Rethinking Domino's Expansion Plan

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What Went Wrong? Contd...

Analysts were divided in their opinion about Hari Bhartia's role in all these developments. While some felt that Hari Bhartia was kept in the dark, others felt that he was a silent spectator. Still others felt that Hari Bhartia actually agreed with Pavan Bhatia's strategy, only to make him a scapegoat when things went wrong. Officials who supported Pavan Bhatia's expansion plan felt that Hari Bhartia was completely aware of all the developments. They said that he had actively supported some of Pavan Bhatia's plans including expansion of outlets.

However, others claimed that Pavan Bhatia did take some initiatives without prior consent of Hari Bhartia. For instance, marketing expenses of about Rs.50 million were allegedly spent without prior budgetary approvals. It was also believed that there were no records to account for an expenditure of about Rs.20 million on the Sri Lankan operations. However, Pavan Bhatia's supporters claimed that such allegations were meant to malign him and nothing of the sort could take place in a professionally run organization. No Correlation Between Expansion and Sales Pavan Bhatia's expansion plan would not have come under criticism had actual sales matched the projections. Hari Bhartia said that there was a gap between the two. According to some company officials, in mid 2001, the actual sales were half of projections. As the sales were poor, the burden of huge expenses7 impacted the bottomline.

This led to serious cash flow problems. A few suppliers said that Domino's was either asking for an increase in the credit period or requested a go-slow on supplies. Others added that although they had no problems with payments, they heard that Domino's was going through a bad phase. Said one, "I too have heard adverse stories about the company. I also know that Domino's is undergoing reorganization. But that should be over in a few months' time and the company will be back on the course."⁸

Analysts also felt that Domino's would be back on course soon, as pizza sales were growing despite new stores coming up near the existing ones, at least in the metros. For instance, the store in Greater Kailash I in New Delhi was among the first to be opened. Sales at this outlet grew though new stores were added in neighboring areas. However, Domino's needed fresh funds to get out of the financial problems. Indocean Chase, the venture capital firm, which owned one-third stake in Domino's, said it would invest only after the existing problems, were sorted out.

To Grow or Not To Grow

By mid 2001, Domino's future growth plans were also slowed down. (Refer Exhibit II) In early 2001, Domino's had announced plans of adding 100 outlets every year, and an investment of Rs.500 million in 2001. Hari Bhartia said, "The board had never approved either the investment or the plan to start 100 new outlets in a year's time." The plan to open new outlets in Bangladesh was also postponed. These corrective measures were expected to be over by late 2001. Explained Hari Bhartia, "When you grow the way we did last year, (2000), there are bound to be problems. Now, we are dealing with them." He was also looking for a new CEO.

Exhibits

Exhibit I: Pavan Bhatia's Strategy and Hari Bhartia's Strategy
Exhibit II: Going Slow

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7] According to some estimates, Pavan Bhatia had spent about Rs. 100 million in 2000-01.
8] Business World, July 9 2001