The Domino’s Pizza franchise has revealed its hand with regard to its long-anticipated push into the Melbourne market. In May 2004 it signalled its intention to open 20 stores in Melbourne – its only untapped capital city market – within 12 months. Speculation was rife as to whether the Queensland-based chain would kick-start its expansion plans through acquisition, and on 7 July company CEO Don Meij confirmed that it had purchased the Big Daddy’s Pizza chain and would be converting the outlets into Domino’s Pizza stores. At that point Big Daddy’s Pizza was operating 16 stores across a range of Melbourne suburbs.
Domino’s Pizza Australia, a 100 percent Australian-owned company that owns the Australian and New Zealand fast food franchise, is the second largest pizza chain in Australia, cooking around 35 million pizzas each year. In 2003 the industry as a whole sold an estimated 133 million pizzas. The local pizza market is valued at $1.4 billion, with the major chains holding more than $700 million of that amount.
Domino’s began in Australia in 1978 as Silvio’s Dial-A-Pizza, a small family business in Red Hill Brisbane. In 1980, it started Australia’s first home delivery pizza service, and by 1993 had grown throughout Queensland, Newcastle, ACT, Perth, Tasmania, Northern Territory and some of regional Australia, with over 70 stores.
In 1993 Silvio’s bought the Australian and New Zealand master franchise for the international Domino’s brand, and between 1995 and 1998 the groups merged, with all the Silvio’s stores rebranded as Domino’s Pizza Australia.
Today Domino’s generates annual turnover in excess of $250 million and employs more than 8000 people in some 293 stores across Australia and New Zealand. Its arrival in Melbourne is expected to soon add around 500 employees to the company’s payroll.
Meij himself began at Domino’s in 1987 as a delivery driver while studying to be a high school teacher. Instead of teaching, however, in 1989 he took up a store manager’s position with Silvio’s, and in 1993, when Silvio’s became associated with Domino’s, he was promoted to general manager and head of Domino’s Australia, then based in Sydney.
Together with his wife, Meij in 1996 purchased a Domino’s franchise at Caboolture, and over the next five years came to operate 17 stores with annual sales in excess of $17 million.
In April 1991 they merged their stores into Domino’s Pizza Australia and, along with two eight-store franchisees from Newcastle, purchased 23 percent of the company. Meij then took on the role of director corporate operations, in charge of 56 corporate stores.
In August 2002 he was appointed chief operating officer, heading up the combined franchise and corporate operations. In December 2002, founder and managing director Fel Bevacqua retired and Don Meij was named Domino’s Pizza Australia CEO and managing director.
In 1989 Meij was awarded Silvio’s Manager of the Year. He backed this up in 1996 with the coveted Domino’s International Manager of the Year award, and in 2000 was nominated Domino’s Australia Franchisee of the Year. He is in no doubt that effective store management is the number-one driver of the business.
“We are in the people business and without question it is the franchisees as managers, or their appointed managers, that create the most value,” he says. “Pizza delivery, which is our core focus, is extremely labour-intensive. Unlike a carry-out business, where someone might serve 25 to 30 customers in half an hour, one driver could probably deliver two or three pizzas in the same time. As such, the quality of the individuals managing what is, through necessity, a larger team, is imperative. “Whether you are a one-store or multi-site franchisee, the key is in being a successful driver of people. We can impart a lot of the skills required to run the business, but you need to have a desire to work with people, enjoy working in a team environment and be excited at seeing the results that young people can produce.”
What, then, are the key skills required to be a successful franchisor in the business?
“It still comes down to people,” he says.
“In Australia, with much the same geographical size as the US or Canada, volume is vital. You have to get distribution through every pocket in every market, and to do that you need quality people. The whole idea of franchising is to introduce new capital into the business so as to sustain an expanding infrastructure. We are in retail, but franchising is our way of selling and being successful in pizza. Volume also depends on creative marketing and, once again, that comes back to the people involved.”
Melbourne is not a far-flung regional market that, because of a limited population, also has a limited appetite for pizzas and a very limited number of operators making them. Quite the opposite, in fact.
