Domino’s Pizza: Bites through Bytes

Peering out of the window of his uber at 1:30 AM EST, he pondered what his next move would be. The thought of pizza suddenly rushed into his mind causing him to grab for his phone. Approximately 90 seconds later, his order was placed: two golden medium pies of pizza and a side of stuffed cheesy bread. Suddenly, he found himself in an unexpected race against time: the Domino’s Tracker^® tool estimated exactly where along the production process his order stood. Everything seemed so transparent and the order was being processed lighting fast. Mr. Randomcaseprotagonist found himself pondering, “Will I get home in time to enjoy my pizza – pizza that was cooked by Ecem, my favorite Domino’s pizza chef?”

Business Model

Domino’s ability to create value for its customers, capture value for its shareholders, and share value with its ecosystem centers around its ability to deliver customers delicious pizza in a convenient and consistent way. Since its founding in 1960, Domino’s has maintained pizza delivery as core to executing against this business model and has maintained its leadership position in the space by continuously investing in, adapting, and improving it’s operating model. [1]

However, in the “pizza” business, there are limitations to the operational levers that can be pulled in order to maintain a competitive edge. For example, the traditional benefit of sourcing leverage that operational scale provides has a limited benefit for Domino’s in that a 20% saving in raw material purchase price only reduces the price of pizza by ~$1-$2/pie, which is not nearly enough to attract/retain most customers. In a higher price per purchase industry such as automobiles, however, a 20% difference in the price dramatically alter the purchasing decision process.

Recognizing this, Domino’s has invested significant time, effort, and capital towards continously improving its operating model to build a differentiated customer experience that serves as a “moat” against competition.

Operating Model

Domino’s is the leading pizza delivery company in the world, operating approximately 12,000 stores in 80 countries around the world, delivering more than 1,000,000 pizzas a day. [1] One would not think of Domino’s as a “tech” company, but it actually invests more in its Information Technology department than any other department in the company. This is because Domino’s operating model heavily relies on the use of digital technology to maintain its edge in pizza delivery. In fact, today, Domino’s is consistently one of the top five companies in terms of online transactions (behind the likes of Amazon and Apple), about 50% of Domino’s sales in the U.S. comes through its digital ordering channels, and 95% are done through their apps. [2]

Technological Innovations in Delivery: In recent years, Domino’s has made major advancements in online and mobile pizza ordering, allowing it to competitively differentiate itself from traditional pizza rivals such as Papa John’s and Pizza hut as well as smaller mom and pop shops. One of the most visible consumer facing innovations is the Domino’s Tracker^® (referenced above), which is a visual progress bar that provides customers with real-time updates on their delivery as it makes its way through Domino’s supply chain.

 

 

 

 

 

While not particularly complex on the surface, this innovation was tremendously expensive and complex for Domino’s to implement because it required the company to digitally link each step of their production and delivery process in a way that it could be visually displayed to customers on a real-time basis. However, the value this technological capability provides Domino’s and its customers is equally significant. From the customer’s perspective, the transparency this tracker created eliminated many of the “unknowns” as it relates to pizza delivery (no more guessing and/or calling the store multiple times to ask where the pizza is!), and as a result,  significantly improved levels of customer satisfaction. For Domino’s, tremendous value has been created because the improved customer satisfaction leads to a higher likelihood of a repeat and/or word of mouth purchase.

Intentional Innovation Process: This is just one example of an innovation Domino’s has implemented in it’s operating model to maintain its edge in executing its business model. In order to generate such innovations, Domino’s utilizes the “fast-fail” managerial approach that is most famously applied in Silicon Valley firms (such as Facebook) to ensure they are providing innovative products for ever changing consumer demands. This approach/mantra is an organizational ethos that stems from a debacle/recovery it experienced when it publicly acknowledged in the late 2000’s that its pizza tasted terribly and that it was doing everything it could to listen to customers and fix its pizza. The organizational learning from this experience was that failing often leads to product/process improvements (see results below) and, therefore, that risks should be embraced. [3]

This approach led the company to embrace innovations such as the Domino’s Tracker, investments in iOS and Android Apps, partnerships with Ford (to order pizza directly from the in-car control panel), and Siri/voice based ordering. By continuously investing in operating model innovations, Domino’s is doing its best to ensure that they maintain a leadership position in delivering customers superior total value which will result in continued shareholder value creation.

Risks: By leveraging technology and data, Domino’s is able to remove much of the friction that previously existed in the pizza delivery process. However, as they continue to push further into the digital technology/connectivity, Domino’s management team remains conscious of cyber security risks and how sensitive their good/service (highly discretionary) is to a change in perception about personal information security. [4]

 

[1] https://biz.dominos.com/web/about-dominos-pizza/

[2] http://www.npr.org/sections/alltechconsidered/2014/11/04/359829824/dominos-becomes-a-tech-company-that-happens-to-make-pizza

[3] http://pizzaturnaround.com/

[4] http://www.pwc.com/us/en/ceo-survey/ceo-interviews/patrick-doyle-dominos-pizza.html