For Domino’s Pizza, cracking the international code for success hasn’t been as difficult as one might think for a pseudo-Italian food that is about as American as apple pie. Pizza is a surprisingly translatable meal around the world.
“The joy of pizza is that bread, sauce and cheese works fundamentally everywhere, except maybe China, where dairy wasn’t a big part of their diet until lately,” J. Patrick Doyle, Domino’s CEO, told me recently. “And it’s easy to just change toppings market to market. In Asia, it’s seafood and fish. It’s curry in India. But half the toppings are standard offerings around the world.”
So, Domino’s is capitalizing on the “joy of pizza” almost everywhere. The company just posted domestic same-store sales growth of nearly 5 percent during the fiscal fourth quarter and about the same percentage for its international stores for that period and for the full fiscal year. It was the 76th straight quarter of same-store sales growth abroad.
In fact, when Ann Arbor, Mich.-based Domino’s opened its 10,000th store last year, the site wasn’t in Wichita, Kan., or Sarasota, Fla.; it was a franchisee-owned outlet in Istanbul. But the only major menu difference between the Domino’s inTurkey and new outlets in America is that Turkish customers prefer many more options in meat toppings and typically order a half-dozen — on the same pizza.
Only eight restaurant chains worldwide have 10,000 outlets, and overseas markets will continue to fuel Domino’s growth. “Outside the U.S., there’s a lot less competition in pizza,” said Mitch Speiser, a securities analyst for Buckingham Research, in New York. “There’s not much local competition, and there’s not even much competition from other western brands. Domino’s is the first in, in many markets. So, in 70 countries they’re the pizza-sales leader, and in 29 others they’re a close second.”
In turn, the emphasis on growth overseas has become a major factor in the success formula that Doyle has put together since he became CEO in 2010 after climbing through the ranks in a 13-year career at the company. Now Domino’s is pressuring Pizza Hut for the No. 1 spot, while Papa John’s is No. 3.
And in a business where the giants expect to continue to grab market share from regional chains and independents, Doyle is creating other major advantages for Domino’s besides its international presence, including rising brand equity, an expanding menu, store modernization and an industry-leading digitization initiative.
“We come from an entrepreneurial family in the hospitality industry, and Domino’s has been an awesome partner,” said Ronnie Asmar, director of new-store development for STA Management in Southfield, Mich., which owns 33 Domino’s outlets in the Detroit, Grand Rapidd, Mich., and Flint, Mich., areas, with at least eight more on the drawing boards. “They’ve given us a lot of tools we can use to grow.”
Domino’s has been fervent about working with franchisees to fuel growth; the company owns only about 10 percent of the Domino’s in the U.S. and not a single one outside the country.
“Local knowledge and ownership are critical to our success overseas,” Doyle explained. And Domino’s stores are much more affordable around the world than most other fast-food franchises, he said, in part because the business is based on delivery and not on sit-down dining, so the outlets tend to be small and simple.
The typical Domino’s franchise costs only about $200,000 to establish, Doyle said, “and most people actually can manage to scrape that amount together.” As a result, more than 90 percent of Domino’s franchisees began in the business as Domino’s delivery drivers.
Growth in online and mobile ordering comprises the other most significant factor in Domino’s brightening prospects these days. About 58 percent of Domino’s orders in the United Kingdom now are digital, and about 40 percent in the United States. That’s why the largest group of employees at Domino’s headquarters in the Domino’s Farms business park in Ann Arbor, about one-third of the company’s 500 home-office employees, is the information-technology department.
Doyle explained that online and mobile ordering is a win for consumers and for the company.
“It’s a better customer experience,” he said. “Online is where people are and want to be anyway. They’ve got the whole menu in front of them. They can take their time in ordering without one of our guys on the other end of the phone line maybe sounding impatient. And the accuracy of the orders is higher.
“So customer satisfaction is significantly higher, and not just about their preference for a digital experience: They believe the pizza tastes better when they get it, too! In other words, people are so much happier about digital ordering that it crosses every part of their experience with us.”
Speiser, the analyst, said that Domino’s mobile app for ordering pizza is better than its rivals’. And profit margins on all digital orders are higher not just because of a small savings on labor but also because Domino’s online customers tend to order more than those on the phone.
“They can see everything we have, including Chocolate Lava Cakes and pan pizza – not just a traditional pepperoni pizza,” Doyle explained. “Plus we retain more customers, and they come back more frequently, so that drives economic impact for us.”
What’s more, digital savvy and resources are helping pizza’s Big Three continue to steal share from regional and independent outlets. “It gives us a big advantage over smaller players, because we can spread our investments in IT over a bigger sales base,” Doyle said.
In fact, Speiser said, the digital edge has become key for the Big Three in attempting to boost their share of the U.S. pizza business beyond the 54 percent they now hold collectively. America is saturated with pizza places, so the overall “pie” isn’t growing much.
Domino’s renaissance began five years ago when then-CEO David Brandon launched a brand reboot, including appearing in some ads himself. He worked all along with Doyle, whom he named president of U.S. operations in 2007 and considered his heir apparent long before Brandon left in 2010 to become athletic director at the University of Michigan. (He remains chairman of Domino’s board.)
