Domino's Pizza Group: Master Franchising

How you would describe the core differences between managing a franchise business and a traditional retail business?

In a franchise business the franchisees run, open and develop the stores, so the accountability of the brand owner is different. Domino's were very lucky because they had some fantastic franchisees who showed long-term commitment to the brand and took great pride in their achievements.

A different accountability between the brand owner and those actually operating the business with the brand.

That is correct. As brand owner, we create a framework which defines how the brand goes to market. Within that framework, franchisees have the freedom to do what they think is right on a local level. They have freedom on the price and range but there are certain core items they have to carry. Local marketing is also at their discretion.

How much freedom really is there for the franchisee?

There is a lot of freedom. Pricing is a real strength of the franchise model in this competitive environment where disposable income levels vary massively between stores. Franchisees can tailor their pricing to the competitive environment. Local marketing allowed one franchisee to promote pizza for breakfast, which is not an obvious thing. There is also the balance between the collection and delivery market, lunch versus dinner, SMS versus other digital tools. With all these things, franchisees have freedom to do what they think is right for their local area.

How do you think about setting the culture at Domino's?

Domino's is a global brand owned by a US business, who are responsible for the appointment of franchisees in individual overseas markets. The culture of Domino's is defined by the brand owner in the US. It is a brand which is all about ambition and growth, and creating that culture is critical in every market. Seeing what you can do and aiming high and working hard to get there is very much part of the culture. One of the critical elements in a franchise business is creating a coherent offer to the customer. When I joined Domino's, I was both surprised and pleased by how coherent the brand was.

The freedom I described could result in customers seeing Domino's differently in one part of the country to another or even in different parts of the same city. This is not the case because Domino's have a coherent brand image, where all franchisees pull in the same direction, because they want to grow the brand and are ambitious for the future.

How do you get that consistency?

It is about communication and experience. Americans communicate with and through us to operating franchisees and there is a very clear position on what Domino's does and does not represent. There are certain things we have to ask the US permission for but we are given a lot of freedom to operate the brand in the UK.

What examples do you have which would require permission from the US?

With new product development, the US would want to be satisfied that the product we offered was consistent with the Domino's offer.

How would you describe your relationship as a master franchiser with the US business?

The UK is by far the most successful Domino's market outside the US. It constitutes an important part of their overall profit stream. They take a percentage of our revenue so they really want us to succeed, which over the past 10 to 15 years we have.

How have responsibilities, hurdle rates or other terms of the agreement changed over the years?

It links to this point about growth. We have a master franchise agreement which is renewed every 10 years. They set growth targets, principally around stores where they specify how many stores should be opened in the next 10 years, which we will negotiate on. One of the great tests of a franchise is whether the people who run their stores are prepared to invest their money in order to grow your brand.

So as a master franchiser, was unit growth the key metric you followed?

It's interesting because there is a fine balance between growing new units and maintaining sales in existing units. You are always trying to keep an eye on order count and growth in sales in existing outlets, as well as growing the total number of stores. Growth is one of the factors. Domino's in the UK is a public company on the British Stock Exchange. In addition to meeting the needs of the brand owner in the US, as chief executive, you also need to meet the needs of your investors in the UK. It is a balancing act of satisfying UK investors while remaining consistent with the US Domino's brand ethos.

Did you feel pressure to develop new units to maintain the master agreement?