Jack Welch Consults Domino's on Franchising

June 24th, 2011

Monday, CNBC played the Jack and Suzie Welch business series Everybody's Business. Jack and his wife were on site at Domino's Ann Arbor headquarters consulting with corporate staffers on Domino's issues.New York City multi-unit franchise owner Dave Melton was featured in a sidebar along with another 30 unit franchisee Jason Schliffett. Also, the Dominos CIO, VP of Zone Operations, and VP of Brand Innovation were included in the sessions.

The issues examined were:

How to recruit new aggressive franchisees to replace eventually retiring existing franchisees
How to build the lunch daypart

Jack asked alot of good questions, such as was there a franchisee development incentive program in place. Answer: No, nnot currently. He also asked whether there was a dedicated lunch daypart program manager. Answer: No. The new concept people were arranged by product platform, not daypart. In the end, recommendations were formulated and then presented CEO David Brandon, who appeared at the end of the program.

While the issues were scripted, the responses were not. Recommendations regarding franchise incentives and the lunch daypart were given to Brandon, who noted the company's executives would study them. Brandon, in reacting to franchisee profitability requests, noted Dominos itself was the largest franchisee with 475 company stores, and of course they were concerned about profitability.

The company's IT platform was displayed but there was no talk about international development. Brandon was concerned about the pipeline of new franchisee prospects.

Product, people, information and money are always necessary to drive business.

This was an interesting session, but here was no discussion about providing restaurant financing. For existing franchisees to get bigger, or for new smaller operator entrants, capital is needed. Domino's (NYSE:DMZ) consistently steered away from it. But why? Are store level economics not solid or are funds better used elsewhere?

The Domino's issue is similar with other large mature franchisors that are struggling in the US, while ramping up international growth.

John Gordon

John A. Gordon is Principal and founder of Pacific Management Consulting Group, which provides chain restaurant sales, profitability, earnings and economics research and special analytical projects to those in, or who need to know about the restaurant sector. Among others, we support franchisees and those supporting franchisees.

Gordon has a long background in chain restaurant operations and financial management roles, such as cost analyst, financial analyst, manager of planning and analysis and CFO, and has been consulting since 2000.

He is passionate in providing independent, creative, detailed and useful perspective, with no conflicts of interest. Email him or call (619) 379-5561.

Comments

June 24, 2011 - 09:20am

Domino's Video

Edward Ryan

June 24, 2011 - 12:41pm

What Was Jack Suppose To Be Doing At Dominos?

Jacked asked questions of Dominos from a outside corporate manager's point of view. What he doesn't understand is that Franchisees are long term investors who prefer to pass down their "family" businesses to the family heirs as part of their succession plans. On the other hand, if the franchisor is planning for a refranchising/churn cycle, then they would have a franchisee succession plan in place - similar to Dunkin's massive refranchising strategy between 2006-2009.

Why does the franchisor need to plan for retiring franchisees? Aren't they franchisees free to plan for succession themselves? Or, is Dominos having a hard time attracting new franchisees?

Is Dominos struggling during their lunch daypart for Jack to question whether or not there is a dedicated lunch daypart program manager? Most mom-n-pop pizzerias I frequent generally have a decent lunch daypart. Prehaps, Dominos' delivery only model pushes lunchtime customers away from the stores since most working people tend to go out and pick-up their lunches versus ordering in - unless, of course, there's a corporate lunchtime meeting.

I'm surprised Jack Welsh, as former CEO of GE, didn't look to promote GE Capital as a financing solution to Dominos' lack of a restaurant financing program. I suppose when you don't understand the business, as an outsider, you're at a loss to ask the right questions. Would Jack be a good franchisee?

Wall Street equity strategist, Chuck Nuel, observes in his follow-up review:

Moreover, Welch never ran a retail business. He was a chemistry PhD who rose to run the plastics business and, from there, GE. GE, for that matter, has never been a retail presence, either.

So, if you're the CEO of Dominos, and you know all this, what is it that you think Jack Welch can do for your company? Do you want what happened to GE after Welch's magic touch to happen to your pizza delivery firm?

So just what would Welch uniquely bring to the pizza chain, if his accomplishments at GE melted away so quickly? He doesn't have a track record as a successful consultant to numerous companies in various industries.

June 24, 2011 - 13:06pm

the best network growth options closed for most

Franchisors spend a lot of money chasing new prospects when much of that investment gives a relatively poor return. A high proportion of brands in the market have no choice but to resort to dishonest sales tactics.

If brands invested in creating a culture of internal growth at all levels external growth goes along for the ride. The culture that creates internal network growth transcends smoke and mirrors, discovery day warble and the need to sell to anyone and like friends with benefits – you get franchisees offering and receiving benefits as a brand bonus. Franchisees drive network growth.

Alas; it must begin with a healthy franchising relationship so many miss out.