high level of debt with which Domino’s is financed.461 stores and owns an additional 466 stores. opportunities abound but Domino’s faces the challenge of converting customers to its quick-service model. which were approximately 35% of total revenues. As such. 2010 EXECUTIVE SUMMARY Domestically.  Domestic Stores – Domino’s franchises 4.

operates 179 stores in Japan. from 6% of total revenue in FY 2002 to 11% in FY 2009. Revenues fluctuate from time to time as a result of store count changes.  International – Internationally.. For example. but management also expects some of the growth to be sustaining. while revenue from franchisees are determined and paid to Domino’s weekly based on a Page 4 of 20 .Domino’s Pizza – Integrated Company Analysis Team B6 December 14.070 stores in over 60 international markets. As a percentage of total revenue. 2010 contains 16 dough manufacturing and food centers. the international business for Domino’s generated revenues of $146. Together. both domestic and international revenues are growing on a year-over-year basis in FY 2010. one thin crust manufacturing center and one vegetable-processing center. Domino’s international store count was 46% of its total store count. which were approximately 11% of total revenues. ACCOUNTING AND FINANCIAL ANALYSIS Revenue For the first time since FY 2006.. Domino’s international supply chain also contains six dough manufacturing and supply centers. Domino’s franchises 4. most of which are operated under master franchise agreements with large companies that own many stores. international revenues have been steadily increasing. Management believes some of this growth is a short-term effect generated by increased marketing and its revamped pizza product. As of 3Q FY 2010. These facilities manufacture dough and distribute food supplies to all company stores and to 99% of domestic franchised stores. The international segment generates an operating margin of 45%-55% versus only 20% for domestic company-owned stores. Ltd.7 million in FY 2009. Higa Industries Co. See Appendix B for a list of the largest international markets for Domino’s. Retail sales from company-owned stores are recognized when items are delivered to or carried out by customers. the Japanese master franchisee.

5%). While prices are not hedged. and Domino’s had a return on assets of 20.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. Domino’s has a five-year contract with its largest cheese supplier and does not use derivative instruments to hedge its costs for commodity ingredients.47 as compared to Papa John’s 0.19) as compared to Papa John’s 0. operating margins have remained consistently between 25-27% over the past decade.25. Domino’s receives some benefit of higher ingredient prices in the form of higher revenues for its supply chain operation. over the past year Domino’s return on equity was (6. over the past year Domino’s had a gross margin of 27. not only for its industry but also generally. for example.8% versus 27.8% for Papa John’s. Domino’s debt-to-assets ratio is 3. On the other hand. Domino’s asset Page 5 of 20 . 2010 percentage of retail sales (generally 5. and Domino’s debt-to-equity ratio is (1.6)% as compared to 27. especially cheese and red hard wheat.6% for Papa John’s. Due to its large stockholders’ deficit and highly leveraged capital structure. and these estimates are materially consistent with actual amounts.53.1% as compared to 13. This capital structure is quite atypical. On one hand. Domino’s measures of profitability can be hard to interpret. Thus.4% for Papa John’s. Cost of Goods Sold Domino’s business remains subject to price fluctuations for its commodity ingredients. Further. Domino’s competitor Papa John’s. Financial Ratios As of 3Q 2010. While these prices increase the cost of goods sold for Domino’s company-owned stores. at the end of its FY 2009 held assets of approximately $359 million against liabilities of approximately $212 million for total stockholders’ equity of approximately $185 million. Domino’s carried a stockholder’s deficit of $1. Domino’s held total assets of approximately $426 million against liabilities of approximately $1.667 billion. Domino’s will record royalty revenues based on an estimate of the franchisee’s sales when figures are not timely reported by franchisees.242 billion. The difference in these numbers is primarily due to Domino’s debt.

