Domino’s Rise as Eagle Boys Fall: An End to Australia’s Independent Pizza Shop?

Disclaimer: This article is informative in purpose and does not constitute financial advice.  The author urges you to obtain professional advice before pursuing any financial investment.

 

‘The Lucky Country’ is not just a saying

As a nation, Australia is something of a fascinating fishbowl when it comes to the study of economic policy. The stunning fact that belies so much about the Great Southern Land is with around just 25 million people its total population is smaller than single US states like California or Texas, and though many fellow Asian nations – like Indonesia, South Korea and Japan – are smaller in land size, they hold a greater population.

Notwithstanding this though, both the Australian nation as a whole and its citizens personally have long enjoyed a high standard of living and high level of personal wealth AKA the ‘Middle Class Success Story’.

Australia has at times achieved remarkable feats in the global economy – such as having the GFC by and large bypass out shores as it wreaked havoc on other world economies – while also oftentimes leaving Australia consumers subject to questionable charges that may not fly elsewhere; such as Adobe’s long held double cost for Australia leading many to think Australia is an effectual ‘Treasure Island’ for business, e.g ‘charge what you like because its an island and they can’t get off it’.

Population size and Adobe Photoshop may both be interesting subjects but you may be asking what does all this have to do with Pizza? Put simply, it is a matter of Domino’s and your local pizzeria. 

The rise of Domino’s in Australia

Both on an individual and organisation level Dominos is one of the great recent success stories in modern Australia. True, Pizza has long been on offer and popular Down Under – but an outside observer would be forgiven for thinking at first Dominos just invented the wheel anew given their success built upon advents like their popular $4.95 pizza promotion.

In just the past year it has seen its share price effectively double, doing from a low of $37.50 in September 2015 to its current all time high north of $75. Now, it is held the collapse of Eagle Boys shall see Dominos grow even further its estimated 50 per cent market share among the chain pizza market.

As a business, Dominos has been a leader in the shift towards an agile and online operation. Alongside store expansions the capacity for a customer to order a pizza via an app -negating even the need to pick up the phone and dial your local store – has been at the forefront of delivering a more seamless user experience.

In many respects therefore, Dominos has been the flag bearer and bench mark for the growth of the Australian pizza industry.

Eagle Boys asunder

In mid-July word broke the Eagle Boys pizza chain first founded in 1987 Tom Potter in the rural town of Albury, NSW had entered voluntary administration. From the heights of up to 340 stores and a 12 per cent market share the fall into administration signifies the end of an era in Australian fast food.  This especially so as Potter comparing EB to Dick Smith’s collapse –  another high profile recent bust of Australian business – affirms the viewpoint the franchise is (to use a common Australian term) very much ‘done and dusted’.

The news Eagle boys has gone under is especially notable given its regional positioning. This is usually a known among Australians but for readers outside a brief primer is useful here to understand this in context.

Australia does have local dishes – the Melbourne Dim Sim, the Portuguese burger in Sydney, the Pie Floater in Adelaide, and the crocodile kebab in Darwin (…one of these isn’t real )- and like the Eagle Boys has other businesses across a variety of sectors that stay regional in their focus.

By contrast though, as a rule the nation doesn’t have the same spread regional franchises the USA has – where Cottage Inn Pizza can be had anytime by Midwest eaters by unable to be enjoyed in the Deep South, or In-n-Out burger appears destined to be forever beloved by those on the West Coast and longed for by those living on the East Coast.

So, while Eagle Boys was a well known franchise within NSW and Queensland, it was a lesser presence in Victoria, South Australia, and Western Australia (not to mention no locations in the Australia Capitol Territory, the Northern Territory, or Tasmania). This is contrast to Dominos which has locations in every Australian state and territory.

The trade off on this rise of Dominos though is it appears to come with the potential to do away with the local pizza shop; and do so more in future. While franchise stores outmanoeuvring and outpacing local business is not a new story, a Australian’s local pizza shop (unlike say a hardware or electronic store that has a regular turnover of new items and staff members) shall often have been in operation for decades, and have a number of staff that have been working there for about the same period.

To be clear then, were Dominos to replace every local pizza shop in every suburb the change would come not just to the menu on offer or the nifty logo outfront replacing the old signboard of a veteran chef who setup shop 30 years ago; but would also mean a huge change to the method of operation; with the local pizza shop no longer a small business owned by just one or a few parities; but instead a franchise prospect that streamlines a chain of command and operating style.

So what’s cooking here?

This piece is not a argument for or against the rise of Domino’s nor necessarily the doing away with of the local pizza shop – for while all could agree it’d be a tragedy to see a great pizza shop that does an outstanding Hawaiian go under, so too would frustrated locals not lament Domino’s moving in and offering opportunity for a bigger menu if some acme joint currently on the block only serves things comparable to a bad frozen grocery store pizza

Antarctica

This is either some alps in Antarctica or a stack of bad frozen pizzas.

By contrast the growing expansion and capacity to do things like $5 Pizzas may see local shops outpaced in what pizza they can sell for a low cost while still making a profit #PizzanomicsinAction

In turn, while Dominos may be the flag bearer right now, the potential for other major pizza franchises like Pizza Hut to expand or be merged into a mega franchise with the new owner of Eagle boys is a perhaps live option.

Finally, while independent pizza shops have a commanding lead overall just as the pizza industry has seen a marked change in the past 5 years so too is move towards an emphasis upon gourmet, ‘healthy’ and vegetarian pizza options set to be something a franchise like Dominos  – with all its resources for research and data analytics – shall easy be able to assess and respond to; but your local suburban pizza shop may struggle to.

After all, if Nick or Nora have ran their store for 30 years with the same menu throughout suddenly shifting their business from making their own dough, a once weekly trip to the butcher and twice weekly trip to the fruit market for ingredients is about more than just simply offering a new pizza; its a fundamental change to their business and its operations.

Therefore, Eagle Boys demise may be the end for them but the first shot in a new battlefield in Australia within the fast food sector.

What this means beyond Australia?

While this Domino trend detailed here concerns Australia exclusively big business expansion and globalisation are not new trends. Once again, these occurrences are not necessarily bad things – just as Costco has enjoyed a successful expansion in Australia so too can a city landing a big Apple store (or even Starbucks bodly opening their first franchise store in Italy with an aim to provide a different experience in the land of coffee) can perhaps be a successful venture – but it does mean what is happening with Dominos in Australia could also be mirrored in your local city.

Accordingly, even if Dominos Australian growth is a Down Under story right now,  grab something like a pack of Tim Tams,  or que up some great Aussie rock on your smartphone and read the following as a honourary Australian..

What this means within Australia?

This article is not a call to action but instead just informative in aim. The experience of Eagle Boys shall be studied for a long time, and perhaps arguments made either side that either a focus on localisation (and staying in one city) OR greater expansion (with more stores nationwide comes potential for more profit).

Ultimately, whatever change that could occur long term is unlikely to be seen before your next Friday or Saturday night trip to pick up a Margarita and Romana – but Eagle Boys demise was a seismic shock and to what extent Dominos can pick up EB’s ball and run with it  – whether by formal takeover or merely seeking to install new Dominos stores in old EB neighbourhoods – shall surely have a big impact on what the Australian pizza industry looks like in 5 years; just as Dominos fundamentally changed the way it looks now as compared to 5 years ago.

Right now though the chief question for the Australian consumer is: do you like your local independent and non-franchise pizza shop?  If you do, it may be wise to show your support in months and years ahead by loading up on pizzas from the shop like a tourist in an airport gift shop. If you don’t though, perhaps wait until Dominos rolls into town, brings their successful menu, and with it the potential (for better or worse) to outmanoeuvre and outsell others competitors in the field.

 

Pizza

What the fight is for: The frontline of the Australian fast food battle. Also one with extra cheese.

Disclaimer: This article is informative in purpose and does not constitute financial advice.  The author urges you to obtain professional advice before pursuing any financial investment.

Ed Kennedy is a journalist and web designer proudly from Melbourne, Australia. Say hi to Ed via enquiries@edkennedy.co or on Twitter @Edkennedy01

#Real Estate and Finance