Domino’s Pizza’s Strategy for Staying On Top
Chances are when it’s a Friday night and you are thinking of ordering in, pizza comes to mind. It’s the quintessential comfort food. Domino’s Pizza is often top of mind because it sells more pizzas than anyone else in the United States.
Domino’s Pizza’s success is not by accident. Former Domino’s Pizza CEO Patrick Doyle has described Domino’s as “a technology company that delivers pizza.” The pizza chain also realized the importance of delivery long before many other retailers. If you are curious about how Domino’s Pizza is able to dominate the likes of Pizza Hut and Papa John’s then consider these six keys to its success.
1. A strong delivery infrastructure. If you are planning on ordering pizza tonight and want it from Domino’s Pizza in most cases you have to close your Uber Eats app and order directly from Domino’s Pizza. Domino’s Pizza has its own delivery infrastructure and has resisted using third parties like Uber Eats or DoorDash to deliver. This allows Domino’s Pizza to own the customer experience. When restaurants use third party delivery companies they place a lot of faith in those companies to provide the same level of customer service they would offer if they were doing it themselves.
If you order delivery frequently then you probably have had at least one bad experience. Did your driver not show up? Or was he or she an hour late? Was your food cold? All sorts of things can happen. But when an issue does arise even though Uber Eats might make the delivery if your food is cold you may grow sour on the restaurant you ordered from. The worst part is the retailer often doesn’t even know there was a problem in the first place.
Another issue is that restaurant delivery is a great service for customers but it’s costly for restaurants. “We struggle a little bit understanding the long-term economics in some of the aggregator businesses,” said Domino’s Pizza’s former chief financial officer Stu Levy. “You know, in 60 years, we've never made a dollar delivering a pizza. We make money on the product, but we don't make money on the delivery, so we're just not sure how others do it.” “We have some questions about the viability of that long term, if you're an independent, paying exorbitant fees for a third party to step into your value chain. So when does that all shake out? Your guess is as good as ours."
Using third party aggregators like Uber Eats or DoorDash also limits the retailer’s access to customer data. “It just doesn't make sense for us or our franchisees economically. And if it doesn't make sense, economically, it certainly doesn’t make sense to take the risk of sharing all of our customer data with these third parties,” says Richard Allison, Domino’s Pizza’s former chief executive officer.
While Domino’s delivery business has always been a source of pride for the pizza chain it has recently come under fire. In the fourth quarter of 2022 same store delivery sales at Domino’s were down 6.6%. “Inflation impacted delivery due to the added expenses of fees and tips on that channel. Our research shows that a relatively higher delivery cost during inflationary time leads some customers to prepare meals at home instead of getting them delivered,” said Domino’s CEO Russell Weiner. “We believe this dynamic will continue to pressure the delivery category in the short term, as long as consumers’ disposable income remains pressured by macro-economic factors.”
But with sales down analysts think it might be time to revisit Domino’s reliance on its own delivery structure. Fourth quarter results and a lackluster forecast for Domino’s for 2023 signal a “large step back in the company’s business model recovery and perhaps adds fodder to the bear case that 3PD [third party delivery] has permanently altered the competitive landscape for delivery-centric pizza players for the worse,” said Jon Tower, an analyst at Citigroup.
2. Carryout. While Domino’s has a strong delivery business it is also focused on boosting its carryout business. Carryout has a lower cost structure than the delivery business because Domino’s does not have to pay drivers. To get more customers to opt for carryout Domino’s employs what it calls a “fortressing” strategy where it tries to locate many stores within the same market so customers do not have to go very far to get their pizza order.
Domino’s also gave customers a $3 coupon during certain time periods last year if they picked up their order. The coupon could then be used on an order placed the following week.
3. A leader in innovation. Domino’s Pizza has also long been known for innovating in the delivery space. In the 1980s Domino’s Pizza purchased 10 Tritan Aerocar 2s, a Jetsons like three-wheeler and used them to deliver pizza. Domino’s Pizza thought the cars could be the future of pizza delivery. In 2015, Domino’s Pizza altered a Chevrolet Spark so that it had only one seat and contained a built-in warming oven, that could keep pizza’s warm while delivering them to customers.
