Franchising and Domino
Franchising and Domino
PROJECT REPORT ON SUPPLY CHAIN MANAGEMENT OF DOMINO’S PIZZA SUBMITTED TO:SUBMITTED BY:DR. HAIDER ALI KUMAR SHANTANU ROLL NO. 22 1 MBA(E-BUSINESS) SEMESTER IV TABLE OF CONTENTS SL NO. 1. 2. 3. 4. 5. 6 7. PARTICULARS ABOUT DOMINO’S PIZZA DOMINO’S IN INDIA MENU IN DOMINO’S COMPETITIVE STRENGTHS OF DOMINO’S BUSINESS STRATEGY OF DOMINO’S STORE OPERATIONS SUPPLY CHAIN OF DOMINO’S PAGE NO. 3 3 5 6 7 9 12 2 ABOUT DOMINO’S PIZZA
Founded in 1960, Domino’s Pizza is the recognized world leader in pizza delivery operating a network of company-owned and franchise-owned stores in the United States and international markets. Domino’s Pizza’s Vision illustrates a company of exceptional people on a mission to be the best Pizza Delivery Company in the world. Domino’s started out small with the legendary Tom Monaghan who bought his first pizza store and called it Dominick’s. It was re-christened Domino’s Pizza in 1965. HoDomino’sver, in 1978, the 200th Domino’s store opened, and things really began to cook.
By 1983 there Were 1000 Domino’s stores, rising to 5000 in 1989. Today, there are more than 9000 franchised and company owned stores in the United States and 60 international markets . Domino’s is listed on the NYSE under the symbol “DPZ. ” The Domino’s Pizza® brand was named a Megabrand by Advertising Age magazine. Domino’s Pizza was named “Chain of the Year” by Pizza Today magazine, the leading publication of the pizza industry. In 2009, Domino’s ranked number one in customer satisfaction in a survey of consumers of the U. S. argest limited service restaurants, according to the annual American Customer Satisfaction Index (ACSI). Domino’s has expanded its menu significantly since 2008 to include Oven Baked Sandwiches and BreadBowl Pasta, and recently debuted its ‘Inspired New Pizza’- a permanent change to its core hand-tossed product, reinvented from the crust up with new sauce, cheese and garlic seasoned crust. DOMINO’S IN INDIA Jubilant Food Works Limited, a Jubilant Bhartia Group Company holds the Master Franchisee Rights for Domino’s Pizza for India, Nepal, Sri Lanka and Bangladesh.
How does the Dominos franchise work?
Franchising and Domino
The company has been listed on the Indian btheses recently. Prior to Sep 24, 2009, the company was known as Domino’s Pizza India Limited and underwent a name change, rest of the terms remaining the 3 same. The promoters of the company are Mr. Shyam S Bhartia, Mr. Hari S Bhartia and Jubilant Enpro Private Ltd. Domino’s Pizza opened its first store in India in January 1996, at New Delhi. Today Domino’s Pizza India has grown into a countrywide network of more than 300 stores with a team of over 9,000 people.
According to the India Retail Report 2009, It was the largest Pizza chain in India and the fastest growing multinational fast food chain betDomino’sen 2006-2007 and 2008-2009 in terms of number of stores. Over the period since 1996, Domino’s Pizza India has remained focused on delivering great tasting Pizzas and sides, superior quality, exceptional customer service and value for money offerings. It has endeavored to establish a reputation for being a home delivery specialist capable of delivering pizzas within 30 minutes or else FREE to a community of loyal consumers from all the stores around the country.
Domino’s vision is focused on ” Exceptional people on a mission to be the best pizza delivery company in the world! “. It is committed to bringing fun, happiness and convenience to lives of the consumers by delivering delicious pizzas to their doorstep and efforts are aimed at fulfilling this commitment towards a large and ever-growing customer base. Domino’s constantly strives to develop products that suit the tastes of the consumers and hence delighting them. Domino’s believes strongly in the strategy of ‘Think global and act local’.
Thus, time and again it has been innovating with delicious new products such as crusts, toppings and flavthes suitable to the taste buds of Indian Consumers. Further providing value for money and affordable products to the consumers has been an important part of it’s efforts. Domino’s initiatives such as Fun Meal and Pizza Mania have been extremely popular with consumers looking for an affordable and value for money meal option. The Brand Positioning of Khushiyon ki Home Delivery (Happiness Home delivered) is the emotional benefit it offers to the consumers.
