Get a Slice of This: Domino’s Dominates Pizza through Digital
Domino’s builds customer loyalty and lowers costs with best-in-class digital tech
After hitting rock bottom in 2009 (when its CEO publicly apologized for how bad its pizza tasted), Domino’s has undergone a dramatic makeover and become a posterchild for 21st century food business. Since 2010, the company’s stock price has increased 700%, crushing competitors like Pizza Hut, Papa Johns, and even McDonald’s, who have experienced anemic results by comparison. The company’s overhaul of its menus, recipes, and ingredient lists was a necessary but insufficient condition for its impressive growth. The real fuel for Domino’s success has been the relentless prioritization of digital and mobile tech across its operating model, making it an unlikely winner.
Since 2009, Domino’s has aggressively incorporated digital technology into its ordering process, creating easy-to-use apps that cover nearly all smartphone types on earth. It launched an online portal where customers can customize their favorite pizza combinations and order in a few clicks. In May of this year, the company even began allowing customers to order via tweet, further expanding its reach into the mobile devices of its young customer base. Coupled with swift expansion into new markets, this strategy has paid dividends. The company’s online/mobile business now accounts for more than half of its revenues and orders in the US, which is only going to increase.
Getting mobile right has allowed Domino’s to create more value than its competitors (through improved convenience and customization), but also to capture more value by cultivating loyalty and efficiency. What Domino’s realized is that a huge portion of the value in food delivery is its convenience—not just the taste or quality of the food. Pizza customers are fickle and hardly loyal. A boozy college kid who needs food at 2am is not going to be particular about where his XL Meat Lover’s pie originates. But you can bet that he will care about how quickly and easily he can get it. Tweeting “@dominospizza please send me my usual” is just about as convenient as it gets. Value creation? Check.
Like many online retailers, Domino’s stores customer information, including credit cards and billing info. Saving info and preferences has lowered the barrier for customers to return, boosting loyalty and allowing Domino’s to capture more value. Taking orders online (rather than on the phone or in person) allows Domino’s to eliminate data entry steps from its operations, which frees up its labor force to focus on making and delivering pizza. As well, new digital tools on Domino’s backend allows the company to automatically route orders to the store with closest proximity and/or the most capacity to fulfill them. These shifts lower Domino’s costs and improve efficiencies, effectively giving them a bigger piece of the value pie they create. Value capture? Yep.
Integrating digital technologies into Domino’s operating model has not been without costs, however. Training expenses and timelines have been increased by incorporating new tech tools, and those training periods are now the primary drag on Domino’s international expansion. As soon as the company has reached a critical mass in a new overseas market, however, efficiencies emerge and these new costs decline. Since the company is opening stores at a breakneck pace and continuing to build out new features on its applications, no other restaurant chains have been able to match its online presence.
Will Domino’s success continue? While many other food companies will likely follow suit (many already are), Domino’s has a significant lead in terms of user adoption and internal systems equipped to expand. They are already beginning to enjoy scale economies routed in their tech (particularly in their important supply chain segment), which will continue to pay off as they plug new stores into their infrastructure. They’ve set a very high bar for food delivery in a digital age, and their shareholders aren’t the only fat and happy beneficiaries of the strategy.
I am both a believer in everything you’ve suggested and a beneficiary of the service 🙂
The key question for me is, will dominos be able to amortize the fixed costs over enough volume and efficiently utilize their delivery assets? Platform delivery services are disruptive because deliverypeople can work only when demand is highest – making utilization of those contractors 100%. Dominos needs to believe that the vertical integration can bring down overall costs sufficiently or deliver a premium service that customers will pay for.
Great read!
I am a huge fan of Domino’s for the reasons you mentioned above. Another convenience factor for me is their tracker tool. After I place my order, I can track where the pizza is in the order process (prep, bake, delivery, etc.). One of my biggest frustrations with ordering food for delivery is that I am usually stuck waiting for an order and have no idea why it’s taking so long. The tracker tool lets me avoid this frustration and is one of the reasons I’m still loyal to Domino’s.