In 2016 Domino’s Pizza was the first company to complete a commercial drone delivery of pizza. The order took half the time it would normally take than if it was delivered by motorcycle. A pizza loving couple in New Zealand were the first customers of this test. Domino’s Pizza believes that drone delivery will be an essential part of its delivery service in the future.
Domino’s Pizza then teamed up with Ford in 2017 to test self-driving cars for delivery. The tests took place in Ann Arbor Michigan home of Domino’s Pizza’s head office. Customers had to agree to participate in the test and they received a text message alerting them when their food arrived. Once they knew that the pizza had arrived the customer walked outside and retrieved the pizza from the car.
Domino’s is Pizza is now partnering with Nuro a driverless delivery company to test delivering pizzas using autonomous vehicles. The pilot is taking place in Houston and if a customer chooses to have pizzas delivered by this method they can see where their delivery is real-time. Customers also receive a code they must enter on a touchscreen to open the autonomous vehicle once it arrives so they can retrieve their pizza.
Domino’s Pizza and Nuro’s pilot of autonomous delivery
"There is still so much for our brand to learn about the autonomous delivery space," said Dennis Maloney, Domino's Pizza’s former senior vice president and chief innovation officer. "This program will allow us to better understand how customers respond to the deliveries, how they interact with the robot and how it affects store operations."
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4. A strong digital business. It’s hard to keep up with the number of ways customers can place a Domino’s Pizza order. Take Twitter for example. To order by tweet customers must first create an online account with Domino’s Pizza and save their favourite Domino’s Pizza order. Once complete customers can order by tweeting @dominos the pizza emoji. Upon receipt of the tweet Domino’s Pizza confirms the order by direct message on Twitter and then the order is placed.
Domino’s Pizza was also the first pizza and quick service restaurant to allow customers to order digitally using voice commands using Amazon’s Alexa enabled devices such as the Echo. If a customer says “Alexa open Domino’s” then the customer is led through the ordering process.
Customers can also order by text, Facebook Messenger, Slack, their Apple Watch, and Domino’s app. Domino’s investments in technology have paid off. More than 75% of Domino’s sales are ordered digitally up from 70% before the pandemic.
5. Great tasting pizza. Domino’s Pizza isn’t afraid to air its dirty laundry. A little over a decade ago Domino’s Pizza had lost its way. It’s pizza simply wasn’t up to par. In focus group studies customers said this about Domino’s Pizza: it’s the “worst pizza I ever had”; “the sauce tastes like ketchup”; and “the crust tastes like cardboard.” Domino’s Pizza took the comments to heart and started from scratch to revamp their recipes. They worked around the clock to elevate their pizzas and guess what? It worked. Domino’s Pizza changed everything including the crust, sauce and cheese. They even made the focus group data public and showed their customers they take their feedback seriously.
Speaking about the decision to revamp their recipes the chief marketing officer at the time, Russell J. Weiner said: “everyone knew — and there were a lot of analytics behind this — that we got high marks for delivery, convenience, and value. We thought the opportunity existed to get credit for taste, too. We know that a lot of people hadn't tried us since college, or had stopped ordering from us five, 10 years ago. The idea was if we could win back some of those people, that would be a big opportunity.”
“You can either use negative comments to get you down or use could them to excite you and energize your process of making a better pizza, we did the latter,” said Doyle. You can have the fanciest tech in the world but if you don’t make good food then you aren’t going to be on top for long.
6. A loyalty program you want to join. With over 27 million active members Domino’s Pizza has one of the largest loyalty program memberships in retail. Having so many members means that Domino’s Pizza has a treasure chest of data it can use to among many things provide customers with more targeted offers. “It’s a huge luxury to be able to have that data because it opens up many more opportunities to use digital tools that allow us segment consumers and do precision marketing in a way that is very difficult to do on the supplier side, like in consumer packaged goods,” says Art D’Elia, Domino’s Pizza’s executive vice president of international.