How Domino's Is Winning The Pizza Wars

for decades pizza and chinese food were basically the only meals available for delivery but that's changing ubereats grubhub and other third-party delivery services mean that you can get anything from bagels to baked alaska delivered to your door that's bad news for pizza chain even for domino's america's number one pie maker after all the company built its business on fast delivery the pizza chain has seen same-store sales go slow amid the delivery boom still domino's has come back from much worse at the height of the financial crisis its same store sales shrank by 6.1 percent so how do dominoes manage to claw its way back and how can that help the pizza chain stay on top today a slice of pizza can come topped with gold leaf or caviar costing you up to 337 dollars but the dish has much more humble origins it first appeared in naples italy in the 1700s as food for the lower class when italians immigrated to the u.s so did pizza at the beginning of the 20th century new yorkers were starting to perfect the dish factory workers in a rush would pick up a slice for lunch new york was already a multicultural city in the early 1900s but if you were to visit a northeastern pizzeria at this time you'd likely be surrounded by mostly italian americans to become a mainstream favorite pizza needed a little help from a few restaurant chains popping up in the midwest domino's wasn't actually founded by anyone with italian heritage in 1960 tom and jim monahan two irish american brothers borrowed 900 to buy a pizzeria called dominic's within months jim gave up his half of the business to tom in exchange for a volkswagen beetle the same car that they were using for deliveries the company was now all tom's he changed the name from dominic's to domino's the original dominic store had grown into three domino's locations by this point in 1967 monahan started franchising restaurants new franchisees didn't have to pay an initial fee to open their own store instead they just had to manage an existing dominoes for a year the company focused on placing its stores near colleges and military bases both had lots of customers looking for a cheat meal unlike mom and pop pizzerias domino's was sufficient its ovens had rotating racks it had standardized the delivery box and all of the pizzas started to look the same too around the same time pizza hut and little caesars were also getting their start in the midwest little caesars had 50 stores by 1969 but pizza hut was far and away the fastest growing chain of the 1960s unlike domino's they wanted customers to eat their pizza inside their restaurants and it had more options a salad bar pasta dishes and alcohol in 1970 just 12 years after it was founded pizza hut opened its 500th location but domino's was doing its best to catch up by 1978 it had 200 stores and the chain just kept growing from there the pizza chain's 30 minutes or less delivery promise help set it apart from the competition domino's created the guarantee in 1984 and for nearly a decade the incentive worked but the company dropped it in 1993 after several lawsuits stemming from car accidents involving delivery drivers by 1998 domino's had thousands of stores and 3.2 billion dollars in annual sales monahan decided to sell the company so he could focus on philanthropy instead he found a buyer and being capital mitt romney's private equity firm a 93 stake went for 1.1 billion dollars in 1998. monahan retired from the pizza biz with money from the sale entered david brandon as the new ceo in 1999. before joining domino's he was the chief executive of coupon distributor velassis which had one of the biggest ipos of the 1990s in 2004 brandon took domino's public at the time it was a market leader in delivery pizza and only pizza hut had higher annual sales but there were already signs of trouble in the 90s frozen pizzas had their big break rising crust customers started choosing cheaper frozen digiornos pies over fresh options from domino's pizza hut or papa john's with a fresh pizza market shrinking competition between the biggest players grew fierce the pizza wars started heating up in the late 90s pizza hut even sued papa john's for false advertising papa john's had long claimed it used better ingredients for better pizza pizza hut disagreed arguing that there was no scientific evidence that said that fresh tastes better than frozen in the early 2000s china and india became new battlefields for these pizza wars as the three major american pizza players started to open franchises overseas to stay competitive domino's couldn't boost sales by hiking prices so starting around 2003 sales unsurprisingly flattened another big problem for domino's its pizza became forgettable as it cut corners on ingredients in order to keep its pizzas cheap domino's used frozen canned and pre-made ingredients to cut down on costs as the economy started to slip we were making independent changes that in in in small doses seemed like good ideas for example people were trying to drive a little bit of cost out of sauce and so they cheapened it and and they said we can save some money here and nobody's gonna notice and another team did the same thing with cheese and another team did the same thing with dough and with meats and what happened was that there was a collection of individually good ideas that all added up to one bad idea that meant that its pizza could be assembled quickly but customer satisfaction surveys showed customers just weren't satisfied papa john's better ingredients on the other hand made customers think that its pizza used fresh ingredients dominoes try to get creative it added new products like cheesy dots in 2004 and sub sandwiches in 2008 its rival pizza hut was also expanding its menu by reintroducing pasta but new menu products weren't solving domino's deeper problems a viral 2009 youtube video that showed domino's employees tampering with food only made things worse pizza hut was much better at using social media to sell its pizza domino's annual sales sunk to their lowest point since 2003 when the recession hit in 2009. pizza hut was still the market leader at this point but its sales also shrunk that year investors weren't happy in november 2008 as a financial crisis was wreaking havoc on the stock market shares of the pizza chain fell below three dollars domino's knew it had to get bold in late 2009 it launched an ad campaign that admitted what customers already knew domino's pizza wasn't good it had cardboard crust and ketchup like sauce the commercials told customers that they had totally reformulated its recipe with a brand new sauce and a garlic infused crust as folks realize this really is an improved product from what domino's had for years and years it's it's kind of been a snowball effect that continues to benefit dominoes to this day in the middle of its relaunch in 2010 domino's appointed patrick doyle as ceo he had been with the company for more than a decade as an executive now he was entrusted to lead its turnaround customers were buying the ad campaign and domino's pizza in fact the campaign was so successful that pizza hut later mimicked it in 2014 when it changed its own pizzas over the next couple of years domino's upgraded the quality of the rest of its menu with new items like its parmesan bread bites and artisan pizzas but under doyle's leadership the company's flashiest new products weren't pizza or pasta it was technology in 2008 domino's rolled out a tracker that let customers follow the progress of their order until it was delivered a feature that was revolutionary in the delivery business at the time the company continued to launch new features for the tech friendly customer in 2014 domino's was one of the first companies to roll out voice ordering on its app the company began offering zero click ordering in 2016 too open an app and your favorite pizza gets ordered doyle was fond of describing domino's as a tech company that just happens to make pizza by 2015 half of the pizza chain's orders came from digital channels like its app or website and out of all pizzas ordered online a whopping 31 percent were dominoes we've been doing this for 60 years and because we've built all of our technology and all of our data in-house you know that information that we gather on our customers is very sacred to us it's it's a competitive advantage we know where you live we know you're ordering preferences we know you know we make it as convenient as possible by tokenizing your form of payment if you want to pay via credit card there's a lot of data that we have we can do a lot of our testing with customers we don't want to give up that data to a third party who could theoretically end up using it against us getting its customers to order online has long been important for domino's revenue digital orders usually raise the overall receipt total with a full menu in front of them customers are more likely to order cheesy bread or a 2-liter soda the company has also used tech to focus on another big part of its business delivery at the same time that companies like amazon and alphabet have been testing drones so has domino's in fact the chain was the first to deliver pizza with one of the remote controlled aircrafts in new zealand and like walmart and uber domino's has tested self-driving delivery cars across the country and the company plans to test more autonomous vehicles in late 2019 in houston the spotlight on tech combined with better pizza has paid off for dominoes revenue more than doubled from 1.57 billion dollars in 2010 to 3.43 billion in 2018. in 2017 it overtook pizza hut as a market leader in the quick service pizza sector since 2010 its stock has risen more than 3 200 percent the s p 500 is only up 164 in the same period even after rich allison took over as ceo in june 2018 domino's tech focus has continued in early 2019 the company incorporated artificial intelligence into its loyalty program users just had to take a picture of pizza to get points to redeem for a free pizza but allison isn't just focusing on tech he also has a big plan to revolutionize the chain's delivery strategy third-party delivery services have made it possible to deliver any kind of food that means that consumers options are virtually limitless delivery platforms are also ramping up their advertising on its last two earnings calls executives have said aggressive marketing activity from third-party delivery apps put pressure on domestic same-store sales on its second quarter 2019 call allison said that domino's continues to doubt the business model of delivery services for restaurants third-party delivery can be a double-edged sword it can introduce customers to a new eatery and boost sales but delivery services like ubereats and doordash charge restaurants for every order placed on their platform a 20 or 25 percent commission fee takes a big bite of restaurants razor thin profit margins and as the delivery market grows more crowded third-party providers are pushing discounts to gain market share morgan stanley estimates that third-party aggregators will bite off one to two percent of domino's u.s same-store sales i do think it is a threat near term but i think at the same time if you look at a lot of the delivery aggregators right now um very few of them if any are actually making money and i think there's going to be some changes to their business model whether it be either raising prices or extending to other non-uh restaurant type products or get more aggressive into that space and as that happens i i see a layer of disruption and that's where dominoes can maybe recapture some of the share they've lost in that regard um in other words i think there is room for for the delivery aggregators to be there but i don't think at the end of the day domino's is going to lose its uh dominance in that field particularly as it pushes new technologies and the boundaries with the technology that it already has still to compete with ubereats and seamless the company that promised to deliver a pizza in 30 minutes or less is trying to shave that time down even more their plan open a lot of stores by 2025 allison wants to add 2 000 more stores more stores don't necessarily mean more sales in fact analysts think that new locations are stealing sales from existing domino stores however more locations does mean shorter delivery time and bigger tips for drivers focusing on short delivery times has always been key to helping domino's maintain its lead as the largest global pizza chain now domino's is betting that it will help the chain reach 25 billion dollars in sales by 2025

