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An Answer for Pizza Problems?

The pizza industry is struggling. It has been struggling for some time, well before the recession put its icy grip on the industry’s throat. The costs of pizza ingredients have caused the prices in the industry to rise. The industry has always had to struggle with its less-than-healthy reputation. So, for some time, the industry has been losing share to healthier and fresher competition on the one hand, and less pricey hamburger and sandwich competitors on the other.

One company, Domino’s, is responding to these challenges by broadening its menu. It is beginning to sell toasted sub sandwiches in competition with Subway and Quiznos. This is not a promising development for Domino’s.

Subway and Quiznos are already fighting a price war. You have probably seen the ads for “A Footlong For $5” at Subway. The sandwich business, while apparently similar to pizza as a fast-food business, is still a different business than is the pizza business. Other very good fast-food firms have entered different fast-food businesses without success. One notable example is McDonalds. Several years ago, it tried to sell pizza in its stores and failed miserably.

You may see other companies expanding into new businesses that are apparently related to their own business. When you see that, beware. (See the Perspective, “Finding the Open Door” on StrategyStreet.com.) Some years ago a manufacturer watched as its competitors began buying into the distribution channel for its product. In a panic, the company decided that it had to do the same thing or lose its customer base. So it, and most of its competitors, entered the distribution business. The manufacturer had assumed that it would have an advantage in the distribution business because it made the product that would be sold there. Naturally, the distributors who were not purchased by the manufacturers became very upset. In addition, the manufacturers knew little about how to make a success of the distribution business. The result was a very expensive failure for all of the manufacturers who entered the distribution business. The distribution business had different customers with completely different needs than the customers of the manufacturing business. The manufacturers had no real advantages in this business.

Before a company expands into a related business, it needs to be clear on exactly where it has advantages over people already in the business. Otherwise, disaster awaits.

Posted 3/16/09

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