Rethinking Domino's Expansion Plan

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What Went Wrong? Contd...

To earn a return on these investments, sales in each new outlet had to reach a viable level quickly. Or else, the operation could soon become unviable. It also meant that profitable outlets would end up subsidizing the non-profitable ones. Location of the outlet was an important determinant of profits. Analysts felt that, in its race to dominate the pizza business, Domino's took some wrong steps. For instance, the outlets in Meerut (Uttar Pradesh) and Ghaziabad (Uttar Pradesh) were located in areas that were not very lucrative. Moreover, some outlets were located far from the nearest commissary.⁵

This resulted in a logistical lapse and hence, huge transportation costs. Analysts felt that the worst mistakes were made in Sri Lanka. Domino's invested US$2 million (Rs. 94 million) to open six outlets. To become viable, each outlet had to earn minimum threshold revenue, which according to some analysts, was in the range of Rs. 10,000 - Rs. 16,000 per day. This meant an average footfall of 100-160 per day. The outlets would run into losses, if it was not met. According to reports, three of the six outlets in Sri Lanka were under-performing. Analysts felt that Pavan Bhatia believed in spending money to create hype about the brand. For instance, Domino's opened 15 outlets on a single day in early 2000. And, as it was customary to have outlets inaugurated by film stars, Domino's spent in the range of Rs.0.3-0.5 million on each film star to inaugurate one outlet.6 He also initiated an all-India brand-building exercise. Besides TV campaigns, the exercise included the installation of a unique, single toll-free number to order pizzas.

The number ensured that the call would be diverted to the nearest Domino's outlet and the customer didn't have to remember numbers of specific outlets. Analysts felt that the combination of national advertising and the single toll-free number led to discontent amongst customers who were attracted to dial, but discovered that no outlet existed in their city or town. Many analysts argued that the toll-free number would have worked if Domino's had 1000 outlets. Also, the all-India campaign did not justify the needs of specific outlets or regions.

Many analysts felt that there was nothing wrong with Pavan Bhatia's expansion plan. Commenting about the expansion, a consultant associated with the expansion plan said, "One has to take risks to reach economies of scale. Domino's also shook up competition when it reached a target of 100 outlets." According to a company handout released in early 2001, the increase in number of outlets was fourfold during March 2000-January 2001.

However, Hari Bhartia, without whose approval the expansion could not go ahead, insisted that the increase was only 100% in 2000-01. Domino's officials who supported Pavan Bhatia's expansion plan were of the view that only 5% of all stores were located in places where business was poor. This was a globally accepted trend. They further argued that the profitable stores cross-subsidizing the unprofitable ones was also a common practice globally.

Though Hari Bhartia was skeptical regarding the effectiveness of some of the marketing initiatives taken up by Pavan Bhatia, many analysts argued that the campaigns got new individual and institutional customers to the company. Gautam Advani, former Chief of Marketing, Domino's explained, "...it was the advertising blitzkrieg that helped the company move to the first place from the sixth in both Mumbai and Bangalore..."

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5] Central points where fast-food chains keep inventories.
6] Domino's had invited Twinkle Khanna, Karishma Kapoor and other popular heroines of Hindi films.