Channel: CNBC

Views: 4,941,291

Keywords: CNBC, business, news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable, cable news, finance news, money, money tips, financial news, Stock market news, stocks, domino's pizza, dominos near me, dominos voucher, dominos online, dominos vs pizza hut, are dominos, which dominos pizza

Id: FWu2rkffYvg

Length: 14min 29sec (869 seconds)

Published: Thu Jul 25 2019

Reddit Comments

[u/hishose_56]

I feel like this an ad

[u/DozerM]

The only time I get near Dominos is when corporate buys lunch. I spend the rest of the day updating my resume.

[u/closetedagnostic14yo]

Why say many word when few do trick.

[u/Deadboytim]

Local pizza will always Trump dominoes

[u/SpongeforInformation]

Dominoes was a good pizza when you were already drunk and had no sense of taste and wanted a cheap alternative to a real pizza place that was already closed, then they changed their sauce and even with dulled taste buds their pizza sucks.

[u/00MarioBros00]

This girls voice is annoying.

[u/MalignanceDefined]

I would rather eat Cicis pizza.

[u/[deleted]]

Dominoes is by far the best pizza in the UK. Pizza in the uk is so bad I didnt even consider it a valid food option until I tried NYC street pizza. Dominoes isnt close to that, but it's a load closer than the standard british takeaway pizza. Too much base, too much cheese, not cooked long enough, soaked in grease. Dominoes is at least not wet.