Domino’s Pizza is an international fast food chain that has established a strong position in the global fast food industry through its market presence in more than 85 countries. The following discussion elaborates five forces model for the company.
Threat of New Entrants:
Making an entry into the local fast food industry requires less capital investment as compared to the international one. Companies that are aiming to develop a global market presence may find this industry a capital intensive one due to this factor. The production line may be able to gain some benefit due to economies of scale and purchase of bulk quantity. However, the main area of profitability remains sales volume generated through customer orders. Contrary to the global fast food chains, a local fast food business involving the production of pizza, burger and other fast food menu items faces lower entry barriers. Domino’s Pizza is operating on global scale, therefore, it is a part of an industry that is marked by moderate level of threat of new entrants (Petzer et al., 2006).
Bargaining Power of Buyers
Buyers in fast food industry seek quality, price and innovation of menu items, which can give them some level of bargaining power. The buyers of Domino’s include customers who are looking for fast food items such as pizzas, sandwiches and other snacks. In order to maintain buyer’s interest in the menu and continue their purchase from the company, the management focuses on developing new items. This focus on product innovation combined with quick delivery time gives the company an edge over other fast food organizations. Moreover, the price structure offered by Domino’s Pizza is developed keeping the consumer spending trends and affordability into consideration (Domino’s Pizza, 2018). The presence of other entities offering similar items adds to the consumer power, therefore, the buyers can be regarded as having moderate bargaining power in this context.
Bargaining Power of Suppliers
The suppliers of Domino’s Pizza include the businesses that are delivering raw materials to the company. Similar to other international fast food companies, Domino’s Pizza formulates contract with the suppliers on competitive pricing. The international market presence works in the company’s favor as suppliers want to maintain long term relationship with the firm. For instance, cheese being the main raw ingredient necessitates having supply contract with third parties that are offering reasonable prices. The fluctuating price of cheese is an issue for both the supplier and Domino’s Pizza. Therefore, the company has signed up a 7 year contract which allows it to acquire this core ingredient in the decided price (having no changes due to price fluctuation). Based on this analysis it can be seen that the suppliers have low bargaining power.
Threat of Substitute Products:
There is a high threat of substitute products for Domino’s Pizza. The substitute products in case of Domino’s Pizza includes other businesses offering similar fast food items which are available at the company’s outlets. The decision to shift from one company to another is based on the switching cost and ability of the other company to meet the customer’s requirements. In case of Domino’s Pizza, customers incur low switching cost, which increases the risk of a customer deciding to shift from Domino’s to a competitor offering similar products. In addition to this, the quality standards being offered by Domino’s Pizza has been replicated by other firms in the fast food industry. There are many alternatives from which a customer can choose, thus increasing the threat of customer switching the fast food company. These factors have contributed to the development of a high threat of substitute products (Hitt, Ireland & Hoskisson, R.2012).
Competitive Rivalry:
There are many companies which are operating in the fast food industry including both, the local businesses as well as international fast food chains, creating high threat of competitive rivalry. There are some leading corporations in the fast food industry which can negatively affect market share of Domino’s Pizza. For example, Pizza Hut remains a top competitor for the company as they offer a wide range of pizzas, which is the core menu item for Domino’s (Domino’s Pizza, 2018). Apart from Pizza Hut, Papa John’s poses significant threat to the company’s market share, making the company focus on increasing the efficiency of its production and delivery time.
References
Domino’s Pizza, 2018. Annual Report. Retrieved from https://biz.dominos.com/web/public/about
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2012). Strategic management cases: competitiveness and globalization. USA: South-Western Cengage Learning.
Petzer, D., Ismail, Z., Roberts-Lombard, M., Hern, L., Klopper, H., Subramani, D., … & Berndt, A. (2006). Fresh perspectives: marketing. South Africa: Pearson Education.