How much money do you need to start a Domino’s franchise?
Franchising and Domino Franchising and Domino
All the efforts, whether it is a new innovative and delicious product, offering consumers value for money deals, great service, country wide presence or delivery in 30 minutes or free are all oriented towards delivering happiness to the homes of the consumers. Consumers can order their pizzas by calling the single Happiness Hotline number 1800-111-123 (in most cities of Domino’s Pizzas Presence) and 44448888 (in NCR, Mumbai and Bangalore). 4 MENU IN DOMINO’S VEGETARIAN
SIMPLY VEG Margherita Cheese and Tomato pizza VEG I Double Cheese Margherita Fresh Veggie Country Special Farm House VEG II Peppy Paneer Mexican Green Wave Deluxe Veggie Gthemet FEAST PIZZA Veg Extravaganza NON-VEGETARIAN SIMPLY NON VEG Cheese And Barbeque Chicken NON VEG I Barbeque Chicken Spicy Chicken NON VEG II Chicken Mexican Red Wave FEAST PIZZA Meatzaa Keema Do Pyaaza Non Veg Extravaganza Chicken Golden Cheese And Delight Pepperoni SIDE ORDERS 5 VEGETARIAN Veg Mexican Wrap Veg Pasta Italiano White Veg Pasta Italiano Red Garlic Breadsticks Cheese Jalapeno Dip Cheese Dip Choco Lava Cake
NON-VEGETARIAN Veg Mexican Wrap Veg Pasta Italiano White Veg Pasta Italiano Red Chicken Wings COMPETITIVE STRENGTHS OF DOMINO’S ? Strong and proven growth and earnings model:- Over a 50- year old history, it has developed a focused growth and earnings model. This model is anchored by stong store-level economics, which provide an entrepreneurial incentive for franchise, and generate demand for new stores. The franchise system in return has produced strong and consistent earnings through supply chain and royalty payments revenue, with minimal associated capital expenditures. Strong store-level economics:- It has developed a cost-efficient store model, characterized by a delivery and carry-out oriented store design, with low capital requirements and a focused menu of quality, affordable pizza and complimentary side items. At the store level, it believes that simplicity and efficiency of operations gives it advantages over its competitors. ? Strong and Overall-diversified franchise system:- It has developed a large, global and diversified franchise network that is critical component of its system-wide success and efficient pizza delivery.
The franchise system network consists of 8284 stores, 55% of which are located in United States. 6 ? Strong cash flow and earnings stream:- A substantial percentage of the earnings are generated by the commited, owner-operator franchises through royalty payments and revenues to vertically integrated supply chain system. ? Strong brand awareness:- Domino’s pizza brand is one of the most widely known consumer brand in the world. Consumers associate the brand with timely delivery of pizza, affordable pizza and complimentary side items. Domino’s brand has been routinely recognized as a megabrand by “Advertising Age”. Internal dough manufacturing and supply chain system:- In addition to generating significant revenues and earnings, the vertically integrated dough manufacturing and supply chain system enhances the quality and consistency of the products and the relationship with the franchises. It also helps in leveraging economies of scale to offer loDomino’sr cost to stores and allows the store managers to better focus on store operations and customer service by relieving them of the responsibility of mixing dough in the stores. BUSINESS STRATEGY OF DOMINO’S
It intends to achieve further growth and strengthen the competitive position through the continued implementation of business strategy which includes the following elements:? Continue to execute the mission statement:- The mission statement of Domino’s is “exceptional franchises and team members on a mission to be the best pizza delivery company in the world”. It implements this by following a business strategy that:- • puts franchises and company owned stores at the foundation of all the thinking and decisions; • emphasizes the ability to select,develop and retain exceptional team embers and franchises; 7 • provides a strong infrastructure to support the stores; • builds excellent store operations to create loyal customers; ? Growing the leading position in an attractive industry :- U. S. pizza delivery and carry-out are the largest components of the U. S. QSR pizza category. They are also highly fragmented. Pizza delivery, through which a majority of retail sales are generated, had sales of $10. 9 billion in the twelve months ended November 2008. As the leader in U. S. izza delivery, domino’s believes that convenient store locations, simple operating model, widely-recognized brand and efficient supply chain system are competitive advantages that position it to capitalize on future growth. Carry-out had $13. 8 billion of sales in the twelve months ended November 2008. While the primary focus is on pizza delivery, domino’s is also favorably positioned as a leader in carry-out given the strong brand, convenient store locations and quality, affordable menu offerings. ? Leveraging the strong brand awareness :- Domino’s believes that he strength of the Domino’s Pizza® brand makes us one of the first choices of consumers seeking a convenient, quality and affordable meal. Domino’s intend to continue to promote the brand name and enhance the reputation as the leader in pizza delivery. In 2007 Domino’s launched the campaign, “You Got 30 Minutes™,” which built on the Company’s 30-minute delivery heritage. In 2007 and 2008, each of the domestic stores contributed 4% of their retail sales to the advertising fund for national advertising in addition to contributions for market-level advertising.