Domino’s is positioned well to cover its short-term obligations. Domino’s does not currently use derivative instruments to hedge against changes in prices for ingredients.2 million. a level which management expects to maintain. or approximately 10. Each of these measures reflects Domino’s ability to generate high levels of sales from minimal assets.000 in FY 2009 due to acquisition of stores from franchisees. See Appendix C for additional accounting metrics for Domino’s. Domino’s has a relatively low level of short-term debt. Domino’s current ratio is 1. Domino’s allowance for uncollectible accounts receivables stood at approximately $9.76 for Papa John’s. Domino’s estimates the fair values of the assets and liabilities acquired based on a physical inspection of assets.1 million in FY 2008 and by $300. Allowance for Uncollectible Receivables Domino’s estimate for uncollectible receivables is based on historical collection experience and a review by aging categories. historical experience and other information available. At the end of its FY 2009.000 in FY 2009 due to the sale of company-owned stores.8% of consolidated gross accounts receivable.65 and it has a working capital surplus of $104. Domino’s depreciates and amortizes these costs using a straight-line method. Domino’s goodwill amounts are primarily related to franchise store acquisitions and are not amortized. Inventory Accounting Domino’s uses lower-of-cost-or-market (determined using the FIFO method) to value inventories. For acquisitions of franchisee operations.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. Domino’s reduced its goodwill by approximately $3. which is common among QSRs. As previously mentioned. Domino’s performs impairment tests in Q4 of each fiscal year and did not recognize any impairment charges for long-lived or intangible assets in FYs 2007. Page 6 of 20 .57 compares favorably to 2. while it increased goodwill by approximately $200. 2010 turnover ratio of 3.1 million. including PP&E and capitalized software. 2008 or 2009. Long-lived and Intangible Assets Domino’s records at cost its long-lived assets. As well.

000. As of FY 2009.000 As indicated above.000. Domino’s insures all principal and interest obligations under the Class A-2 Notes and Variable Funding Notes.000 $100. Domino’s executed a recapitalization of the company. whereby it took on approximately $1.000.000 $1. Bain Capital (which purchased 93% of the company from founder Tom Monaghan in 1998) remains the largest shareholder of Domino’s. 2004. Debt Class Class A-2 Fixed Rate Notes (5.000 $60.7 billion in long-term debt and repaid all of its then-existing long-term debt.000 Amount Drawn $1.47 billion of outstanding long-term debt as of 3Q FY 2010. First priority of cash collected is given to repayment of interest on the long-term debt. Financing costs associated with the recapitalization have been capitalized and are amortized as interest expense.000. As well.000.310.470. can extend to April 2014 Capacity $1. Domino’s has retired approximately $290 million of long-term debt while drawing $60 million of its previously untapped Variable Funding Notes.000.000.850.600.000. Domino’s used part of the recapitalization proceeds to pay common shareholders a special dividend of $13.621% interest-only) Class A-1 Variable Funding Notes (Comm.000 $100. Domino’s can extend the maturity of its Fixed Rate Notes to April 2014 if the Company maintains a certain debt service coverage ratio (DSCR). Management Page 7 of 20 . management indicates that the Company continues to exceed the required DSCR. Paper + 50 bps) Class M-1 Fixed Rate Notes (7. Since the recapitalization. Premium payments on these insurance policies are accounted for as additional interest expense. Thus. As of 3Q 2010. Cash is segregated weekly and accounted for as restricted cash.000 $60. can extend to April 2014 April 2014 April 2012. though it sold only a portion of its company. In FY 2007.000 $1.629% interest-only) Total Maturity Date April 2012.50 per share. The recapitalization debt was securitized and syndicated after issuance. Domino’s has approximately $1. 2010 Capital Structure Domino’s completed an initial public offering of its stock on July 16.Domino’s Pizza – Integrated Company Analysis Team B6 December 14.

