Domino's Pizza and Papa John Term Paper

Pages: 11 (3676 words)  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business

¶ … Domino's Pizza and Papa John's Pizza

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During the last few years, the food service industry has seen a tremendous amount of challenges. As host of chains and restaurants are facing a number of issues from: declining consumer spending and rising costs. In the case of many pizza restaurants, this can be particularly challenging, as discretionary income becomes less (affecting their overall bottom line). Evidence of this can be seen by comparing the total amount of consumer spending from 1998 to 2007, with the loss of household wealth that was seen during the recession. Where, consumers would spend an additional $2.4 trillion between 1998 and 2007. This accounts for approximately 86% of all U.S. economic activity. When the recession began, most consumers cut back dramatically on their spending, as $11 trillion in household wealth would disappear during that time. (Schroeder) This is significant, because shows how the severe implosion in both numbers would highlight various challenges; that many pizza restaurants are facing. As a result, both Domino's and Papa John's have been utilizing a number of unique strategies, to help improve their operating results and increase market share. However, given the fact that these two organizations are ranked number two and three (as far as pizza sales are concerned), means that the competition can become very cut throat. (Horovitz) as different initiatives have provided mixed results for many organizations. Part of the reason for this, is because of the sharp implosion and near zero growth in sales, as this would force a number of companies to engage in draconian as well as unorthodox methods (in an effort to increase their earnings). When you combine this with the severe contraction in the economy, this meant that the industry is using variety of different strategies to increase their sales as much as possible (during a time when it is very challenging). To determine which restaurant is a better investment, requires conducting a side by side comparison of both companies. Once this is takes place, it will highlight the underlying strengths and weaknesses of each organization; allowing us to know which company is a better investment opportunity over the long-term.

Introduction

Problem

TOPIC: Term Paper on Domino's Pizza and Papa John's Pizza Assignment

Over the last several years, the pizza industry has become increasingly fragmented. Part of the reason for this, is because of the large number of players in sector. Evidence of this, can be seen by looking at the total size of the U.S. pizza sales volumes for the five largest chains in 2009; where they account for a total of $11.8 billion. Out of this number the various sales were divided among the different competitors to include: Pizza Hut ($5.0 billion), Domino's ($3.0 billion), Papa John's ($2.1 billion), Little Caesar's ($1.1 billion) and Papa Murphy's ($600 million). (Horovitz) This is significant, because it shows how the industry is highly competitive, with a number of different chains posing as possible threats to one another. Given the fact that sales will be limited to certain extent; means that competitive pressures can increase dramatically. For investors this is problematic, as it makes identifying possible opportunities very challenging. In the case of Domino's (NYSE: DPZ) and Papa John's Pizza (NASDAQ: PZZA), they are engaged in a heated rivalry for market share, customers as well as bragging rights. Recent evidence of this can be seen, with the 14.3% increase in sales that Domino's would experience, after introducing a new recipe in the first quarter of 2010. At the same time, Papa John's would see a decline of .4% sales. Commenting about these results Papa John's would say, "It's not surprising that they drove trial on a new product." This is important, because it shows how identifying possible investment opportunities can be challenging. Further evidence of this can be seen by comparing the performance of the common stocks of both companies. Where, Domino's would see the price of their stock decline from $30.00 (in 2007) to $5.00 by 2008. Currently, the price is sitting at $15.00 per share. ("Domino's Pizza") While Papa John's, would decline from $30.00 (in 2007) to $15.00 (in 2008). At the moment, the common stock is currently trading at $25.76. ("Papa John's International") This is significant, because it shows how both companies would see a severe decline in earnings and sales (once the effects of the recession (begun to take effect in 2008). The recent efforts by both organizations to address these issues, have caused their earnings to stabilize somewhat. However, given the fact that the economy is sitting at zero growth and consumer spending has not picked dramatically, means that they are forced to use various techniques to increase their sales is much as possible. This is challenging, because each company has been engaging in their own unique strategy to address these issues.

Purpose

The purpose is to determine which company is a better investment opportunity. This requires utilizing time tested techniques to include: past challenges that each company faced / how each one was met, comparative statistics and specific competitive advantages held by each rival. These different elements were selected, because they can provide the most accurate picture, as to what the underlying strengths and weakness are that could be affecting each organization. This will improve the accuracy of any kind of forecasting and interpretations of various company events. Once these different elements have been carefully examined, we will be able to make a more precise determination; as to which company has the greatest potential for seeing significant gains.

Sources

The resources that will be utilized for this analysis will mainly be: primary sources, secondary sources and information provided by Data Monitor. As far as primary sources are concerned, an emphasis will be placed on establishing some basic back groundwork about the business models of each organization to include: utilizing information from books and the company itself. This will provide the greatest insights about the specific programs and how they could be having an impact upon the organization. At which point, secondary sources will be utilized to identify current issues facing both companies and how they are reacting to them. Then, the information from Data Monitor will be used to examine the financial strength of both companies. When you put these different elements together, they will provide the most accurate assessment of each organization. This is important, because it will help to address specific information and current news, about possible events that could be affecting each company.

Methods

To determine what company is a better investment we will be utilizing what is known as qualitative analysis. This is when you are analyzing the underlying strength of the investment using non-quantifiable information such as: changes in financial information, past issues and possible challenges that the company could face in the future. ("Qualitative Analysis") Once this takes place, it will provide information about the underlying strengths and weaknesses of each organization. At which point, we will begin using comparative analysis. This is when we will be comparing the strengths and weaknesses of both companies, to determine which one is the better investment opportunity, based on the information from the qualitative analysis. ("Comparative Analysis") Together, these different elements will provide the greatest insights, as which organization is the better investment opportunity.

Body / Data Analysis

Past Challenges each Company Faced and how they met these Challenges

Over the past several years, all of the different pizza restaurants have been impacted by a number of different factors to include: high gas prices, rising costs for a host of ingredients (such as: cheese, wheat along with meat) and they were forced to wrestle with a severe economic contraction. (Haubrich) This is problematic, because all of these different restaurants are dependent upon the price of various costs remaining stable. At the same time, they need to see consistent increases in sales within the local communities they serve. Once any of these different factors becomes an issue, it can slowly eat away at the profit margins for all of the different restaurants in the sector. When you put these different elements together, this means that the entire industry would face similar challenges, which would increase the overall amount of pressure that many organizations would face.

The biggest challenges confronting Domino's, was dealing with lingering effects of the recession and rebranding the company's image. When the recession first began in late 2007, it would have an immediate impact on Dominos' overall bottom line. Where, the company would deal with runaway costs and declining sales. Commenting about these issues the former CEO David a. Brandon would say, "The combination of unprecedented cost inflation and cautious consumer spending are hurting same store sales." (Martin) This is significant, because it shows how the recession and inflation would have a dramatic impact upon the company's bottom line.

At the same time, the company was beginning to have an image problem. Where, it was seen as a traditional pizza chain that offered a bottom up approach. This meant that they would focus on providing low cost pizzas, quickly to the general public. Over… [END OF PREVIEW] . . . READ MORE

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