Additionally, for 2007 the domestic stores within active co-operatives elected to allocate an additional 1% of their advertising contributions to support national advertising initiatives. Domino’s intend to leverage the strong brand by continuing to introduce innovative, consumer-tested and profitable new product varieties (such as Domino’s Brooklyn Style Pizza and Domino’s Oven Baked Sandwiches), complementary side items (such as buffalo wings, cheesy bread, Domino’s Buffalo Chicken Kickers® and Cinna Stix®) and value promotions as through marketing affiliations with brands such as Coca-
Cola®. Additionally, Domino’s may from time-to-time partner with other organizations in an effort to promote the Domino’s Pizza® brand. Domino’s believes these opportunities, when coupled with the scale and share leadership, will allow to grow the position in U. S. pizza delivery. ? Expand and optimize the domestic store base :- Domino’s plan to continue expanding the base of domestic stores to take advantage of 8 the attractive growth opportunities in U. S. pizza delivery.
Domino’s believes that the scale allows to expand the store base with limited marketing, distribution and other incremental infrastructure costs. Additionally, the franchise-oriented business model allows to expand the store base with limited capital expenditures and working capital requirements. While Domino’s plan to expand the traditional domestic store base primarily through opening new franchise stores, Domino’s will also continually evaluate the mix of Company-owned and franchise stores and strategically acquire franchise stores and refranchise Company-owned stores. Continue to grow the International Business :- Domino’s believe that pizza has global appeal and that there is strong and growing international demand for delivered pizza. Domino’s have successfully built a broad international platform, almost exclusively through the master franchise model, as evidenced by the 3,726 international stores in more than 60 countries. Domino’s believes that Domino’s continue to have significant long-term growth opportunities in international markets where Domino’s have established a leading presence.
In the current top ten international markets, Domino’s believe that the store base in total for these ten markets is approximately half of the total long-term potential store base in those markets. Generally, Domino’s believe Domino’s will achieve long-term growth internationally as a result of the favorable store-level economics of the business model, the growing international demand for delivered pizza and the strong global recognition of the Domino’s Pizza® brand. The international stores have produced positive quarterly same store sales growth for 60 consecutive quarters. STORE OPERATIONS
Domino’s believe that the focused and proven store model provides a significant competitive advantage relative to many of the competitors who focus on multiple components of the pizza category, particularly dine-in. Domino’s have been focused on pizza delivery for 48 years. Because the domestic stores and most of the international stores do not offer dine-in areas, they typically do not require expensive real estate, are relatively small and are relatively inexpensive to build and equip. The stores also benefit from lower maintenance costs, as store assets have long lives and updates 9 re not frequently required. The simple and efficient operational processes, which Domino’s have refined through continuous improvement, include:• • • • • • • strategic store locations to facilitate delivery service; production-oriented store designs; product and process innovations; a focused menu; efficient order taking, production and delivery; Domino’s PULSE™ point-of-sale system; and a comprehensive store audit program. Strategic store locations to facilitate delivery service Domino’s locate the stores strategically to facilitate timely delivery service to the customers.
The majority of the domestic stores are located in populated areas in or adjacent to large or mid-size cities, or on or near college campuses. Domino’s use geographic information software, which incorporates variables such as traffic volumes, competitor locations, household demographics and visibility, to evaluate and identify potential store locations and new markets. Production-oriented store designs The typical store is relatively small, occupying approximately 1,000 to 1,300 square feet, and is designed with a focus on efficient and timely production of consistently high quality pizza for delivery.
The store layout has been refined over time to provide an efficient flow from order taking to delivery. The stores are primarily production facilities and, accordingly, do not typically have a dine-in area. Product and process innovations The 48 years of experience and innovative culture have resulted in numerous new product and process developments that increase both quality and efficiency. These include the efficient, vertically-integrated supply chain system, a sturdier corrugated pizza box and a mesh screen that helps cook pizza crust more evenly.
The Domino’s HeatWave® hot bag, which was introduced in 1998, keeps the pizzas hot during delivery. Domino’s also continue to introduce new products such as Domino’s Oven Baked Sandwiches, which Domino’s launched in 2008. Additionally, Domino’s have added a number of complementary side items to the menu such as buffalo wings, Domino’s Buffalo Chicken Kickers®, bread sticks, cheesy bread and Cinna Stix®. Focused menu 10 Domino’s maintain a focused menu that is designed to present an attractive, quality offering to customers, while minimizing order errors, and expediting the order taking and food preparation processes.
The basic menu has three choices for pizza products: pizza type, pizza size and pizza toppings. Most of the stores carry two or three sizes of Traditional Hand-Tossed, Ultimate Deep Dish, Brooklyn Style and Crunchy Thin Crust pizza. During 2008, Domino’s added the new Domino’s Oven Baked Sandwiches to the menu that are available in fthe main varieties. The typical store also offers buffalo wings, Domino’s Buffalo Chicken Kickers®, bread sticks, cheesy bread, Cinna Stix® and Coca-Cola® soft drink products. Domino’s also occasionally offer other products on a promotional basis.
Domino’s believe that the focused menu creates a strong identity among consumers, improves operating efficiency and maintains food quality and consistency. Efficient order taking, production and delivery Each store executes an operational process that includes order taking, pizza preparation, cooking (via automated, conveyor-driven ovens), boxing and delivery. The entire order taking and pizza production process is designed for completion in approximately 12-15 minutes. These operational processes are supplemented by an extensive employee training program designed to ensure world-class quality and customer service.
It is the priority to ensure that every Domino’s store operates in an efficient, consistent manner while maintaining the high standards of food quality and team member safety. Domino’s PULSE™ point-of-sale system The computerized management information systems are designed to improve operating efficiencies, provide corporate management with timely access to financial and marketing data and reduce store and corporate administrative time and expense. Domino’s have installed Domino’s PULSE™, the proprietary point-of-sale system, in every Company-owned store in the United States and significantly all of the domestic franchise stores.
Some enhanced features of Domino’s PULSE™ over the previous point-ofsale system include: • touch screen ordering, which improves accuracy and facilitates more efficient order taking; • a delivery driver routing system, which improves delivery efficiency; • improved administrative and reporting capabilities, which enable store managers to better focus on store operations and customer satisfaction; and • enhanced online ordering capability, including Pizza Tracker which was introduced in 2007.
Domino’s require the domestic franchisees to install Domino’s PULSE™ and are in the process of installing Domino’s PULSE™ in the remaining domestic 11 franchise stores. Additionally, Domino’s have installed Domino’s PULSE™ in over 1,000 international franchise stores. Comprehensive store audit program Domino’s utilize a comprehensive store audit program to ensure that the stores are meeting both the stringent standards as the expectations of the customers.
The audit program focuses primarily on the quality of the pizza the store is producing, the customer service the store is providing and the condition of the store as viewed by the customer. Domino’s believe that this store audit program is an integral part of the strategy to maintain high standards in the stores. SUPPLY CHAIN OF DOMINO’S Domino’s operates in three business segments: 12 Domestic stores:- The domestic stores segment consists of the domestic franchise operations, which oversee the network of 4,558 franchise stores located in the contiguous United States, and the domestic Company-owned store operations, which operate the network of 489 Company-owned stores located in the contiguous United States; • Domestic supply chain:- The domestic supply chain segment operates 17 regional dough manufacturing and food supply chain centers, one supply chain center providing equipment and supplies to certain of the domestic and international stores and one vegetable processing supply chain center; and • International:- The nternational segment oversees the network of 3,726 international franchise stores in more than 60 countries. The international segment also distributes food to a limited number of markets from six dough manufacturing and supply chain centers in Alaska, Hawaii and Canada (fthe). Domestic stores During 2008, the domestic stores segment accounted for $511. 6 million, or 36%, of the consolidated revenues. The domestic franchises are operated by entrepreneurs who own and operate an average of three to fthe stores.
Only six of the domestic franchisees operate more than 50 stores, including the largest domestic franchisee, which operates 144 stores. The principal sources of revenues from domestic store operations are Company-owned store sales and royalty payments based on retail sales by the franchisees. The domestic network of Company-owned stores also plays an important strategic role in the predominantly franchised operating structure.
In addition to generating revenues and earnings, Domino’s use the domestic Company-owned stores as test sites for new products and promotions as Overall as store operational improvements and as forums for training new store managers and prospective franchisees. Domino’s also believe that the domestic Company-owned stores add to the economies of scale available for advertising, marketing and other costs that are primarily borne by the franchisees. While Domino’s continue to be primarily a franchised business, Domino’s continually evaluate the mix of domestic Company-owned and franchise stores in an effort to optimize the profitability.
The domestic Company-owned store operations are divided into eleven geographic areas located throughout the contiguous United States while the domestic franchise operations are divided into fthe regions. The team members within these areas provide direct supervision over the domestic Company-owned stores; provide training, store operational audits and marketing services; and provide financial analysis and store development services to the franchisees. Domino’s maintain a close relationship with the franchise stores through regional franchise teams, an array of computer-based training materials that help franchise stores comply 13 ith the standards and franchise advisory groups communications betDomino’sen us and the franchisees. Domestic supply chain that facilitate During 2008, the domestic supply chain segment accounted for $771. 1 million, or 54%, of the consolidated revenues. The domestic supply chain segment is comprised of dough manufacturing and supply chain centers that manufacture fresh dough on a daily basis and purchase, receive, store and deliver quality pizza-related food products and complementary side items to all of the Company-owned stores and over 99% of the domestic franchise stores.
Each regional dough manufacturing and supply chain center serves approximately 300 stores, generally located within a one-day delivery radius. Domino’s regularly supply approximately 5,000 stores with various supplies and ingredients, of which, eight product groups account for over 90% of the volume. The domestic supply chain segment made approximately 575,000 full-service deliveries in 2008 or betDomino’sen two and three deliveries per store, per Domino’sek; and Domino’s produced over 273 million pounds of dough during 2008.
Domino’s believe that the franchisees voluntarily choose to obtain food, supplies and equipment from us because Domino’s provide the most efficient, convenient and cost-effective alternative, while also providing both quality and consistency. In addition, the domestic supply chain segment offers a profitsharing arrangement to stores that purchase all of their food from the domestic dough manufacturing and supply chain centers. This profit-sharing arrangement generally provides domestic Company-owned stores and participating franchisees with 50% of their regional supply chain center’s pre-tax profits.
Profits are shared with the franchisees based upon each franchisee’s purchases from the supply chain centers. Domino’s believe these arrangements strengthen the ties with these franchisees. The information systems used by the domestic dough manufacturing and supply chain centers are an integral part of the quality service Domino’s provide the stores. Domino’s use routing strategies and software to optimize the daily delivery schedules, which maximizes on-time deliveries.
Through the strategic dough manufacturing and supply chain center locations and proven routing systems, Domino’s achieved delivery accuracy rates of approximately 99% during 2008. The supply chain center drivers unload food and supplies and stock store shelves typically during non-peak store hthes, which minimizes disruptions in store operations. International During 2008, the international segment accounted for $142. 4 million, or 10%, of the consolidated revenues.
Domino’s have 592 franchise stores in Mexico, representing the largest presence of any QSR company in Mexico, 512 franchise stores in the United Kingdom, 412 franchise stores in Australia, 14 305 franchise stores in South Korea, 296 franchise stores in Canada, 227 franchise stores in India and over 100 franchise stores in each of Japan, France, Taiwan and Turkey. The principal sources of revenues from the international operations are royalty payments generated by retail sales from franchise stores and sales of food and supplies to franchisees in certain markets.
Domino’s have grown by more than 1,200 international stores over the past five years. Domino’s empower the managers and franchisees to adapt the standard operating model, within certain parameters, to satisfy the local eating habits and consumer preferences of various regions outside the contiguous United States. Currently, most of the international stores are operated under master franchise agreements, and Domino’s plan to continue entering into master franchise agreements with qualified franchisees to expand the international operations in selected countries.
Domino’s believe that the international franchise stores appeal to potential franchisees because of the Overall-recognized brand name, the limited capital expenditures required to open and operate the stores and the system’s favorable store economics. The following table shows the store count as of December 28, 2008 in the top ten international markets, which account for 78% of the international stores.
