RETHINKING
DOMINO'S EXPANSION PLAN
 INTRODUCTION
WHAT WENT WRONG?
TO GROW OR NOT TO GROW
Pavan Bhatia's expansion plan would not have come under criticism had actual
sales matched the projections. Hari Bhartia said that there was a gap between
the two. According to some company officials, in mid 2001, the actual sales were
half of projections. As the sales were poor, the burden of huge expenses
impacted the bottomline.
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This led to serious cash flow problems. A few suppliers said that
Domino's was either asking for an increase in the credit period or
requested a go-slow on supplies. Others added that although they had no
problems with payments, they heard that Domino's was going through a bad
phase. Said one, "I too have heard adverse stories about the company. I
also know that Domino's is undergoing reorganization. But that should be
over in a few months' time and the company will be back on the course."
Analysts also felt that Domino's would be back on course soon, as pizza sales
were growing despite new stores coming up near the existing ones, at least in
the metros. For instance, the store in Greater Kailash I in New Delhi was among
the first to be opened. Sales at this outlet grew though new stores were added
in neighboring areas. However, Domino's needed fresh funds to get out of the
financial problems. Indocean Chase, the venture capital firm, which owned
one-third stake in Domino's, said it would invest only after the existing
problems, were sorted out.
By mid 2001, Domino's future growth plans were also slowed down. (Refer
Exhibit II) In early 2001, Domino's had announced plans of adding 100 outlets
every year, and an investment of Rs.500 million in 2001.
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Hari Bhartia said, "The
board had never approved either the investment or the plan to start 100 new
outlets in a year's time." The plan to open new outlets in Bangladesh was also
postponed. These corrective measures were expected to be over by late 2001.
Explained Hari Bhartia, "When you grow the way we did last year, (2000), there
are bound to be problems. Now, we are dealing with them." He was also looking
for a new CEO.
QUESTIONS FOR DISCUSSION
1. Some analysts felt that Domino's expansion had taken place on a business
model that was not able to support it. Do you agree with the statement? If yes,
what were the drawbacks of Domino's business model?
2. "Pavan Bhatia's expansion plan would not have come under criticism had actual
sales matched the projections." Comment on the performance of Domino's. Why do
you think the new outlets were not contributing to Domino's growth?
3. In September 2001, Domino's announced that it will shut down outlets in some
small cities and a delivery outlet in Delhi. Do you think the closure of the
outlets will affect the growth of Domino's?
ADDITIONAL READINGS AND REFERENCES
1. Sehgal Arshdeep and Chakravarthy Chaitali, Small cities shut
doors on Domino's pizza, Economic Times, September 11, 2001
2.Alam Srinivas, Of Pizzas and Mudpies, Business World, July
9, 2001
3.Chakravarthy Chaitali, Pavan Bhatia quits Domino's India,
Economic Times, May 22, 2001
4. Bose Sushmita, The Domino's Effect, Business Standard -
Strategist, March 6, 2001
5. Dominating Domino's, Economic Times, February 16-22, 2001
6. Hundredth Domino's outlet at Agra on Republic Day, Economic
Times, January 26, 2001
7. Domino's cater to Jet Airways Flights,
expresshotelierandcaterer.com, January 2001
8. Domino's India plans IPO to finance two overseas subsidiaries,
Financial Express,October 28, 2000
9.Rath Anamika, Domino's Pizza spices up growth plan, to
open 200 outlets by 2002,Financial Express, April 11, 2000
10. Domino's rolls out national expansion, Financial Express, March 23,
1999
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