2% based on historical averages.. though it will consider attractive financing options in the interim.945 1. DCF Valuation To determine a value for Domino’s. By reducing interest expense.70 FY 2009 189. The Company’s steady performance justifies further refinancing of the debt.49 FY 2008 195. We assumed an equity risk premium of 9. 2010 has also indicated that it intends to take advantage of the full extension period. NOI/interest expense) has been: (In $000s) NOI Interest Expense DSCR FY 2007 193.906 1.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. A typical DSCR measures the ability of a company’s cash flow to cover all debt payments.030 114.910 130. Since the 2007 recapitalization.509 110. We consider bankruptcy unlikely. Using weekly returns for DPZ shares from Domino’s IPO in July 2004 through present. we determined Domino’s beta (β) to be approximately 1. Domino’s DSCR (i. We used a risk-free rate of 3. and using the S&P 500 as a proxy for market returns. The relatively steady NOI that Domino’s generates year-over-year makes it possible to take on a high level of debt while remaining in compliance with its DSCR. Domino’s could be forced to file for bankruptcy.e. based on the 10-year Treasury bond yield.71 FY 2010 (3Q) 160. Domino’s is able to increase its DSCR for the same level of operating performance and reduce the possibility of triggering a default in its long-term debt covenants. which in turn reduces interest expense. although perhaps at a slightly higher effective interest rate that the Company is currently paying. A proxy for the exact ratio can be determined by comparing NOI to debt service.314 67.36 Domino’s has been making a concerted effort to reduce the principal amount of its debt.374 1. as it benefits neither the bondholders nor equity holders so long as operating performance remains steady. We feel Domino’s will likely be able to negotiate some extension of its current loan terms.945 2. If not. we first calculated Domino’s weighted-average costof-capital (WACC). Page 8 of 20 .17.3%.

we calculated an after-tax adjusted WACC of 7. we built a discounted cash flow model of Domino’s projected free cash flow to the firm through 2015 and determined a value for Domino’s of $1. for example. debt of approximately $1. To assess Domino’s marketing efforts.40 per share price at which Domino’s most recently closed. While this is far lower than the $15.. MARKETING ANALYSIS Future growth for Domino’s can be optimized with smart marketing decisions.Domino’s Pizza – Integrated Company Analysis Team B6 December 14.2%. so we feel the market is pricing DPZ stock relatively fairly. the share price of Domino’s should be about $4. If one assumes that Domino’s free cash flow will grow in the long term rather than remain constant. adults regarding their impression of Domino’s pizza product as well as their views on hypothetical loyalty Page 9 of 20 . investors may be expecting another special dividend when Domino’s again restructures its long-term debt in 2012 or 2014.5% long-term growth for a company with the maturity of Domino’s is realistic. 2010 Using Domino’s market debt-to-equity ratio of 162% (i.e. the terminal value component of Domino’s share price increases. which is about the same price at which DPZ most recently closed.32 per share.732 billion. At the same time.47 billion. See Appendix D for a list of the assumptions used to calculate WACC. We also surveyed 221 U. the difference is likely to due to two factors. With a weighted average of 60.5 billion and market value of equity of approximately $925 million). we analyzed Domino’s segmentation and positioning strategies. Using WACC.5%. future long-term growth is vital to justifying the share price at which DPZ is currently trading.47 billion = $262 million of the firm’s value.23 per share.S. Given Domino’s long-term debt of $1. See Appendix E for our SWOT analysis of Domino’s. Secondly. Achieving 2. so Domino’s must continue to seek new ways to achieve this expected growth. equity holders have claim to approximately $1.732 less 1.5 million shares outstanding through 3Q FY 2010. A long-term growth rate of 2. will generate a share price of $15. Domino’s investors are likely expecting growth. First.

Customer Analysis & Market Segmentation Domino’s target market segmentation is the consumer who is looking for inexpensive pizza quickly. Domino’s revamped pizza has been very successful and has generated significant sales growth since being introduced. Domino’s is #2 and Papa John’s is #3. revenue. Instead. Domino’s faces competition from other regional and local competition. our survey data showed that poor taste was the Page 10 of 20 . 2010 programs intended to increase trial and repeat purchases. It follows that Domino’s has sought to become a leader in online pizza orders.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. Domino’s created the 30-minute delivery guarantee and also marketed its use of the HeatWave insulated delivery bag to keep delivered pizzas hot. higher prices have historically led to decreased sales. and within the pizza category Pizza Hut is #1. Domino’s does not offer dine-in areas at it stores. In FY 2009. Positioning & Marketing Mix Domino’s has positioned itself well to reach the customer who values quick-service pizza. it seems that Domino’s targets markets with the greatest number of people. See Appendix F for a summary of our survey results. Customers are very price sensitive. Domino’s has achieved significant online orders through its website. instead focusing on delivery and carryout customers. In the past. Today. Beyond that. Demographically. Additionally. both domestically and internationally. Competitive Analysis Domino’s is the 14th-largest QSR by U. Domino’s appears not to have a specific target. Domino’s uses geographic information software to locate its stores in optimal locations. Domino’s posted a 92% on-time delivery rate and had an average time of 12-15 minutes for pizza order-taking and production.S. successfully reaching that growing segment of the market. The majority of domestic stores are located in and around highly populated large or mid-sized cities or near college campuses. so it can reach the greatest number of consumers possible while also improving its ability to meet customer demand.

OPPORTUNITIES FOR GROWTH Future growth opportunities exist for Domino’s both domestically and internationally. These data suggest that a status loyalty program would be effective in converting casual Domino’s consumers to more loyal Domino’s consumers. The loyalty program could be coordinated with Domino’s current marketing efforts to promote its Page 11 of 20 .Domino’s Pizza – Integrated Company Analysis Team B6 December 14. with data indicating that average order frequency would increase by more than three orders per customer per year. In our survey of 221 U. it appears Domino’s has been able to generate trial purchases from customers who previously had excluded Domino’s from their dining options. Domino’s has used the new product to address this major weakness. Given the positive results. Our survey data indicates that a status program would increase average order frequency by more than two orders per customer per year. Each of the three subgroups we analyzed favored a “status program” that would give different benefits that would increase with repeat purchase frequency. A loyalty program would specifically address this underperformance. the average Domino’s customer orders five times per year while the average quick-service pizza customer orders an average of 17-18 times per year. The infrequent Domino’s consumer subgroup had the strongest response to the status program. This data indicates that Domino’s is underperforming in driving repeat purchases. Developing a Loyalty Program According to Barclay’s. Increase expansion in China. we proposed three different hypothetical loyalty programs.S. Develop a loyalty program to drive trial and repeat purchases. 2. We have two primary recommendations: 1. We recommend that Domino’s focus on both of these fronts to grow its business. adults. 2010 leading reason why customers avoid Domino’s. pay down its long-term debt and increase value for shareholders.

Further generating revenue growth from an already competitive domestic market. Domino’s should seek a master franchisee that will enable expansion to match Pizza Hut’s presence in China. Domino’s faces potential challenges inherent in the China market. United Kingdom and Australia. Noticeably absent on the list of largest master franchisees is China. The new. where Domino’s currently has only 15 stores. By again expanding through a master franchisee. we understand that Chinese consumers prefer dine-in restaurant options to delivery-based options. Domino’s has evolved in other markets to meet unique consumer preferences. CONCLUSION 1.) Achieving long-term growth can be most easily achieved by: a. and we believe whatever changes may be necessary can be delivered in China. As such. However. inspired pizza has been effective at getting customers in the door.027 international franchises within the past five years. the discrepancy between Pizza Hut’s store count and Domino’s store count seems unjustified. 3. Domino’s can expand without exhausting its own capital resources. Domino’s can rely on the franchisee for market knowledge and for the investment of capital.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. For example. and our data indicates that a loyalty program could help ensure they keep coming back. Increased expansion in China.) Priced into DPZ stock is a future expectation of sustained long-term growth. Page 12 of 20 . but its debt level makes it riskier than its competitors. b. 2. India is home to the fourth-largest master franchisee with nearly 300 stores. Increased Expansion in China Domino’s has added 32% of its 4. On its face. By comparison. Domino’s generally expands to an international market through a master franchisee. Domino’s three largest master franchisees are in Mexico. Pizza Hut has more than 400 stores with intentions for more. 2010 revamped pizza. which are needed elsewhere.) Domino’s has a steady business.