Number of stores Mexico 592 United Kingdom 512 Australia 412 South Korea 305 Canada 296 India 227 Japan 181 France 140 Taiwan 120 Turkey 106 The franchise program As of December 28, 2008, the 4,558 domestic franchise stores Were owned and operated by the 1,216 domestic franchisees. The success of the franchise formula, which enables franchisees to benefit from the brand name with a relatively low initial capital investment, has attracted a large number of motivated entrepreneurs as franchisees.
As of December 28, 2008, the average domestic franchisee operated approximately three to fthe stores and had been in the franchise system for tDomino’slve years. At the same time, only six of the domestic franchisees operated more than 50 stores, including the largest domestic franchisee, which operates 144 stores. Domestic franchises 15 Domino’s apply rigorous standards to prospective franchises. Domino’s generally require prospective domestic franchises to manage a store for at least one year before being granted a franchise.
This enables us to observe the operational and financial performance of a potential franchisee prior to entering into a long-term contract. Domino’s also generally restrict the ability of domestic franchisees to become involved in other businesses, which focuses the franchisees’ attention on operating their stores. As a result, the vast majority of the franchisees come from within the Domino’s Pizza system. Domino’s believe these standards are unique to the franchise industry and result in qualified and focused franchisees operating their stores.
Franchise agreements Domino’s enter into franchise agreements with domestic franchisees under which the franchisee is granted the right to operate a store in a particular location for a term of ten years, with options to renew for an additional term of ten years. Domino’s currently have a franchise contract renewal rate of over 99%. Under the current standard franchise agreement, Domino’s assign an exclusive area of primary responsibility to each franchise store.
During the term of the franchise agreement, the franchisee is required to pay a 5. 5% royalty fee on sales, subject, in limited instances, to loDomino’sr rates based on area development agreements, sales initiatives and new store incentives. Domino’s have the contractual right, subject to state law, to terminate a franchise agreement for a variety of reasons, including, but not limited to, a franchisee’s failure to make required payments when due or failure to adhere to specified Company policies and standards.
Franchise store development Domino’s provide domestic franchisees with assistance in selecting store sites and conforming the space to the physical specifications required for a Domino’s Pizza store. Each domestic franchisee selects the location and design for each store, subject to the approval, based on accessibility and visibility of the site and demographic factors, including population density and anticipated traffic levels. Domino’s provide design plans and sell fixtures and equipment to most of the franchise stores. Franchise training nd support Training store managers and employees is a critical component of the success. Domino’s require all domestic franchisees to complete initial and ongoing training programs provided by us. In addition, under the standard domestic franchise agreement, domestic franchisees are required to implement training programs for their store employees. Domino’s assist the 16 domestic and international franchisees by making training materials available to them for their use in training store managers and employees, including computer-based training materials, comprehensive operations manuals and franchise development classes.
Domino’s also maintain communications with the franchisees online, through various newsletters and through face-to-face meetings. Franchise operations Domino’s enforce stringent standards over franchise operations to protect the Domino’s Pizza® brand. All franchisees are required to operate their stores in compliance with written policies, standards and specifications, which include matters such as menu items, ingredients, materials, supplies, services, furnishings, decor and signs. Each franchisee has full discretion to determine the prices to be charged to customers.
Domino’s also provide ongoing support to the franchisees, including training, marketing assistance and consultation to franchisees who experience financial or operational difficulties. Domino’s have established several advisory boards, through which franchisees contribute to developing systemwide initiatives. International franchises The vast majority of the markets outside of the contiguous United States are operated by master franchisees with franchise and distribution rights for entire regions or countries.
In select regions or countries, Domino’s franchise directly to individual store operators. The master franchise agreements generally grant the franchisee exclusive rights to develop or sub-franchise stores and the right to operate supply chain centers in a particular geographic area for a term of ten to tDomino’snty years, with options to renew for additional terms. The agreements typically contain growth clauses requiring franchisees to open a minimum number of stores within a specified period.
Prospective master franchisees are required to possess or have access to local market knowledge required to establish and develop Domino’s Pizza stores. The local market knowledge focuses on the ability to identify and access targeted real estate sites along with expertise in local customs, culture, consumer behavior and laws. Domino’s also seek candidates that have access to sufficient capital to meet their growth and development plans. The master franchisee is generally required to pay an initial, one-time franchise fee as Overall as an additional franchise fee upon the opening of each new store.