“In any one area where we are going to open a Domino’s in Melbourne there could be eight, 12 or even 15 pizza shops,” Meij acknowledges. “It’s competitive, but also exciting in that if you have a slightly different product offering, there is already a huge market. It is not as if we have to go in and reengineer or create a new market, which we do have to do in many other places in Australia, New Zealand and around the world. In Melbourne I think the average product in the street has been built to a price, and as such we believe there is both room to grow the market through a different offering and to also pull some market share from existing operators. There is, I think, room for us all.”
Domino’s launch marketing strategy will be tailored to the Melbourne market.
“We do that with every market,” Meij explains. “What you see in Sydney is not necessarily what you will see in Brisbane.
Of course, there are overriding attributes of the brand and we clearly want to communicate those on an ongoing basis, because they are Domino’s heart and soul. They will be consistent, but the way we communicate them will differ. Even our product offering in Melbourne is going to be slightly different, and in fact the Melbourne landscape is going to change our national landscape.
The pizza market differs slightly in every market, and everywhere we have gone has to some extent changed us, but to the good of the whole company.”
Creating brand awareness in a new market is always a challenge, and one made increasingly difficult by the simultaneous fragmentation of mass media audiences and growing cost of mass media advertising.
“Advertising is in a state of dramatic change. Costs are skyrocketing across the board. Because mass marketing has become so expensive everyone is trying to shift to niche strategies, with the result that those markets are also becoming more costly. It is important to stay one step ahead of the pack, but more and more we are getting stripped out of the mass market. So, how are we going to communicate? We will simply have to become a lot cleverer in how we go about it,” Meij says.
Given that Domino’s core target demographic is 18 to 25-year-olds, the current noises being made about banning some types of food advertising to children are not as threatening to the chain as they might be to some other convenience food marketers. Even so, Meij is not backward in coming forward on the issue.
“We definitely oppose the idea, even though we do not have a focus on children. By the time somebody is 18 we give credit that they will be smart enough to make their own choices. And one of the things about pizza is that you can choose – you can build a pizza any way you want. This is probably why it hasn’t attacked the radar as much as fried chicken or burgers. But my response to the current proposal on the table is that it is ridiculous. What about choice? It smacks of a nanny state – an attempt to protect the public because of a belief that they are not smart enough to choose for themselves.
“What is being proposed here in Australia is more radical than anywhere else. Domino’s is in the UK and the proposals there to limit advertising are nowhere near as radical as those being put forward by one side of politics [Australian Labor Party] in Australia. We oppose the idea, even though it does not affect our core focus.”
Although any ban on advertising to children would inevitably impact the ability of some franchises to market their products, it is by no means the biggest challenge Meij identifies as facing the sector as a whole over the medium-term.
“The biggest challenge for franchise systems is, and I think will remain, the labour environment,” he says. “The low unemployment at the moment is a great thing, but in retail it becomes more challenging to make sure that labour rates do not become excessive, as often unions want to use low unemployment as a way to push up wages. We have to make sure that the cost of labour does not outstrip the retail value that we need to offer in the marketplace. I think this is a big issue for retail franchising.
“Another issue everyone has to be aware of is where technology is taking us. Because it is moving so quickly, retail is changing so fast. What consumers are interested in and how they participate in food is undergoing rapid change. More and more they are interested in theatre – in how food is presented, in how fresh it is and how clean and hygienic the environment is in which it is prepared. At Domino’s we are putting more and more of our foods in front of customers so they can see that we use high quality ingredients and that they are fresh.”
Although legislation on health and safety in food can vary from state to state, Meij is largely unperturbed about the prospect of having to comply with yet another legislative environment.
“To be honest, I think the issue is overstated,” he says. “When I visit pizza shops in Melbourne I am, as a whole, appalled. We will certainly be taking the high standard we have taken to every market to Melbourne, and it is really not that hard. We already track temperatures and maintain a high standard of hygiene. We have specially designed equipment that constantly puts cold air over our toppings; we track dates and have people auditing our stores every month.”
