Domino’s streamlines menu rollouts, puts focus on digital

Domino’s Pizza Inc. is pulling back on its menu rollouts and putting a new focus on digital innovations that improve customer experience, according to chief executive Patrick Doyle.

Going forward, new product news coming from the chain will not be limited to menu items, Doyle said during a call to discuss results for Domino’s Sept. 8-ended third quarter.

“We’re running national television [ads] talking about the speed and ease of ordering digitally from Domino’s, which is not something we’ve taken head-on before,” Doyle said. “We’ve still got a very good pipeline out there, but we’re not in the ‘product of the month club’ anymore. We’re building momentum by focusing on fewer, bigger things that truly enhance the experience for the customers.”

He pointed to the chain’s current push for customers to create “pizza profiles” on its digital ordering platform, which now accounts for about 40 percent of its orders in the United States. The updated system aims to streamline the ordering process and improve guest satisfaction levels by letting customers save their favorite orders and place those orders faster on subsequent visits.

Such innovations helped drive a 5.4-percent increase in Domino’s U.S. same-store sales during the third quarter, said Doyle.

“The easier we make it for people to order pizza, the more pizza they’re going to order, simple as that,” he said. “In restaurant industry terms, when you improve service times, good things happen in your business. … When you get somebody to sign up and fill out a profile and enter their credit card so they can access that again, once somebody’s gone to the trouble of doing that, you’ve upped the relationship with that customer. It’s going to have a good effect on sales, we hope.”

All the metrics Domino’s tracks per order improve with digital ordering, he said. Customer retention has increased, for instance, as guests migrate online because their satisfaction levels rise, which also leads to higher frequency and average check per order.

Domino’s has even more room for growth outside the United States for the adoption of digital ordering, which is one reason the company is so bullish on international growth, even after 79 consecutive quarters of same-store sales growth abroad, Doyle said.

The 5,627-unit international division derives just under 40 percent of its sales from digital ordering, “but that’s with a very broad mix” from country to country, he noted. Digital ordering accounts for more than half of sales in Japan and Korea, but some markets still do not have the capability, Doyle said. Online orders account for about 10 percent of overall sales in India, a major growth market where Domino’s has the most scale of any Western quick-service brand, he said.

“There is as much or more of an opportunity for this outside the U.S. as in the U.S., because we’ve been earlier on the curve on international than we were on domestic, and it’s less developed in a lot of markets than it is in the U.S.,” Doyle said. “I’m confident that it will continue to be a big driver for us.”

Within the U.S., he added, Domino’s and its two biggest competitors, Pizza Hut and Papa John’s, are out to such a large lead on digital development compared with regional pizza chains and independents that the national players should continue to take market share from their smaller rivals.

Streamlining new menu launches

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Executives said Domino’s improved digital ordering platforms are “enabling” a menu strategy of fewer, more impactful food rollouts.

“In the past, we’d launch products and say, ‘We hope this is something that could be permanent,’” Doyle said. “But when it went off the air, people didn’t have that reminder, and we’d see the [product’s menu] mix drop off, and eventually we had to pull it off the menu. With the digital platform, it allows us to build on the menu and add things that are going to stay there … and have incrementality after launch.”

Doyle said Domino’s would introduce fewer, better menu items going forward to meaningfully increase sales, following the example of its Handmade Pan Pizza launch last October after years of development. Rather than replicate an aggressive promotional strategy common to the pizza industry, with new limited-time offers every six to eight months, Domino’s will take its time to get the big platform launches right, he said.

Doyle noted that Domino’s Handmade Pan Pizza performed well in its domestic system of 4,939 restaurants. But the chain did not rush to fill a void with new product news in its advertising, nor would it necessarily need to in the coming fourth quarter, when Domino’s laps the launch of pan pizza and a 4.7-percent year-earlier same-store sales increase.

When asked on the call if a worsening consumer environment could dissuade Domino’s from its deliberate pace of releasing new product or technology news, Doyle responded that the current low-growth economic situation has been in place consistently for the past few years.

“But I see more upside than downside,” he said. “It could still get better and turn into some tailwinds for us.”

The chain expects commodity inflation to remain flat to slightly down next year, which might help offset the consistent challenge seen in the consumer environment, but Doyle speculated that the pizza category’s rate of discounting and promotion would remain “steady as she goes” in 2014.

“I don’t know that I would see the environment changing enough next year that I would expect pricing to materially adjust,” he said.

Ann Arbor, Mich.-based Domino’s Pizza Inc. operates or franchises 10,566 restaurants in the United States and more than 70 international markets.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN