Germans like to joke that their country has more pizzerias than Italy. So why is Domino's Pizza of the United States trying to set foot in such a crowded market – again?
Domino's Pizza wants a slice of the fast food action in Germany
Why would any pizza delivery service want to compete in the German market, where pizzerias are as plentiful as pubs in England?
The answer is pretty simple: Germans like pizza and convenience, and are already paying for a number of franchise delivery services, like Joey's Pizza and Hallo Pizza, to bring hot pizzas and other Italian foods into their homes.
Domino's Pizza hopes to grab a chunk of that business. Birgir Thor Bieltveldt, the former CEO of Domino's in Iceland and Denmark, has been chosen to head its German operations.
The company has also signed a franchise agreement with Yakir Gabay, the founder of the Berlin-based Grand City Property Group and Grand City Hotels. Both are big names in their respective businesses, managing more than 3,000 residential units, 80 hotels and a million square feet of commercial space in Germany.
Domino's is already one of the world's largest pizza delivery companies, with more than 9,000 franchised and company-owned stores operating in more than 60 countries. Global sales were worth 4.4 billion euros ($5.6 billion) in 2009.
Domino's is looking to cut into the customer base of franchises like Joey's Pizza
Together with its German partner, Domino's Pizza plans to first open franchises in Berlin before expanding across the rest of the country. It will be the US delivery giant's second attempt to establish itself in Germany. The company had operated a small string of franchises in the country but retreated more than a decade ago.
Company spokeswoman Jenny Fouracre said in an e-mail that its former German franchise partner had the financial resources but lacked the "operational and country-specific experience" to be successful in Germany. With Grand City Property, she said, Domino's has found a partner who has "not only the financial part of the equation but also very strong operational expertise and a solid history of operating in Germany."
Michael Lawton, executive vice president of Domino's Pizza International, referred to Germany, with nearly 41 million households, as a market that offers a "great opportunity" for pizza delivery.
Franchise analysts agree. Felix Peckert, a Bonn-based franchising consultant, expects between three and five large pizza delivery companies with about 3,000 to 5,000 franchise partners to dominate the home delivery market within the next 15 years. The big competitors, he said, will force many of the smaller pizza delivery companies out of business and many of the smaller pizzerias to drop their delivery service and focus instead on their dining and takeout services.
Domino's Pizza operates in more than 60 countries
Pizza delivery is 'a lot of work'
"Competition will separate the wheat from the chaff," Peckert said. Domino's, he added, is a company that knows much about franchising, food logistics and preparing food for delivery that "lasts."
Even some Italian pizzeria owners agree a shake-up in the delivery sector is inevitable. "Delivery service is a growing business and can be profitable if you're willing to invest the resources and ensure quality," said Graziano Tati, who was among the first wave of Italians to open a trattoria in Duesseldorf more than three decades ago. "But it's a lot of work, especially ensuring that the food is delivered warm and on time."
From the start, Tati decided against building up a delivery service, focusing instead on serving customers in his typically crowded tiny neighborhood restaurant or preparing fresh dishes for them to take and eat at home. In his first restaurant in downtown Duesseldorf, he had enough competition "next door" - with around 35 Italian pizzerias, trattorias and restaurants within a one kilometer radius.
Competition in Germany's pizza delivery market has been growing steadily. Pizza Hut, another big US chain, has begun offering delivery service through a few of its franchises. Pizza Hut is a member of the Yum Brands Group, which owns the Kentucky Fried Chicken (KFC) and Taco Bell fast-food chains.
Plenty of competition
Deliveries could cool some traditional wood-fired ovens
Online order services, like pizza.de, have also sprouted up across Germany. The online platform with more than 4,000 partners works much like a taxi service: customers enter their postal code, view a list of pizzerias in their neighborhood with a rating and purchase online. A spokesman from pizza.de said the company is following the moves by the big US chains Pizza Hut and Domino's "with interest."
Domino's is mum on whether it will sell its standard range of products or develop new products for the German market. But franchising consultant Peckert believes that if the company tries to win over German pizza consumers with "thick-crust pizzas loaded with cheese," it's going to have "plenty of fun."
In the US, Domino's recently reconfigured its core pizza recipe, with a new sauce, cheese and crust, to spur sales.
Franchise expert Christian Gregor, managing director of the Gregor Institute and a member of the German Franchise Association, agrees that large chains entering Germany will need to show a level of flexibility and "adapt to the market" if they want to be successful. McDonald's, he said, is a good example of a company that offers an array of core dishes and specials in a modern, clean environment geared toward German tastes.
And like McDonald's, he added, pizza delivery companies like Domino's can succeed in Germany if the product has a good quality, is priced right and delivered relatively fast.
Author: John Blau
Editor: Sam Edmonds