Indeed, every year Domino’s Australia spends $850,000 on airfares alone for its audit team to regularly travel to every store in the country to monitor food health and safety issues throughout the franchise. Demanding a consistently high standard from franchisees is, Meij says, fundamental to protecting the brand’s integrity.
“On top of that $850,000, you then have to factor in everything else we’re doing behind the scenes to stay ahead with technology,” he continues. “For example, our hot bags are heated. I can buy a hot bag for $20, but our bags, which were pioneered by and are unique to us, cost around $200. Then there is the system that actually charges those bags so that they become portable ovens, which is another cost. We have been in this country for 26 years and we are committed to developing systems that will continue to deliver franchisees a competitive edge.”
The obesity issue that is fuelling the attack on advertising has also been the catalyst for fast food chain McDonald’s to launch a new and highly successful range of ‘alternative’, health-oriented products. Domino’s, too, is tracking such trends with a view to what they might eventually mean to its bottom line.
“The trend towards healthier eating is definitely on the radar. We rolled out Domino’s Delight Mozzarella earlier this year, which was a world first, being a 50 percent fat-reduced mozzarella. What is unique about it is that you cannot tell the difference between it and regular mozzarella,” Meij claims. “We will definitely be selling it in Melbourne.
“But health is just one of the issues. We are always looking at where the future is going and what it might mean for us. With regard to the [convenience/fast food] industry itself, however, I couldn’t comment, as we do not work together as much as some other industries might. Individually, though, we try to look at where all the speeding bullets are coming from and as a franchisor we will try to stay ahead of the trends. Certainly, we are researching them all the time.”
The remarkably low franchisee turnover rate within the Domino’s system is a probable reflection of its ability to respond to shifting consumer tastes. Indeed, nearly half of its current menu has been designed in response to feedback from franchisees on the consumer frontline. Anyone who comes up with a pizza that goes national receives a $1000 bonus.
In the last financial year the franchise turned over just four franchisees in a 292-store system. In its 26 years Domino’s Australia has been to court just once as a result of a dispute with a franchisee, and that was in its very early years. It has also had to enter formal mediation with a franchisee on only one occasion.
For the sector as a whole, Meij believes that the Franchising Code of Conduct has done much to reduce any potential conflicts between franchisees and franchisors, and that prescribing mediation as an obligatory first instance process to resolve any disputes that do arise has also served to reduce litigation.
So in terms of its sophistication, is the Australian sector now on a par with much larger overseas markets, such as the US? Well, yes and no…
“There is no question that we are very well-developed in franchising in Australia,” Meij says. “Where I think we are not as strong as the US is in not having a policing group as such. Yes, we have the Franchising Code of Conduct, but I think one of the biggest challenges for the industry is to set a higher standard for becoming a member of the industry’s groups, rather than just paying the fees. If I was a franchisee buying into a system I think I would see it more credibly if the system was policed and formally recognised as a good franchisor – that it genuinely operated in accordance with an ethical code of conduct and that it genuinely had a unique system with something to offer so that its franchisees would be profitable. I still believe there are too many franchisors in Australia hidden within these groups, offering unprofitable systems. I think that is where we are a bit weaker than in the US. The US has done a better job of policing these things.
“So, while there are probably more franchisees and franchisors per head of population in Australia, I’m not necessarily sure that’s the right statistic to have. Does it mean that we’ve made franchising easier – that we haven’t set an appropriate standard? I don’t know. The Franchising Code of Conduct is a good document and I think if more people were actually policed to follow it, it would be a very good document. It’s there, but I’m not sure that it gets used enough. We believe in it wholeheartedly, however, and endorse it 100 percent. It protects the franchisor as much as it protects the franchisee because it ensures that we communicate clearly and do not just do a sales job on people – rather, people are very much aware of all the good and the bad of buying a business.
“Our business can look fairly romantic from the outside, but the reality is that in the pizza business you may be working some different hours and with lots of team members. We try to make people very aware of that. We do not want anybody buying a Domino’s franchise who does not understand clearly and totally what it really is – for all its advantages and for all its potential challenges. From that point of view I think the Code is good – I would just put a question mark over how it is policed and how well it is being managed.”
30-May-2006