2010) * = calculated using respective 10-Q data ** = Domino’s return on assets includes off-balance sheet assets of $139.400 1.200 1.5% 1.8% 58.7 1.0% 37.2 1. Sales Revenue by Business Segment.3% 56.7% 57.569.000 800 600 51.6% 1.2% 35.363. 3Q 2010) TTM = Trailing Twelve Months (as of December 3. Sales Revenue by Business Segment (In 000s) 1.. Market Mexico United Kingdom Australia South Korea Canada India Japan France Turkey Taiwan Number of Stores 589 562 411 329 319 296 179 154 132 120 APPENDIX C.524.6% 33.166. 2010 APPENDICES APPENDIX A.0 34.438.1% 58.6 1.7% 35.4% 42.800 1.9 1.600 1.1 1.5% 56.8% 57.1% 57.378.5% 56.e.Domino’s Pizza – Integrated Company Analysis Team B6 December 14.1 36.542. From OneSource MRQ = Most Recent Quarter (i.628.556.5% 36.4 33. Selected International Markets for Domino’s.6% 1.1% 400 200 0 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 International Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Domestic Distribution Domestic Stores Historical Segments APPENDIX B.492.1% 57.2% 1. Accounting Metrics.7 in operating lease obligations through 2019 Page 13 of 20 .0 34.6 1.

37* Industry 32.77 0.21 Sector 18.Domino’s Pizza – Integrated Company Analysis Team B6 December 14.75% OPERATIONAL EFFICIENCY METRICS Yum! Papa Johns 45.28 48.40% 26.19* -1.94% 4.95 $126M* Papa Johns 1.85% 8.10% 17.52 1.48% 14.99 19.15% 39.36 3.64 1.5 Yr Avg Return on Equity (TTM) Return on Equity – 5 Yr Avg Return on Assets (TTM)** Return on Assets .22% 44.57%* -6.84% $2.52% 14.82* 29.46% 13.19* 0.36% 47.93 Page 14 of 20 .68% 19.23% Industry Sector S&P 500 44.32% 5.61% 12.02* Days Inventory on Hand (MRQ) Dominos 22.0M * Dominos 1.45* 1.69% 10.79% 13.53 Dominos 3.07% 8.1M * Industry 1.70% 44.45% 0.49 47.75 Industry Sector S&P 500 PROFITABILITY METRICS Yum! Gross Profit Margin (TTM) Gross Profit Margin .04% 8.43% 13.47* -1.28% 36.02% 8.59 Inventory Turnover (TTM) 1.82% 32.61% 17.93% 10.50% 86.65 0.40% 2.53 0.58% 27.41* 11.33 Papa Johns 0.91%* 20.22% 27.87 2.82% Papa Johns 27.56 0.50% 12.33% $1.92% 4.42% 14.07 S&P 500 1.41 Receivables Turnover (TTM) 44.66% 4.09% 10.18% 89.5 Yr Avg** Net Profit Margin (TTM) Net Profit Margin .30 Sector 1.81 0.58* 12.43% 20.09 43.08% 38.76 36.22% -6.18% 10.70* 13. 2010 Yum! Total Debt to Total Assets Ratio (MRQ) LT Debt/Equity (MRQ) Total Debt/Equity (MRQ) LIQUIDITY METRICS Yum! Current Ratio (TTM) Working Capital (MRQ) 0.96 1.71% 14.76 Asset Turnover (TTM) 8.25* 0.77% 26.04 $3.62% 5.5 Yr Avg EPS (MRQ) EPS 5 Yr Growth 47.19 1 S&P 500 13.84 0.03% Dominos 27.57 9.57% $1.65 $104.43% 37.49% 8.40% -2.47 2.24 14.

