Donatos Pizza – Case Study

History of Donatos Pizza

“To give a good thing.” That is what is at the heart of Donatos Pizza when founder Jim Grote purchased the first location in Columbus, Ohio in 1963. At the time, Grote was a sophomore at Ohio State University and with only $1,300 to his name, purchased what would become his legacy.

Donatos Pizza franchised their first location in Zanesville, Ohio in 1991. Less than a decade after that, the company’s success caught the eye of fast food multinational, McDonalds. As part of its diversification strategy, McDonalds purchased Donatos Pizza in 1999. At that time McDonalds also had Chipotle and Boston Pizza Market under its portfolio. Purchasing Donatos Pizza was McDonalds’ way of breaking into the pizza market.

Due to a downturn, McDonalds revamped their strategy to focus on their core business. Thus, in 2003 the Jim Grote along side his daughter Jane Grote repurchased the family business. With a strong turnaround plan, the family was able to get Donatos back on track. Today, Donatos Pizza operates over 160 locations in 10 states.

The Pizza Franchise industry in the United states

Over the past five years, the Pizza Franchise Industry in the United States outgrew the overall Pizza Restaurant Industry, growing at an annual rate of 2.9%. Increase in consumer confidence drove most of the industry’s growth. Changes in consumer food preferences are also pushing the industry to change. Consumers looking for healthier alternatives and convenience are driving industry operators to adopt new menu items to match new diets.

Looking ahead, the Pizza Franchise Industry will continue growing at a slower rate of 1.5% to $38.4 billion in 2024. Competition will continue to come from standalone pizza companies and single location operators. Additionally, new food service restaurants catering to different tastes with healthier options will provide customers with even more options. This will only further drive competition in the industry.

Customers and Competitors

Donatos Pizza faces many large, well known players in the Pizza Franchise Industry. Competition is the market is moderate as the top four pizza franchises account for 49% of the market share. Household names like Domino’s and Pizza Hut lead in marketing share, making up 19.3% and 14.4% respectively. Smaller players in the market will need to offer a unique value proposition to customers in order to capture market share and succeed.

Pizza customers range all sorts of individuals. Consumers aged 25 to 44 make up the largest group of consumers in the market at 38.4% while K-12 students are also a key customer. For Donatos Pizza, the target demographic for potential franchisee locations are cities with middle-class families with a median household income of $50,000. They also target a higher median age of 30+, signifying the desire for young professionals and or families.

Donatos Pizza’s business model

Similar to other pizza franchises in the industry, Donatos Pizza earns revenues through their corporate owned locations and through franchise fees and royalties. For franchisees, Donatos Pizza is a reasonably priced franchise option that provides exposure into premier level processes. Also, the company has invested into technologies, such as mobile apps and predictive analytics, which improve the overall business operations.

For customers, Donatos Pizza is known for their generous servings of quality toppings. The company is touted for putting 100 pepperoni slices on each pizza, giving customers great value for their money. Moreover, customers who are looking for pizza outside of the well-known national chains look to pizza restaurants like Donatos for variety. Pizzas like Cauliflower Bruschetta or Mariachi Beef are not standard menu items at national competitors. This gives Donatos Pizza a great differentiating point.

Donatos Pizza’s success factors

One of Donatos Pizza’s success factors is residual best practices and processes from when McDonalds owned the company. Being owned by a large franchise corporation like McDonalds can help a smaller company scale up quickly. This gives the company top tier best practices from an organization that knows how to scale. This ultimately saves corporate lots of time and money in identifying, test, and deploying which processes work best. Instead they can start with a baseline which is already proven in the industry.

Another success factor is the fact that the large number of corporate owned stores. Two significant benefits that come from this is the incentive for corporate to continuously improve profitability and the ability to test new processes at an appropriate scale. With 54 company owned stores, corporate has a large stake in ensuring that standard operations continue to be profitable and upholding the company brand name. As they devise new processes, they can test against a larger number of stores, which allows them to iron out any issues. This also reduces the risk for franchisees, as they are not having to adopt new processes prior to testing.

Looking ahead

As consumer preferences continue to shift, Donatos Pizza will need to innovate new menu items to capture the attention and tastes of customers. Furthermore, increased competition will also lead to new entrants, forcing companies to compete on price. Donatos Pizza will need to investigate where they can make continuous process improvements. This will help them realize cost savings and thus improve profitability.

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