Business Report: Domino's Pizza Franchise Challenges

This report provides a comprehensive analysis of Domino's Pizza's business operations, focusing on its franchise model and the challenges it faces. It delves into the company's background, including its rapid growth and revenue streams, highlighting issues such as franchisee dissatisfaction, worker unhappiness, and the impact of intense market competition. The report explores potential solutions, including adjustments to royalty rates, alternative business models, and strategic approaches to improve employee satisfaction and franchisee profitability. Ultimately, the report proposes a plan to address the challenges and maintain Domino's success, emphasizing the importance of balancing the interests of the head office, franchisees, and employees for sustained growth and a positive brand image. The report emphasizes that the main challenge is the balancing act between the head office and the franchisee, and provides various solutions to address the issues.

BUSINESS
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
Background..................................................................................................................................3
Issues faced by the company........................................................................................................3
Possible solutions.........................................................................................................................5
Proposed plan...............................................................................................................................6
RECOMMENDATIONS.................................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
A business's management is the bridge to its success in the business environment. The
report includes a study about one of the most successful fast food chains in the world, Domino's.
The report focuses on the business model of Domino's and the problems faced by the company in
the current scenario. The report also suggest the possible solution to the problems and proposed a
viable solution after evaluation of all the alternatives.
Background
Domino's is an Australian fast food company. Its has a business model based on
franchisees based on sales of the franchisee. The company earned a revenue of around $939
million in the year 2016 which is 2500 percent of its revenue in 2005, which is when it was
established. The company grew by a large hike in a decade which is considered as the largest
growth. The main head office earns via royalty on the every sale of the pizza (Woodcock, 2011).
The more the stores, the better will the network get and the sales of the company hike through it.
Domino's is known to be having the biggest range in the pizza making industry. The franchisee
sales a total of 90 million pizzas in a year. Its has a scheme to deliver pizza in less than 20 min
with extra charge on the delivery. Domino's is known for its cheap pizza with a high quality,
which gives the company popular name in the food industry.
The company faces a serious challenge from the competitors which demands to lower the
prices even further gives the franchisee a low profit or no profit and some times even loss to
conjure. The company upgraded its technology to get an edge over the competitors. The
company runs in Australia, New Zealand and Europe and earns great revenues from there. The
new in store computer systems help the managers to monitor the working of the employees. The
screens, which is visible to every individual in the store, is programmed to show the statistical
knowledge of the average pizza for every employee and how long it's taking to get a pizza out
the door. Store managers get a quarterly bonus based on how much they improve store earnings.
Issues faced by the company
Negative impact of activities and management culture in the organization.
Besides being one of the largest chain in the world domino's faces various problem
within its business (Pitt, Napoli and Van Der Merwe 2017).
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 Franchisees: The current business model allows it to sustain rapid and swift growth
through the franchisee providing royalty to the head office and with new franchisee
being bought. Its franchise model is divided into three parts which are as follows:
Domino's Pizza
LLC
Master Franchise
Sub Franchises Sub Franchises Sub Franchises
Table 1: Domino's Franchise Model
Source: Operation Strategy (2017)
In accordance, with the help of this model, the company audited its every stores located
across the globe and terminated four franchisees for doing fraud in wages and salary. The audit
assisted the business in identifying the unlawful activities which are carried forward by the
stored just to fulfil the greed. The growth is facing hindrances with unsatisfied franchisee owners
and stress being regulated from the owner to the workers in the franchisee. The company selects
franchisee owners carefully and the policy framed holds responsible the franchisee owners for
unsuccessful running of the store. The bad management in the franchisee is the held to
responsibility of a non profitable business franchisee (McGrath, 2010). The business model
allows the company to take royalty on every sale the franchisee makes. This enables the head
office a large amount of royalty from a franchisee.
 Worker unhappiness: The pizza chain is extended globally and is serving customer
satisfaction since ages but the unhappiness of its employees cannot be portrayed in
public. The manager of business analysed that there are few stores where illegal practices
are continuing which includes, illegal sponsorship of workers, favouritism, abusive
behaviours with workers and many more. Further when the manager discussed this
problem with the top management, the team identified that there are many more activities
which are leading towards unhappy behaviour of staff which are, less working hours than
actual hours which are defined by the firm, dictating employees and increments without
measuring performance.
