Rethinking Domino's Expansion Plan

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Themes: MNCs in India
Period : 2001
Organization : Dominos Pizza India
Pub Date : 2002
Countries : India
Industry : Food, Beverages & Tobacco

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Case Code : BSTR014
Case Length : 9 Pages
Price: Rs. 300;

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Sky is the Limit Contd...

He said, "We realised we'd be wasting too much time, money and resources trying to do it all ourselves. For instance, just acquiring a bunch of permits for each store in each city is itself a big job. Then there are the brokers, city laws, markets, licensing, title, infrastructure, water, power, lease agreements, signage and most important, dealing with competing restaurants." CB Richards not only managed to take care of all these hassles but also furnished the outlets.

Domino's also opened outlets at large corporate offices, cinema halls and university campuses. In early 2000, Domino's had opened an outlet at the corporate office of Infosys, Bangalore, which was very successful. It also had outlets at cinema halls - PVR in Delhi, Rex in Bangalore, and New Empire in Kolkata. Pavan Bhatia wanted quantum growth and felt that Domino's needed to tie up with airports, railway stations and petrol pump stations.

Incidentally, CB Richards was already working with oil companies, advising them on how to go about making their petrol pumps ready for competition once private players came in. CB Richards made a recommendation to Indian Oil Corporation (IOC) to let Domino's operate in its petrol pump premises. In December 2000, Domino's entered into an agreement with IOC to provide food products at the latter's 7,500 outlets across the country. In early 2001, Pavan Bhatia signed an agreement with Steve Forte, CEO, Jet Airways, to launch their 'ultimate deep dish,' and 'sweetie pie' products on Jet Airways flights.

Pavan Bhatia said, "For Domino's, sky is the limit. We like to deliver hot, fresh pizzas everywhere, anytime. This tie-up with Jet Airways takes our commitment to customers on the move even a step further."

PIZZA HUT'S EXPANSION STRATEGY

Pizza Hut entered India in June 1996 with its first outlet in Delhi. Initially, the company operated company-owned outlets. However, keeping in line with its worldwide policy where Pizza Hut was gradually making a shift from company-owned restaurants to franchisee owned restaurants, Pizza Hut made the shift in India too. This policy helped the company to reduce the huge costs in setting up new outlets. Pizza Hut had four company-owned franchisees - Universal Restaurants Pvt. Ltd. (Delhi, Uttar Pradesh and Rajasthan), Specialty Restaurants Pvt. Ltd. (Punjab), Dolsel Corporation (Gujarat, Karnataka and Andhra Pradesh), Pizzeria Fast Food Pvt. Ltd. (Pune and Tamilnadu) and Wybridge Holdings (Mumbai). By March 2001, Pizza Hut had 20 outlets. In the same month, Pizza Hut announced its plan of opening 30 more outlets in India by 2001 end, through franchisee route. By March 2001, Pizza Hut had 13,000 outlets across 90 countries.

What Went Wrong?

Domino's officials felt that there was nothing wrong with increasing the number of outlets. Hari Bhartia said, "We needed to grow to effectively utilize the expensive back-end infrastructure (like distribution centres) that we had set up by March last year (1999)." However, analysts felt that the growth had taken place on a business model that was not able to support it.

Unlike other fast-food chains, Domino's operated on company-owned outlets basis, rather than franchisee route or a mix of both. (Refer Box for Pizza Hut's expansion strategy) Domino's officials argued that this ensured quality and the ability to deliver on time, as the company promised. But this also meant that Domino's had to invest a huge amount in real estate and equipment for each of the new outlets. There were also other overheads such as salaries, keeping inventories, and huge marketing expenses to attract consumers.

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