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Domino’s, Pizza Hut Take Their Brawl Over the Border

October 7, 1991

DETROIT (AP) _ Now that the major pizza chains are reaching saturation of the U.S. market, Pizza Wars are going south.

South as in Mexico.

Domino’s Pizza Inc. had 38 delivery outlets in Mexico as of September, and it’s expanding at the rate of several delivery outlets a month throughout the country of 80 million.

Pepsico’s Pizza Hut Inc., with 29 stores in Mexico at the end of 1990, says it plans aggressive growth there but won’t provide details. Pizza Hut brags that it was delivering pizza in Mexico in late 1989 - before delivery king Domino’s opened its first store in Mexico City in June 1990.

Mexico isn’t the only arena for the rival pizzerias’ cross-border brawl. Both No. 1 Pizza Hut and No. 2 Domino’s are setting up shop throughout the world.

About 1,500 of Pizza Hut’s 8,000-plus restaurants are in 64 foreign countries. International sales in 1990 were $223 million of its $3 billion in total sales. Domino’s has about 5,300 U.S. stores, and 450 restaurants in 25 foreign countries. Domino’s said international sales in 1990 were about $154 million of its total $2.5 billion in sales.

Pizza Hut has two restaurants the Soviet Union, and plans outlets in Poland and other former Soviet Bloc countries. Domino’s is focused on Japan and Mexico with some expansion plans next year in Western Europe.

″To point to any one area would probably be misleading,″ Pizza Hut spokesman Roger Rydell said from headquarters in Wichita, Kan. ″There is potential for growth and development virtually everywhere in the world.″

In Mexico, that potential is turning into reality.

″Mexico is a country that is not used to getting guaranteed and good service,″ said Alberto Torredo, president of Torrquin (pronounced Tor’ ee keen), which holds the master license for Domino’s outlets in Mexico.

Torrquin has more than 30 Domino’s stores and will finish this year with 50, Torredo said. He expects the company to have 200 outlets by the end of 1993.

A key, Torredo said, is knowing that only one in five Mexicans can afford pizza. His advertising so far has been minimal, a few scattered billboards.

There are similarities in how Domino’s in Mexico and the United States are run.

Torrquin owns about 30 percent of the Mexican stores, selling franchises to the rest. From its Ann Arbor headquarters, Domino’s owns about 20 percent of its U.S. stores.

Domino’s 30-minute delivery guarantee applies in Mexico. Torrquin gives the pizza away free if it’s late, Torredo said. U.S. Domino’s outlets replaced that offer with a $3-off-if-late pledge a few years ago.

Selling pizza in Mexico, or anywhere outside the United States, requires an understanding of cultural differences.

Domino’s found that out the hard way in its early foreign expansion, said Dave Board, vice president of international operations. It awarded international franchises the same way as U.S. franchises, selling them to successful U.S. store operators. Development and general fees and royalties are exchanged for a system of doing business.

″We have proven to ourselves that you have to use people who have been successful in business in that country,″ he said. ″In terms of Domino’s corporate culture, that’s a significant difference.″

Lately, there’s been a difference in how pizza is regarded in the world market, Pizza Hut’s Rydell said.

″The wonderful thing about our product is that we’ve overcome that tag of ethnic-specialty food,″ he said. ″We’re now perceived as 100 percent pure American quick-service food.″

That’s especially true in the Soviet Union, where Pizza Hut’s joint venture with the city of Moscow has resulted in two hugely successful restaurants.

″We were very pleased that people took to our product,″ said Andy Rafalat, London-based regional operations director for Eastern Europe for Pizza Hut International.

″We’ve also managed to get a reasonable return from the business. That has been an important part in an area where the economy doesn’t work like we’re used to,″ he said.

The 270 people who work for Pizza Hut in Moscow are all Soviet citizens. Eighty percent of the ingredients are grown or purchased locally.

″It’s surprising that even during the winter, we maintained a reasonable salad bar,″ Rafalat said. ″We set out to run the business in a sort of live- off-the-land basis.″

Customers constantly wait in line for the 12 hours a day the restaurants are open. They can either pay either in the local ruble or in hard currency, such as dollars or German marks.

For Domino’s, expansion into Eastern Europe is a few years off. Domino’s will double its number of stores in Europe next year, but that will still give it only 16.

″We’re not ready to jump into Eastern Europe and do a good job,″ Board said.

-10-07-91 0717EDT