Positive impact of activities and management culture in the organization
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 The company has complied with corporate social responsibility in which it is focusing on
zero wastage, minimum GHG emission and maintenance of appropriate supply chain
standards. Corporate Social Responsibility report (2014).
 The organization always focus on recruiting talented and skilled work force with
continuous performance and development programs. Moreover, firm always enhance its
work environment in order to deliver health and wellbeing to its staff members (Intezari
and et.al., 2017).
The prevailing market is highly competitive, Domino's faces a number of competitors in
the market such as McDonald's, Subway and its arch rival Pizza hut. This kind of competition
makes the profit earning really hard for the franchisee and the royalty being asked by the head
office over sales makes it even harder as the discounts and price cuts given to attract customers
create a lower profit for the franchisee. Under such circumstances the franchisee owners earn
less profit which leads to unsuccessful businesses. The owners of the franchisee go on to next
level to cut the costs and earn profit at a higher percentage. The franchisee pull out the odd tricks
to cut costs like cutting the pay of the staff and also charging less on the charge sheets of
workers. This kind of practice creates a problem for the workers working in the franchisee. Long
working hours and low pay have been reported by the managers of many franchisees all around
the world. This kind of practices by the franchisee tarnishes the image of the company. The
franchisee who run into too much loss quit the franchisee business.
Possible solutions
The company is highly influential in the market (Davis, 2013), it has a high share and is
earning with a high success rate. The head office is earning a secured amount of royalty with the
business model suggesting royalty on the sales of products. The franchisee on the other hand is
struggling to earn profits as the discounting and other expenses paid are creating hindrances. The
low profitability of the business is making it hard for several franchisees to compete in the
market various cost cutting methods and low salary given to workers is making the franchisee
and staff unsatisfied. Domino's must be make changes in their business model to support the
working of the franchisees in the business. The company need to take steps to save the brand
image and the face of Domino's from being in tarnish by the ill treatment and harassment of
employees.
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The business model can be remodelled with certain changes in the policies of the
Domino's.
 Domino's can must keep charging royalty on the sales but the rate of royalty per sale can
be denatured. This will lower total expenses of the franchisee and they will be able to
earn more profit (Baden-Fuller, 2010), in this way the exploitation of workers will stop.
The franchisee will earn reasonable profits and the workers will be able given appropriate
salary.
Further, The company should avoid the discrimination in the bases of ant factor which will assist
the firm in delivering employee satisfaction at every level of the business. Moreover, the
employees should be rewarded regularly and should be paid equally. This strategy will remove
unhappiness among workers and stabilize the work environment
Advantages
 It will assist the business in boosting the morale of workforce.
Disadvantages
 Equal pay system avoids performance measurement and decline the level of performance.
 The company can make a major change in the royalty charging by the company (Lu,
2010). The royalty be charged on profit rather than sales. This way the franchisees will
earn more profits to take care of the workers. But the problem with the solution is that the
accounting figures can be manipulated to show minimal or no profit which will cut the
royalty to the head office. This will impede the growth of the company. Besides, the
organization should perform quarterly auditing which will assist the company in
analysing all the loopholes and shortcomings. This strategy will help Domino's in
removing frauds like franchising.
Advantages
 Identify issues and reduce risk
 It also assists the business in detecting fraud.
Disadvantages
 It is a time consuming process.
The company can also change its complete business strategy and model (George, 2015). In order
to get better access and look over the franchisee Domino's can form a partnership with each of
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the franchisee and share in their profit and losses. In this way, the employees can be taken care of
and the relation between the franchisee owner and company will enhance. Besides, Domino's can
make use of contingency approach which assist the firms in changing its strategies according to
the market and environmental fluctuations. This strategy will assist the organisation in dealing
with the changes which can impact the internal functioning of firm.
Advantages
 This strategy assists the organization in dealing with diversification.
Disadvantages
 It is a time consuming and complex process.
Despite of these alternatives there are various other options which can assist the company
in stabilizing its work environment like, Swot analysis which helps the company in measuring its
internal performance on regular and in identifying internal loopholes and shortcomings.