I’m also a big beneficiary of this service!
It’s funny because when Domino’s started releasing some of these features, it all seemed like a marketing gimmick (e.g. ordering via tweet – who actually does that?). But now, as you said, it’s clear that Domino’s is prioritizing their digital experience, and now it’s basically unfathomable to me to order pizza from anybody but Domino’s (unless you’re going for more “artisanal” pizza, but that’s really a different product I’d say).
I agree with Rob’s worry about their delivery asset utilization. My bigger curiosity is why Domino’s maintains its own delivery force at all – from companies like Seamless and Caviar, we’ve seen that restaurants can somewhat pool together their delivery assets, which saves all the partners some money. In some sense, platforms like Seamless and Caviar are similar in that they allow restaurants to “outsource” their online ordering systems – now a restaurant doesn’t have to develop its own system, but rather pays some fee to use Seamless’s.
So an interesting question is why Domino’s decided to build its own online ordering system. Yes, it gives them greater control over the experience and allows for interesting customizations, but is it worth the long-term cost to upkeep when companies like Seamless are offering basically the same functionality?
Because Domino’s decided to build its own solution, it again makes me think that a lot of this could almost be viewed as a marketing expense – the dedicated ordering user experience is a way to draw in and retain users. I’d be very interested to see, in the long run, whether its projects in this arena can help out operationally or in some other way – there’s much more to a “digital revolution” than marketing.
No doubt, Domino’s Pizza was able to capture un-loyal pizza eater like myself using their user friendly app and website.
This technology upgrade they have done is clearly helping them to up-sell and cross-sell by offering various promotions to their clients.
I really enjoyed your post! Your post made me think about the potential impact the rise of Seamless and Postmates has or could have on Domino’s and/or the competitive landscape. Do you think these services will undermine the competitive advantage Domino’s has created for itself? And what prevents Domino’s competitors from trying to copy and replicate Domino’s digital tech strategy? How would you think about the importance of digital tech capabilities for Dominos compared to a non fast food player?
I see Rob’s point, but I suggest that maybe Domino’s could even benefit from the emergence of food delivery platforms (like DoorDash), and their use of contractors, by outsourcing that task to them. There really are three different parts of the value chain: receiving order (Domino’s or DoorDash’s app, Twitter, etc.), making the food (Domino’s and other restaurants), and delivery (currently done by both Domino’s and DoorDash). I see room for both to coexist in the first part of the chain, and a way to efficiently partner for the last one.
Dominos’s mobile offering has definitely been effective at putting it ahead of the competition as well as thinning my wallet. That being said digital technology moves fast and I believe soon other pizza chains and other restaurants (big and small) will be able to contract with ecommerce providers such as Shopify and Squarespace to give a similar offering. Once this occurs I am curious where Dominos will go to stay ahead of the competition. Thanks for the post!
Great post! I think Dominos has done phenomenally well in using tech to capture consumers like me who were it not for the online interface, would probably never order pizza from there. The experience is pretty great and even with all the gimmicks, I still love the fact that I can track my pizza and I know that I will get exactly what I ordered. Furthermore, I love that they have integrated the front end with back end tech for their operations allowing them to streamline their process from end-to-end. This is the stuff that our TOM profs dream of! Yes, I agree with the concern that their digital strategy this may be replicable but I now certainly never think to try to order pizza online from Pizza Hut or any other chains. I wonder how many other consumers they have managed to lock-in (for the time being) and whether this may actually make it harder for others to get in on the action?
Great article! Domino’s has long been a great love of mine. From mid-afternoon to 2am cravings, Domino’s has been clutch on many occasions. I think the company has the advantage of being one of the first to incorporate digital technology. For example, you can currently text the [pizza emoticon] on an iPhone in order to get your pizza delivered. I wonder what kind of contract or arrangement, if any, Domino’s made with Apple and if they will retain the right to this feature. I also love Domino’s tracker – similar to Uber, by letting customers be in on the process, companies can better retain loyalty in the long run.
Thanks!