A Pestel Analysis of Domino’s Pizza
Domino’s is the leading pizza brand worldwide with a strong presence in the US, Canada, and other 90 markets worldwide. The company has experienced faster growth in its popularity and sales in recent years. Its growth is mainly driven by the company’s focus on product quality, technological innovation, and customer service. Domino’s Pizza operates a franchise business model. A very small percentage of Domino’s stores are owned and operated by the company. As of 2020, only 363 stores were owned and operated by the company out of a total of 17,644 stores worldwide. Based on the number of stores and net revenue, the largest market of Domino’s Pizza is the US market.
The company experienced superior growth despite the pandemic’s impact on the US economy and the prolonged shutdowns. Its investment in digital channels has paid off during the pandemic. The company achieved more than half of its sales in 2020 through digital channels. Over the years, the competitive edge of Domino’s has continued to grow stronger and the brand has cemented its position in the industry through a consistent focus on quality and other aspects of its business including marketing and supply chain management.
However, despite its strong position in the QSR industry, there are several challenges ahead with varying degrees of impact on Domino’s business. In this pestle analysis, we will discuss the macro-environmental factors that affect Domino’s business worldwide and their impact on its business and profitability.
What is a pestle analysis?
Pestle is an acronym for Political, Economic, sociocultural, technological, legal and environmental. These are six important factors in the macroenvironment of an international business that affect its performance and profitability. Understanding their impact on the business helps companies formulate strategies to overcome their negative impact and find faster growth. It is essential for managers to have an understanding of these factors to maintain the firm’s market position and market share.
Political factors have acquired an increasingly important role in the context of international business. Around the world from the US to China and the EU, the level of government intervention and oversight of large businesses has grown significantly in the last decade. The impact of political factors like government policies, decisions, and regulatory actions, as well as the level of control the government applies on any particular sector is now more significant. In various areas, from taxation to labor and other areas including the supply chain, government policies play a major role in shaping the local market environment and demand.
Apart from these things, trade policies and international relationships also have a central role in the growth of the international business. Domino’s operates its business across 90 countries. However, across all these markets, the level of support from government bodies varies. While the US is the leading market of Domino’s it is also among the best when it comes to government support for businesses. Large businesses are also highly regulated in the United States, but still doing business in the US is much more profitable compared to several other nations including China.
The trade wars between the US and China have also had a negative impact on the US brands trying to operate in the Chinese market. Operating in the Chinese market is difficult without a local partnership. Domino’s has made an equity investment in Dash Brands in China. It serves as the master franchisee of Domino’s Pizza in China. As of 2020, DOmino’s had 336 stores operational in the Chinese market.
Economic factors also have a direct impact on the business of QSR brands operating internationally. A decline in economic activity results in higher unemployment and lower spending by customers. When unemployment is higher and people have less to spend on nonessential items, the QSR brands can experience a decline in sales and revenue.
The case during the pandemic proved to be somewhat different. While unemployment initially ran very high in the US after the outbreak, the government took swift actions to help people during the crisis. Apart from that, Domino’s also took several strategic actions to survive the impact of the pandemic. It had been investing in digital technology for the past several years which proved to be extremely helpful for the business at the time the crisis struck.
People’s dependence on digital technology and online sales channels grew resulting in higher sales for Domino’s through its app and website. Otherwise, a prolonged recession can prove disastrous for QSR businesses like Domino’s pizza. Competition and currency fluctuations also have a severe negative impact on the performance of Domino’s. While competition drives operating costs higher for Domino’s, a strengthening dollar worldwide reduces its profitability.
Over the past several years, the middle class segment has experienced faster growth in its disposable income leading to higher expenditure on non essential items, recreation and fast food. This has proved profitable for the QSR brands including Domino's. The global economy was in strong shape before the pandemic. Consumer spending on fast food items remains higher when the global economy is performing well.
Sociocultural factors have also acquired a central role in the context of international business and marketing. These factors affect people’s preferences in various regions around the world and can have an impact on the level of demand in these regions for particular products. Across various cultures and societies, people’s preferences in terms of food and their eating habits differ widely. Domino’s has to keep these factors in mind to win in specific markets.
