Domino's Pizza, Inc. (DPZ)

TheHuney (52.72) Submitted: 7/23/08 1:35 PM

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Also, some other things to consider:

(1) Increasing competition from frozen pizza providers. Take a look at your local grocery stores pizza sections some time and you might notice that they seem to be increasing in size. DiGiornio had a lot of success and others are trying to get in on the action as well.

(2) Domino's and Papa John's are both trying to shift their high delivery costs over to their carry-out customers. Meanwhile, Little Caesar's, which struggled mightily for over a decade, is coming back and branding themselves as a low-cost carry-out provider. DPZ and PZZA used to be very competitive with LC's in the carry-out market but not any more. Most of the time, you'll end up paying double the price at the delivery chains as they try to pass on their delivery costs to carry-out pizzas. This hurts them amongst a certain segment of consumers; a segment that will likely grow in the current recessionary environment.

(3) As stated before, DPZ has no real market niche except "low-cost pizza delivery provider" and that is being undermined by rising prices. This trend will continue. It won't hurt Papa John's nearly as much since many view them as a "high-quality" pizza maker and people are willing to shell out a bit more for their product. Domino's core customer base, however, is more similar to McDonald's; and that's a recipe for disaster when your prices are creeping up towards the "luxury item" price range due to internal cost pressures.

(4) Pizza is considered "junk food" in some segments of society. However, unlike donuts or french fries dripping with transfats, there's no reason that has to be the case. Many pizzamakers have recognized this and started appealing to the more health-conscious crowd. If you go to the grocery store, there is Amy's Pizza ... and even some of the more traditional frozen pizzamakers try to emphasize that their product is a bit healthier than some of the others. Papa John's recently introduced whole-wheat crust. Domino's hasn't really done anything and knowing management, my guess is they'll wait until PJ's or Pizza Hut has a huge amount of success with something like that to follow the trend.

I could go on and on, but that seems like enough. There are a lot of factors going against companies in pizza delivery right now and having a chaotic structure coupled with poor management with no vision, organization, or direction does not seem like a recipe for long-term success.

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