Domino's Pizza: I T A Key Competitive Advantage

Domino's Pizza Inc. chief executive Patrick Doyle gave a very positive projection for the company's growth in 2013 at its annual Investor Day event, saying the brand's heavy investments in information technology would help it win the "share game" in the United States and the "scale game" in its international division.

Doyle noted that the largest group of employees working every day at Domino's headquarters in Ann Arbor, Mich., is the IT department. That is significant, he said, because the chain sees itself as one of only a handful of restaurant companies with the technology infrastructure to grow rapidly abroad, where Domino's already has more than 5,100 units in more than 70 countries.

In the United States, where one-third of Domino's orders are digital, that commitment to online and mobile ordering and marketing is what would help the chain keep pace with Pizza Hut and Papa John's, who continue to take market share with Domino's from regional chains and independents.

The pizza category in the United States was growing a modest 1 percent to 2 percent, he noted. "The upside of the pizza business is that the restaurants are inexpensive to build, so the return on investment is higher," Doyle said. "But it's the same for everyone, which is why you see a lot of mom-and-pops. We put a lot into IT because it's not something a small player can do at the level we're doing it." Technology has been key to driving sales and improving unit-level economics in Domino's domestic system of nearly 4,900 stores, Doyle said. An improvement in store profitability would ultimately dictate renewed net unit count growth in the United States, which has been flat for years, he said, but U.S. expansion would only be "modest" once again in 2013, with the bulk of the company's total openings happening outside the United States.

The company's focus in the United States would be on taking market share while growing same-store sales, Doyle said, adding that its major competitive advantage in that quest would be its digital-ordering platforms.

He shared data from The NPD Group that found Domino's, Pizza Hut and Papa John's take in 85 percent of all online sales of pizza in the United States. "The three of us absolutely dominate here," he said. "This is a very tough place for the regional chains and mom-and-pops to play." The company's emphasis on technology also allows for digital promotions like this year's Domino's Dollars offer, which worked like a "classic packaged-good bounce-back coupon," Doyle said.

"We tried to drive more people to online ordering, because any time we can convert primarily phone-based customers to digital, it's a win for us," he said. "It also added more value to that first order � and since the $5 coupon off the second order was good only for 10 days, that added frequency." In all, digital orders increased 27 percent last year compared with the number of digital orders placed in 2011, chief information officer Kevin Vasconi said. The largest source of digital orders was the Domino's website accessed by a desktop or laptop computer, followed by mobile Web browsers on a smart phone or tablet, then Domino's iPhone app and its Android app.

"Every time we introduce a new channel, we don't see cannibalization," Vasconi said. "Or if we do, it's just for a little while. New channels mean new, incremental customers and more growth." He added in a highly technical portion of his presentation that Domino's would ensure its adaptability to new digital devices through its adoption of "responsive Web design," which allows the company to code its websites and apps to fit any screen size for new computers, phones or tablets. That investment would keep Domino's from having to make and maintain a new app for every new gadget that gets introduced, he said.

"This lets us get out to new platforms very quickly, and then if we see a device take off like the iPhone, we can build an app for that experience," Vasconi said.

In Domino's fast-growing international division, digital ordering also accounts for about one-third of total sales, which is about equivalent with the United States, Vasconi said. But nine markets exceed that percentage of digital sales, and three countries derive more than half of their sales from digital orders.

Highlighting how international expansion would benefit from such capability, Doyle noted that Domino's is one of only seven U.S.-based companies - along with Subway, McDonald's, Yum! Brands Inc., Starbucks, Burger King and Dunkin' Brands Inc. - with the brand recognition and infrastructure to grow in markets around the world.

"For whatever reason, the global players are those six public companies and Subway, and there are no big players based outside the U.S.," he said. "So when people ask when does the local competition grow up and start giving you problems in Asia, the answer is, they're just not there. This is a U.S.-based-company game today." In 2012, Domino's hit several important milestones, including its 10,000th store worldwide and its 5,000th outside the United States. India surpassed 500 stores, the United Kingdom opened its 700th, and Turkey reached its 250th.

Ritch Allison, the company's executive vice president of international, noted that Domino's has increased its market share in the fight for business outside the United States, from 3.5 percent of that pie through 2010 to 4 percent at the end of 2011. The brand's share of international delivery sales grew from 10.7 percent in 2010 to 12 percent in 2011.

Over the next 10 years, Allison added, total growth in pizza sales outside the United States is projected to grow an additional $30 billion, with delivery-carryout sales accounting for $13 billion of that total. Emerging markets will drive that growth and account for $18 billion of the incremental sales.

In addition to leveraging its technology advantage, he said, Domino's also would continue to support its master franchisees in international markets by matching high-potential corporate employees with those international operators and identifying opportunities where established franchisees can take on new territories.

"The key enabler of growth in any market is having strong leadership in place," Allison said.

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