For Sizzling Domino's, the Future is 100 Percent Digital

To say J. Patrick Doyle is leaving Domino’s on solid footing would be a comical understatement. The pizza chain’s domestic same-store rocketed 8.3 percent, year-over-year, in the first quarter, giving it 28 consecutive periods of positive growth. Internationally, comps rose 5 percent, marking the 97th consecutive quarter of same-store sales gains. For some perspective: When Doyle took over for David A. Brandon, who stepped down March 7, 2010, Domino’s shares were trading for $11.90 on the stock market. They were moving at $247.74 Friday afternoon.

But even with just a couple months left before Doyle’s June 30 retirement, and the promotion of Domino’s International president Richard Allison, Doyle spent much of an April 26 conference call talking about the future.

Mainly, Domino’s eventual goal of becoming a 100 percent digital business.

Zero question pizza is one of the most competitive segments out there, but if Domino’s can pull this off, Doyle said the company would continue to take share, no matter what its peers are doing.

“Don't underestimate what a big deal that could be for store-level profitability and for customer convenience,” he said.

Domino’s is currently north of 60 percent on its digital orders, and 10 percent walk-in. About 25 percent or so are call-in phone orders.

Doyle didn’t give a timeframe for how long it would take Domino’s to hit 100 percent digital. He’s simply confident the company will get there, with or without him at the controls. “It continues to grow, but now we've figured out a way that we can get this to be in a fully digital business. And I can't give you a timeframe on when that's going to happen, but I can tell you it's going to happen,” he said.

Let’s dive into Domino’s digital evolution. Just last week, Domino’s revealed its “Hotspots” delivery campaign, which allows guests to pick up pizza in franchisee-selected sites, eliminating the need for a traditional address. Or, just giving customers the choice to order pizza to a public place, like a park, if they’re away from home and don’t want to run back, or find the nearest Domino’s store.

Doyle said this is live in almost 200,000 locations already, and called the platform a “game changer within our space.”

“The ability to now deliver to spots without a traditional address and other rather unexpected sites will not only continue to drive incremental orders in the near term, but it is yet another meaningful step on our mission of industry-leading convenience, and the ability to order from us anywhere, anytime,” he said.

This past Monday, Domino’s went public with an artificial intelligence pilot it’s running in 20 stores, with more expected to join in the coming months. Through its virtual ordering assistant, DOM, the technology takes phone orders digitally. Doyle said Domino’s is on the path to receiving all orders digitally across every channel, and this is a major step. “I'm not big on hyperbole, but this could be a game changer for us and our customers,” he said.

“The big thing is all of the calls are getting answered,” he added. “They're going to get answered in the same way. They will all be upsold … But from a labor perspective, what we think is maybe most important is the fact that people are able to focus in stores, fundamentally, on two things: On making pizzas and on getting them out the door and taking care of customers who are coming into our stores. So it is ultimately about driving sales through better customer satisfaction.”

As for the walk-in guests, Doyle said, “those can be handled with kiosks.”

"Delivery aggregator economics remain challenging and unproven, and those making attempts to succeed in this space are likely realizing something we have known for almost six decades—delivery is hard." — Domino's CEO J. Patrick Doyle.

Doyle provided a glimpse into the process.

Orders shows up on the make-line screen, and it doesn’t matter if they came from voice, from tweets, off a laptop, app or anything else. They’ll simply drop into the store. There is no handoff that has to happen where mistakes can be made.

“So all of these foundational things that we've been doing, having one point-of-sale system, one online ordering system that is able to funnel all of these things in, this funnels into that exactly the same way. So the order just drops on to the make line and the people making great pizzas get to work on fulfilling that order,” he said.

Domino’s core business is allowing it to envision this future, Doyle said. In the first quarter, delivery grew faster than carryout for the first time in several quarters.

On this topic, Doyle said Domino’s is seeing negligible impact from the rise of third-party delivery across the quick-service lexicon. In fact, the muddy logistics are helping Domino’s stand out.

“Delivery aggregator economics remain challenging and unproven, and those making attempts to succeed in this space are likely realizing something we have known for almost six decades—delivery is hard,” Doyle said.

“It is all about our execution on delivery. And we do that extraordinarily well. You will probably find research out there already about the customers' experience with the third-party aggregators, and we remain confident that we are better at delivery than anybody out there,” Doyle added.

Doyle called third-party delivery a “prisoner’s dilemma” for the industry.

With everybody doing it because, well everybody is doing it, Doyle said it’s not accelerating the overall growth of the category.

“Then I would argue it is not in total incremental,” he said. “For an individual brand, if they don't do it and everybody else is doing it, then that may cost them a little bit. But the question is, what does it cost their margin to be adding that in if it is not adding to the overall growth of the restaurant category? And I think that's where we are.”

Domino’s had global net store growth of 110 stores in Q1, including 79 net new international units, and 31 net domestic restaurants. Domino’s has opened 966 net new stores over the last 12 months. There were 5,649 total domestic units (397 company owned) and 14,966 total as of March 25.

First quarter earnings per share were $2, up 58.7 percent over the prior-year period. Revenues increased $161.2 million, or 25.8 percent, and net income boosted $26.4 million, or 42.2 percent.

“When I took this job I set out to achieve three things. First, I wanted Domino's to provide the best return for our franchisees in the restaurant industry by creating the dramatically better experience for our customers. Second, I wanted to ensure succession strength and have a leadership team and CEO in place that would be ready to take the business forward,” Doyle said. “And lastly, to become the number one pizza company in the world by the end of the decade. When I set this last goal, it was clearly a stretch, but my confidence in our franchisees, our leadership and every single person who passionately works to make this brand just a little bit better each and every day, left me little doubt that we would get it done.