 Market-leading online ordering and website features.6% 10 Yr US Treasury APPENDIX E. WACC.4% 41. Promotion:  Minimal incentive for customer loyalty. 2010 APPENDIX D. domestic store delivery covers the majority of households. Product:  Despite aggressive marketing efforts to rebrand Domino’s as a quality.0% Long Term Debt 1.8% Weight of Cost of Debt Tax Rate Equity 63.2% Cost of Debt ## 5. Can’t promise shareholders that they can guarantee strong returns.17 Risk Free Rate 3.522 WACC 7. great tasting pizza company. Strengths: Product:  Newly revamped pizza recipe brought in high growth levels for the first three quarters of 2010. frequent Domino’s pizza Weaknesses: Opportunities: Page 15 of 20 . Place:  Less-than-optimal international presence. great tasting pizza. SWOT Analysis. Price:  Competitively priced product.30% Market Risk Premium 9.Domino’s Pizza – Integrated Company Analysis Team B6 December 14.  Strong brand name.8% Weight of Equity 36. Place:  With almost 5000 franchises in the U. #1 pizza delivery company in the U. with market share of 18. survey respondents still said that “does not taste good” and “low quality” were the primary reasons they did not order Domino’s.S. Product:  According to survey results. Total operational process is completed within 12-15 minutes.2% 13.S..4%.  Proposition for investors is limited. WACC Components Fiscal Year Ended 12/2009 Capital Structure Components Debt Equity Short Term Debt 50 2010-12-10 Market Value Beta 910 1. Price:  The low price may actually be working against Domino’s efforts to rebrand as a high quality. Promotion:  Continuous price promotion such as two 2-topping pizzas for $5.  Focused menu enables quality consistency and operational efficiency.99 each.

and encouraging others to propagate this distribution. APPENDIX F.  Prices in commodities such as cheese increasing. The total number of survey respondents was 221. higher-quality product. One slice of Domino’s new pizza contains as much as two-thirds of a days maximum recommended amount of saturated fat. Ability to increase proportion of total sales placed online from 20% currently. For the purpose of comparison. How often do people order pizza and how often do they choose Domino’s? Page 16 of 20 . We solicited survey responses by emailing friends and family. Survey Results. Product:  With obesity rates on the rise. which is much more diverse. health is becoming an increasing concern in the U. Our sample is neither as large nor as random as we would have liked. Place:  Supply chain not positioned to address potential sustainability regulations. Promotion:  Challenging to continue meeting customer expectations that have now been inflated by new. 2010 consumers prefer ordering online at a much higher rate than the total respondents.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. posting the survey on Facebook. Subgroup Frequent Pizza Consumer Frequent Domino’s Consumer Infrequent Domino’s Consumer Order Frequency Orders pizza 7 times or more per yr Orders Domino’s 7 times or more per yr Orders Domino’s 1-6 times per year Sample Size 170 23 76 There are certain limitations of our survey data that derive from our market research capabilities.  Threats: Place:  Domino’s believes it has achieved 50% of its growth potential across its top 10 international markets. We administered a survey to determine consumer perceptions of a loyalty program. This population is not representative of the typical Domino’s market. we divided the groups into several subgroups as defined below. More thorough market research should be conducted if Domino’s would like to gain more confidence in these results.S.  Minimum wage increases. suggesting Domino’s could establish themselves as an industry leader in online ordering. Behavioral and demographic data were collected.

