88-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

Update:

Domino’s stores in 2009 offered 8 Oven Baked sandwich options, including Italian sausage Philly cheese steak, Buffalo chicken and Mediterranean veggie.  In part, this initiative helped get all the Domino’s stores open for lunch.  The company also hoped that sandwiches would attract new customers and generate additional foot traffic in the stores.   In 2022, Domino’s continues to offer 8 sandwiches.  However, no one considers Domino’s a serious contender in the larger sandwich market.  The sandwiches certainly helped the company even if they did not pose a serious threat to Subway.

Domino’s is a very successful company operating 6500 stores in the US and a total of nearly 19,000 stores worldwide.  The company is the leading pizza restaurant chain in the US, followed by Pizza Hut and Little Caesars. In 2020, Domino’s menu in the US featured a variety of Italian American main and side dishes.  Pizza was the primary focus, with traditional, specialty and custom pizzas available in a variety of crusts, styles and toppings.

Earlier, in 2010, Dominoes made significant changes to its pizza recipe to improve it and respond to a poor public perception of Domino’s product taste.  The chain also rooted out poor performing franchisees. Domino’s aggressively embraced digital technology to make ordering more efficient and customer friendly.  After implementation of these changes, an investment analyst concluded that Domino’s offered “an every day value and a good quality product and a good experience in ordering and reordering.”

Domino’s added the non-pizza products in order to keep its larger pizza consumers. See HERE for more perspective on this issue. Obviously, Domino’s succeeded with these product innovations

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