Whereas strategies like avoiding discrimination among employees and quarterly internal audit
can be used by Domino's as it provides systematic approach to every change which can impact
the business operations. Moreover, it suggests the best idea which is compliance legal frame
work of the country to serve employee satisfaction which is the most suitable way which can
assist the firm in establishing equal environment for all workers.
Proposed plan
The possible plan have potential to improve the current condition of the franchisee and
their workers. All the plans have their merits and demerits (Teece, 2010.). If Domino's starts to
charge royalty on the basis of profit then the royalty received will be really less, as the franchisee
owners may make suitable adjustment in the books to show less or no profit to get away with
royalty. The plan to develop a new partnership agreement between the franchisee owners and the
head office will take too many resources and time. The cost to be incurred on making a new
model will be very high and there are chances of facing loss. These two plans have more
demerits than merits which make them less viable.
Domino's must lower their rate for charging royalty. Royalty being charged at lower rates
will facilitate the working of the franchisee. They will have to cut less cost, quality of the
products will improve and the staff will be satisfied. This will also increase the sales of the
franchisee as the lowered rates will allow them to provide further discounts on the products and
the customer base will increase leading to enhancement in the sales of the company. The plan to
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cut the rate of royalty charged is viable solution to the problem. This will enhance performance
of the staff as well as the franchisee, branding the image of Domino's.
Domino's is the second largest pizza making company in the world. It has topped its sales
in the last decade and have grown in an unexpected manner. The company is facing issues in the
relationship between the head office and the franchisee. The report concludes that the franchisee
are earning lesser or no profit due to increased competition, discounting requirements to beat the
competition and the royalty being charged by the head office. Complaints about employee
exploitation is putting the image of the company in danger. The cost cutting methods used are
creating a frustrating environment in the shops.
Solution
The solution of avoiding discrimination help the organization in treating every worker
equally. Moreover, it is important for the organization because according to legal frame work of
country it is necessary for the business to comply and follow every regulations which are
formulated by government to secure workers right. The Australian employment regulation (Fair
work Legislation), are, Fair work act 2009, Fair work regulations 2009, Freedom of information
act 1982 and many more are implemented by Australian government to establish fair work
environment for its staff members.
Reason
In addition to this, by complying with the legal frame work of the country, organisation
can stabilize its work environment as it assist is entity in formulating its policies and procedures
in manner which aims at protecting human rights. For instance, Fair work act 2009, will help
Dominoz in distributing salary according to the job profile of the employees whereas Freedom of
information act 1982 assist the employees in taking stand for their rights in which includes
respect at work place (O’Rourke and Antioch 2016).
RECOMMENDATIONS
 The company must make changes in the current business model to resolve the issue.
Lower the rate of royalty will make more profit and the workers will be paid in full.
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 The head office must also take action against the franchisee owners who have been
reported of mistreating the staff. They must look deeply into the cases and provide the
employees their outstanding wages which have been underpaid by the franchisee owner.
 The company must also make amendments to avoid any further exploitation of the staff
working in the franchisee.
 The company also must find a way to fire or fine the franchisee owners who are in fault.
 New rules or guideline must be made by the head office with strict implementation in the
for all the franchisee owners about the ways in which the business must be run by them.
 The head office must come up with certain new offers of their own to support the sales of
the franchisee.
 Domino's must install new standards for the wages or salary given to the workers and
also set new minimum and maximum working hours.
 To increase job satisfaction organisation can adopt Maslow Need Hierarchy and
Motivator hygiene theory. It will enable the managers to improve motivation of
employees of Domino's by fulfilling all the needs and necessities.
 To eliminate illegal sale of sponsorship of employees, an effective vigilance committee
that supervise, regulate and keep track record of each and every worker working in every
single store of Domino's.
 Time Management theory must be implemented by managers and employees that helps in
reduction in burden of work and aid in increase in productivity.
 Top management must be accountable and responsible to conduct auditing and
supervising all reports of franchisees regarding there work and wage policies.
 An efficient tracking system must be establish for delivery workers. It will enable the
store managers to identify and eliminating issues faced by workers. More ever proper
training regarding how to deal with frauds and scams must be provided to delivery
workers by store managers.