Apart from other things, while operating across various markets and geographic regions, the company needs to be cautious about its social image, which has a major impact on its popularity and sales in all its leading markets. Domino’s invests in maintaining a strong social image. Domino's Pizza has maintained a strong reputation across all the markets where it operates. It also invests in the local communities across various geographical markets where its stores operate. Sociocultural factors also play an important role in marketing. The company needs to consider these factors and how they affect consumers’ preferences to make sure that its marketing strategy is successful in various markets.
Demographic factors are also an important consideration for Domino's since demographic changes affect the level of sales in various markets. The demographic composition of the global population has changed a lot in a decade. The millenials are the largest target market of Domino's and the company has accordingly made changes to its product, marketing and customer service strategies to serve this demographic better.
Technology has proved to be the main driver of operational performance and growth industrywide. Across all the industries including the QSR industry, technology has driven swift and major changes. From marketing to supply chain, sales, and store operations, technology has become critical for QSR brands. Market-leading brands like Domino’s Pizza have focused heavily on technological innovation to offer their customers a superior experience.
Apart from helping the brand differentiate itself from the crowd of QSR brands, technology has helped it reduce its operating costs, grow its operational efficiency and manage store operations as well as sales with higher efficiency.
Over the recent years, Domino’s has been investing heavily in technology. Its app has been highly popular in the United States. In 2020, which was a great year for the company, Domino’s achieved more than half of its sales from online channels. Domino’s has emerged as the digital winner in the QSR industry. The company has maintained a central focus on customer needs and preferences. Digital technology has helped it streamline its business operations and grow its brand recognition.
Domino’s is using digital technology for promotions and customer engagement. Apart from its own app, the company uses social media for promotions and customer engagement. In the past few years, technology has driven several important changes at Domino’s and the company has strengthened its competitive edge.
Digital technology has proved to be a key source of competitive advantage for the company in a highly competitive market environment. The company is also using consumer data and analytics to drive superior operational performance and grow its sales and revenue. The use of data and analytics has helped Domino’s provide better service to its customers and reduce the competitive pressure.
Legal factors and compliance have also acquired a significant role for businesses worldwide. Not just in the US, but in the other markets too including the EU and Asia Pacific, the focus on compliance has grown. From labor related laws, to product, taxation and environment, there are several areas where legal compliance is important for large businesses in all industry sectors. In the QSR industry too, compliance is important for businesses, which could otherwise end up losing hefty sums in form of fines.
Another area where Domino’s needs to be cautious is related to franchising. There are several franchising-related laws in the US and other markets where Domino’s operates that the company needs to remain compliant with. Domino’s has also grown the use of consumer data and analytics in recent years which subjects it to numerous laws related to consumer data and privacy. Being compliant is important for Domino’s since its image will be otherwise negatively impacted and the company may also end up losing financially because of the fines.
Environmental factors or sustainability have also acquired an important role for businesses worldwide. the focus on sustainability has grown faster since the pandemic broke out. Companies are investing more than ever in making their operations more sustainable. Governments around the world have also made stringent laws to safeguard environmental concerns. Noncompliance often results in hefty fines.
Domino's has also invested in making its business highly sustainable. In this regard, the company grew its investment in environmentally safe packaging and recycling. In 2020, Domino’s increased the percentage of recycled content in its boxes from 40% to 72% with 100% of its paper-based packaging sourced from fiber from responsibly managed forests and recycled sources. Both of its box suppliers maintain certified fiber sourcing and chain-of-custody certifications using third-party audits, and the primary supplier uses controlled wood. Their policies do not allow the purchasing of fiber from illegal logging, the trade in illegal wood or forest products.
A few last words:
Domino’s is experiencing faster growth over the past few years. Technology has proved a key driver of competitive advantage for the brand, helping it strengthen its market position and improve its customer service.
Of the six important macro-environmental factors discussed above, the two most important ones with the sharpest impact on Domino’s business include the technological and economical factors. Investing in technology has helped the company minimize the competitive pressure from the incumbent players as well as the new food delivery entrants.
Its app has helped the company grow its sales and improve its customer relationship. The Domino’s app is not just a sales channel but also helps the company promote deals and engage customers. Its resilient business model is also an important strength that has helped the company deal with changing market dynamics and economic conditions better.
Apart from it, competitive pricing also helps the company manage the impact of economic factors and maintain its profitability. Overall, Domino’s competitive edge is growing stronger with time and the company is poised for stronger growth. It must also remain cautious about the legal and political issues since these changes can also impact sales and profits sharply.