which had a “less than once a year” purchase frequency rate for most respondents.S. 2010 Purchase Frequency 140 120 100 80 60 40 20 0 Less than 1-3 Times 4-6 Times 7-11 Once a a Year a Year Times a Year Year Once a 2-3 Times Once a Month a Month Week or more All Pizza Domino's When comparing the purchase frequency rates of Domino’s compared to the frequency rates of all pizza brands there was a notable contrast between the two groups. and #2 in overall sales in the QSR pizza category. Page 17 of 20 . placing it behind top competitors Pizza Hut and Papa John’s. To what pizza brands are consumers most loyal? Brand of Loyalty (All) Pizza Hut 9% Papa John's 10% Not Loyal 22% Other Local 42% Other Chain 11% Domino's 6% Despite it’s ranking as #1 in pizza delivery in the U.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. only 6% of survey respondents said they were most loyal to Domino’s pizza. 42%. seemed to feel most loyalty towards local brands. While the largest group of respondents indicated that they ordered pizza once a month. the vast majority of those orders were not going to Domino’s. The largest group of respondents.

Silver Prize: Receive 10% off all Domino's orders* for one year. Collect 25 points and receive a Large 3topping pizza for free! Domino's Punch Card Loyalty Program: Earn 1 punch for every Large Pizza you purchase at Domino's. 2010 Why not Domino’s? Why not Domino's? 50% 40% 30% 20% 10% 0% No Store Expensive Does not Takes too Unhealthy No DineLow Poor Nearby Taste Long In Option Quality Customer Good Service Despite it’s aggressive. Gold Prize: Receive Silver Prize and Receive a free 2-Liter with every Domino's purchase* for one year.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. high quality pizza. “Oh Yes We Did” marketing campaign aimed toward rebranding Domino’s as a tasty. Platinum Rank: Purchase* Domino's at least 40 times during one year. Collect 15 punches and receive a Large 3-topping pizza for free! Domino's Frequent Customer Recognition Loyalty Program: Establish your rank by becoming a frequent Domino's customer. *Minimum $10 bill total per purchase Page 18 of 20 . Gold Rank: Purchase* Domino's at least 25 times during one year. This suggests that eve n though Domino’s had positive results from their widely promoted recipe change. there is still a long way to go in convincing consumers that they are in fact making better pizza. Platinum Prize: Receive Silver and Gold Prizes and Receive a free order of bread sticks with every Domino's purchase* for one year. What loyalty program will drive the best results? Domino's Points-based Loyalty Program: Earn 1 point for every $5 you spend at Domino's. survey respondents still rank “does not taste good” and “low quality” as the primary reasons they do not order Domino’s pizza. Silver Rank: Purchase* Domino's at least 10 times during one year.

50 0.50 4. Average Order Frequency Increase per Customer per Year (Infrequent Domino's Consumers) 4.00 Points Program Punch Program Status Program Interestingly. much higher than the overall average. the “status program” had the strongest increase overall.13.00 1. The average increase in order frequency per year was 2.00 0.00 1.Domino’s Pizza – Integrated Company Analysis Team B6 December 14.50 2.00 0.00 3.00 Points Program Punch Program Status Program When asked how many more times per year they would order Domino’s pizza given several different loyalty program methods.00 2. their average order frequency increase per year was 3.00 2.50 1.50 3.00 4. 2010 Average Order Frequency Increase per Customer per Year (All Consumers) 5.00 3. How are consumers ordering? Page 19 of 20 . when we only looked at how the infrequent Domino’s consumers would respond to the loyalty programs.07 per person.

Method of Purchase (Frequent Domino's Consumers) Walk-in Order 9% Order Online 48% Order by Phone 43% Frequent Domino’s consumers prefer to order online. This is a possible opportunity of Domino’s to maintain its status as an industry leader in the future as more and more pizza orders begin to be placed online. Domino’s current online ordering system is fun and easy to use making the ordering process painless.Domino’s Pizza – Integrated Company Analysis Team B6 December 14. Page 20 of 20 . 2010 Method of Purchase (All Consumers) Walk-in Order 11% Order Online 26% Order by Phone 63% The majority of total respondents still order pizza the old fashioned way: over the phone.

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