Pizza is one of America’s favorite foods.  The average American consuming at least one slice per month and in total American’s consumes over three billion pizzas per year.  The pizza industry is one of the fastest growing food market segments in the country with 2015 sales topping $40 billion dollars [1].

 

Pizza was introduced from Sicily, Italy to the United States in 1905 by the Italian immigrant populations in New York City and Chicago.  The pizza industry exploded after World War II with soldiers stationed in Italy returning home after being introduced to pizza. The pizza industry consisted of family owned businesses until 1958 when Dan and Frank Carney decided to franchise their Wichita, Kansas based Pizza Hut [3].  By 1966, Pizza Hut had expanded to 145 stores nationwide and in 1968 began franchising internationally with their first store in Canada [4].  Following on the heels of Pizza Hut, Little Caesar’s Pizza began franchising in 1959 while Domino’s began franchising in 1967.  Papa John’s is the most recent mega franchise that entered the market in 1983.  Together the top four pizza franchises have over 19,000 stores and account for just over 25% of the US market with independent stores still dominating 54% of the market space [5].

The pizza franchising industry has thrived over independent stores due to the competitive advantage of purchasing power and the ability to demand discounts from ingredient suppliers.  Large chains buy ingredients for their entire franchise in bulk taking advantage of volume discounts and bargaining power with suppliers while independents and small chains are forced to pay market price.  Franchises also have competitive advantage in acquiring and maintaining customers due to brand recognition, product familiarity, and economies of scale in marketing.  These competitive advantages are realized through the development and leverage of complex supply chains optimized to reduce product costs and enhance profit margins.  This allows Domino’s franchise stores to acquire the ingredients to make one pizza consisting of dough, tomato sauce, and cheese for approximate $4.00. This price includes material cost, profit, labor cost, transportation cost, royalty, and ad contribution costs.

Store level demand drives Domino’s to take advantage of volume purchases. Domino’s pizza demand is affected by different factors like population, price, events (Super bowl), holidays, and competitors. According to the current Domino’s financial report, Domino’s pizza demand has been trending up increasing the company’s net income by 19% in the quarter ended June 14, 2015. Domino’s sells about 11 million pizzas slices on super bowl Sunday which is nearly 80% more than a typical Sunday [25]. Halloween, New Year’s Eve, and Thanksgiving eve Domino’s pizza demand follows the demands of super bowl respectively.