In addition, the master franchisee is required to pay a continuing royalty fee as a percentage of retail sales, which varies among international markets. Marketing operations 17 The domestic stores generally contribute betDomino’sen 4% to 5% of their retail sales to fund national marketing and advertising campaigns. In addition to the required national advertising contributions, in those markets where Domino’s have co-operative advertising programs, the domestic stores also generally contribute to market-level media campaigns.
These national and market-level funds are administered by Domino’s National Advertising Fund Inc. , or DNAF, the not-for-profit advertising subsidiary. The funds remitted to DNAF are used primarily to purchase television advertising, but also support market research, field communications, public relations, commercial production, talent payments and other activities supporting the Domino’s Pizza® brand. DNAF also provides cost-effective print materials to the domestic stores for use in local marketing that reinforce the national branding strategy.
In addition to the national and market-level advertising contributions, domestic stores spend additional amounts on local store marketing, including targeted database mailings, saturation print mailings and community involvement through school and civic organizations. Additionally, Domino’s may from time-to-time partner with other organizations in an effort to promote the Domino’s Pizza® brand. By communicating a common brand message at the national, local market and store levels, Domino’s create and reinforce a poDomino’srful, consistent marketing message to consumers.
This is evidenced by the successful previous marketing campaign with the slogan “Get the Door. It’s Domino’s. ®” and the current marketing campaign with the slogan “You Got 30 Minutes. ™” Over the past five years, Domino’s estimate that domestic stores have invested approximately $1. 4 billion on national, local and co-operative advertising. Internationally, marketing efforts are primarily the responsibility of the franchisee in each local market. Domino’s assist international franchisees ith their marketing efforts through marketing workshops and sharing of best practices and successful concepts. Third-party suppliers Domino’s have maintained active relationships of 15 years or more with more than half of the major suppliers. The suppliers are required to meet strict quality standards to ensure food safety. Domino’s review and evaluate the suppliers’ quality assurance programs through, among other actions, onsite visits, third party audits and product evaluations to ensure compliance with the standards.
Domino’s believe that the length and quality of the relationships with suppliers provides us with priority service and quality products at competitive prices. Domino’s believe that two factors have been critical to maintaining longlasting relationships and keeping the purchasing costs low. First, Domino’s are one of the largest domestic volume purchasers of pizza-related products such as flthe, cheese, sauce and pizza boxes, which allows us to maximize leverage with the suppliers when items are put out for bid on a scheduled 18 asis. Second, Domino’s use a combination of single-source and multi-source procurement strategies. Each supply category is evaluated along a number of criteria including value of purchasing leverage, consistency of quality and reliability of supply to determine the appropriate number of suppliers. Domino’s currently purchase the pizza cheese from a single supplier. In 2007, the Company entered into a new arrangement with this supplier.
Under this arrangement, the supplier agreed to provide an uninterrupted supply of cheese and the Company agreed to a five year pricing period during which it agreed to purchase all of its primary pizza cheese for the Company’s United States stores from this supplier or, alternatively, pay to the supplier an amount reflecting any benefit previously received by the Company under the new pricing terms. The pricing schedule is directly correlated to the CME block cheddar price. The majority of the meat toppings come from a single supplier under a contract that began in July 2008 and expires in July 2010.
The Crunchy Thin Crust dough is currently sourced by another single supplier pursuant to requirements contracts that expire in 2009. Domino’s have the right to terminate these arrangements for quality failures and for uncured breaches. Domino’s believe that alternative suppliers for all of these ingredients are available, and all of the pizza boxes, sauces and other ingredients are sourced from various suppliers. While Domino’s may incur additional costs if Domino’s are required to replace any of the suppliers, Domino’s do not believe that such additional costs would have a material adverse effect on the business.
Domino’s also entered into a multi-year agreement with Coca-Cola effective January 1, 2003 for the contiguous United States. The contract provides for Coca-Cola to be the exclusive beverage supplier and expires on the later of December 31, 2009 or such time as a minimum number of cases of Coca-Cola® products are purchased by us. Domino’s continually evaluate each supply category to determine the optimal sourcing strategy. It has not experienced any significant shortages of supplies or any delays in receiving our food or beverage inventories, restaurant supplies or products.
The current economic environment has created additional financial pressures for some of the suppliers; however it does not currently anticipate disruptions in our supplies. Prices charged by suppliers are subject to fluctuation, and domino’s has historically been able to pass increased costs and savings on to stores. It may periodically enter into financial instruments to manage the risk from changes in commodity prices. Domino’s does not engage in speculative transactions nor does it holds or issue financial instruments for trading purposes. 19