 Employees and workers must be educated with all the rules and legislation compiled in
Australian Labour Laws. It is the responsibility of store manager and top management to
provide them training and education.
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 Work condition to be improved as per employment law and workplace health and safety
law of Australia. In kitchen areas proper ventilation and air conditioners need to be
installed. It is the duty of franchisee owner to fulfil this requirement.
 In order to eliminate wage fraud by franchisee managers and operators, top official
established efficient monitoring system by appointing internal and external auditor who
quarterly or annually check all reports of franchisee. Organisational behaviour theories
can assist the organisation to deal with these issues.
 Domino's requires more focus on zero tolerance strategies to prevent workers from
exploitation and abusing of fundamental rights.
 To gain competitive advantage, organisation has implement focus on price or product
differentiation strategy. It means either Domino's has to improve its price structure or
produce different or unique product which can attract more customers.
 Franchisees appoints more workers and divide working in morning and evening shifts so
that workers do not face burden, which can aid in improving their efficiency.
Management Approach
Domino's must implement Total Quality Management approach in organisation. It will
result in improvement of overall quality of work life and productivity. It will also assist in
elimination wage fraud activities conducted by the franchisees. Moreover, Domino's should
focus on launching more substitutes or alternate resources which are price efficient and increase
the quality of pizza. It enables franchisee to balance cost and sales of the organisation.
CONCLUSION
The report summarized, major problems and issues faced by Domino's the second largest
pizza chain across the globe. It identified two issues which are impacting the culture and
activities of the organization. Further, it emphasized on the solution which can assist the firm in
serving employee and customer satisfaction.
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REFERENCES
Books and journals
Baden-Fuller, C. and Morgan, M.S., 2010. Business models as models. Long range planning,
43(2), pp.156-171.
Davis, B. Et Al. 2013. 4D digital subtraction angiography: implementation and demonstration of
feasibility. American Journal of Neuroradiology, 34(10). pp.1914-1921.
George, J. and Jones, G., 2015. Contemporary management. McGraw-Hill.
Intezari, A., and et.al., 2017. Looking beyond knowledge sharing: an integrative approach to
knowledge management culture. Journal of Knowledge Management. 21(2). pp.492-
515.
Jeston, J. and Nelis, J., 2014. Business process management. Routledge.
Laudon, K.C. and Laudon, J.P., 2016. Management information system. Pearson Education
India.
Lu, J., 2010. Does Upfront Payment Reduce Running Royalty Rate ‘Theoretical Perspectives
and Empirical Analysis.
McGrath, R.G., 2010. Business models: A discovery driven approach. Long range planning,
43(2), pp.247-261.
Nieto, M.J. and Santamaría, L., 2010. Technological collaboration: Bridging the innovation gap
between small and large firms. Journal of Small Business Management, 48(1), pp.44-
69.
Pitt, L., Napoli, J. and Van Der Merwe, R., 2017. Managing the Franchised Brand: The
Franchisees’ Perspective. In Advances in Corporate Branding. Palgrave Macmillan UK.
pp. 59-71.
Teece, D.J., 2010. Business models, business strategy and innovation. Long range planning,
43(2), pp.172-194.
Woodcock, N., Green, A. and Starkey, M., 2011. Social CRM as a business strategy. Journal of
Database Marketing & Customer Strategy Management, 18(1), pp.50-64.
Zucman, G., 2014. Taxing across borders: Tracking personal wealth and corporate profits. The
Journal of Economic Perspectives, 28(4), pp.121-148.
O’Rourke, A. and Antioch, S.K., 2016. Workplace bullying laws in Australia: Placebo or
panacea?. Common Law World Review. 45(1). pp.3-26.
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Online
Corporate Social Responsibility report 2014. [Online]. Available through:
<https://corporate.dominos.co.uk/Media/Default/CSR/CSR%20Final%20Report.pdf>.
[Accessed on 9th September 2017].
Fair work Legislation. [Online]. Available through:
<https://www.fairwork.gov.au/about-us/legislation>. [Accessed on 9th September 2017].
Operation Strategy 2017. [Online]. Available through:
<https://www.slideshare.net/bntripathy85/mba-operations-management-assignment>.
[Accessed on 9th September 2017].
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