Now it was up to the new CEO to finish taking Domino’s to the next level, and he understood the main obstacle. Customers “told us they clearly appreciated our speed and efficiency, but not our pizza,” Doyle recalled.
So the chain overhauled every last element of its pizzas during an 18-month remake begun under Brandon which, in Doyle’s mind, carried nearly existential stakes for the company. The research-and-development kitchens churned out more than 100 different combinations of higher-quality, better-tasting new pizza sauce and crust formulas.
Still, Doyle managed to hold the projected increase in raw-materials costs of the new pizzas to less than 10 percent. That would help franchisees and consumers swallow the major shift to a “better-tasting new pizza” even though it was the middle of the Great Recession.
The moment of truth came when Doyle and colleagues embarked on a five-day road tour in late 2009, meeting with clusters of Domino’s franchisees in hotel rooms all across the United States, armed with the much tastier pies. “Unit economics were at a low,” Doyle said, “but we needed to get their buy-in. And being able to do so was one of the most remarkable aspects of the turnaround.”
Clearly, Doyle’s leadership was crucial at that point and beyond. A garrulous and inviting sort, the 49-year-old native of Midland, Mich., easily meets the standard that helps elect U.S. presidents: Would you like to have a beer (and a pizza) with him?
Doyle’s personality also came in handy in the major marketing campaign that Domino’s launched in 2010 to herald the changes. As part of a huge gamble based on communicating “authenticity” and “transparency,” Doyle himself appeared in ads admitting that the chain’s pizza used to taste “like cardboard.”
That was because the most important campaign element was to win over consumers by prostrating the brand for its past sins.
“We knew our new formula was dramatically better, and it gave us the confidence to try something that was pretty bold,” Doyle said. “But first we needed to accept and roll around in the criticism a little bit, so people knew we were listening to them. And it would give us credibility with them so they would accept the changes.”
Doyle started out with bit parts in TV ads and Domino’s soon found that getting the CEO – as well as other executives, and franchisees – to talk about the formula and brand change lent a sense of honesty and commitment to the advertising. Now that Domino’s brand identity is back on solid ground, the CEO has been easing out of ads.
Domino’s most apparent remaining weakness is stagnation in the U.S. market, where it hasn’t grown in overall number of outlets in nearly a decade and where even now the company is planning only about 1,000 more stores – while overseas plans call for several thousand more Domino’s.
Of particular concern is that tight credit markets are still keeping Domino’s single-unit operators in America from adding outlets while Domino’s itself keeps cutting back on company-owned stores here. “Their one weak link right now is U.S.-unit growth,” Speiser said.
Doyle is partially countering that difficulty with two initiatives: menu expansion and Domino’s prototype “pizza theater” stores.
Over the last few years Domino’s has added chicken wings, pasta dishes and “oven-baked sandwiches” to its traditional “hand-tossed” pizza. “Having a sandwich or pasta means that now we may get that order that we would have lost before,” Doyle said. Domino’s also is the only national player with a gluten-free pizza offering.
And in 2012, a fresh-dough pan pizza appeared on Domino’s menu for the first time. About 20 percent of U.S. pizza sales are pan-style, and they’re a big part of competitors’ menus. So Doyle foresees “a significant opportunity” for share growth by picking up business in the segment.
Domino’s customary store was optimized for production and delivery efficiency. But now that about one-third of pizza sales are pickups, Domino’s wants to make its locations more attractive and even inviting.
So a handful of company- and franchise-owned stores now have been built with a slightly larger footprint that opens up the production process to view by customers, gives them a screen to monitor the progress of their specific order, provides them a huge chalkboard where they can comment and, in many cases, includes a large-screen TV to watch while they wait, as well as limited seating.
The new stores cost 5 percent to 10 percent more to build. But Asmar — whose company has opened pizza-theater Domino’s in Royal Oak, Mich., and Northville, Mich., so far – believes they’re worth the investment. “Kids love them,” he said. “They provide a fun experience. It’s a motivational thing for the crew too.”
Famously in the annals of American business, of course, Domino’s was founded in 1960 in Ypsilanti, Mich., by Tom Monaghan and his brother, Jim, with a credit-union loan of several hundred dollars. Monaghan sold 93 percent of the company in 1998 and his remaining 7-percent share with Domino’s initial public offering in 2004.
In many ways – including an emphasis on quality and efficiency and a devotion to entrepreneurial fervor – Brandon and now Doyle have provided a lot of continuity.
Yet Doyle makes it clear that conservative political stands promulgated by Monaghan, a staunch and activist Catholic, and Brandon, a rumored GOP gubernatorial hopeful in Michigan several years ago, are not part of the company’s lexicon any more.
Instead, building a profitable business for the long haul is topic No. 1 at Domino’s these days. “We’re just a pizza company,” he said. “Our politics are about pizza, and that’s it.”
Much of the material in this story was previously published in a story by Dale Buss in the Detroit News.
