Why Domino’s will eat Pizza Hut’s lunch
We interviewed Domino’s CEO, Patrick Doyle, in his office on the third floor of the Domino’s Farms complex.
Photos by Michael Raffin, MARS Photo and Design
We’re not quite to the point where a fresh pizza magically arrives at the first moment our stomachs growl, but we’re getting awfully close. From the perspective of even a few years back, the new Domino’s Zero Click app—where the customer does nothing more than open an app to place an order—is the clearest evidence yet that President and CEO Patrick Doyle’s massive investment in IT is bearing fruit as the company works at a breakneck pace to develop industry-leading technology and overtake Pizza Hut as the largest pizza delivery company in the world.
Linking to customer loyalty accounts, Zero Click is the logical conclusion of what’s possible with restaurant apps—it truly couldn’t get any easier. Open the app and a 10-second kitchen timer appears. Do nothing but watch it count down to zero, and bam, your pre-existing favorite pizza order is automatically placed and on its way to your door. While it broke new ground in the restaurant app space, it was also the moment Doyle defined his time as the head of this fast-growing company.
One might feel skeptical when this $10-billion franchise says it’s now more of an e-commerce firm than just a slinger of pizzas. But, in seeing the technology up close, wandering through its massive IT department and talking with Domino’s executives about innovations coming in the future, there’s very little doubt this technology pioneer and Wall Street darling has a few more dazzling tricks up its sleeve.
For as high-tech as its headquarters is from within, the view of the surrounding Domino’s Farms on the outskirts of Ann Arbor, Michigan, is surprisingly pastoral.
Overlooking the farm
Sitting in the glassy lobby of its HQ that’s the anchor tenant of Domino’s Farms—a million square foot agrarian-meets-office development developed by company founder Tom Monaghan—I waited for my meeting with President and CEO Patrick Doyle. Killing some time as I wandered, I spotted him in the cafeteria grabbing a coffee and shooting the breeze with employees who were doing the same.
For the CEO of one of the planet’s largest restaurant companies, and the 11th largest franchised brand per the Franchise Times Top 200+ ranking, Doyle is an easy-going guy with a friendly Midwestern charm. In his office, he points out comfortable chairs away from his desk and promptly asks that I call him Patrick.
“Thank God we didn’t bring you in when we put up something awful,” he joked, referencing the spectacular quarterly results that received fawning investor press in the days before my visit.
During the previous quarter, its revenue rose nearly 17 percent, net income grew almost 25 percent, earnings per share were 96 cents versus 67 cents in the prior year quarter, international sales growth surged and Domino’s hit a global total of nearly 13,000 locations. Over the course of the year, DPZ shares zoomed from $110 per share in January to near $170 as we sat down to chat in late October.
“Clearly we’re having a lot of fun … but we can’t get complacent,” Doyle said with a smile. “We celebrate our wins, but then very quickly try to move on to figure out how we’re going to get better the next day.”
The conversation quickly turned to the still-notable relaunch of its pizza recipe at the beginning of 2010, when Doyle famously went on the air in commercials announcing, “There comes a time when you know you’ve got to make a change,” as harsh reader comments flashed across the screen—like “Domino’s tastes like cardboard.”
It has become a legendary ad campaign that’s now part of the curriculum in a few business and marketing courses, and the moment Doyle defined his time as head of this fast-growing company. He first became president in 2007, and assumed the additional role of CEO in 2010.
Doyle posing with the DXP delivery vehicle developed as part of a joint agreement between Domino’s, General Motors and Roush, an automotive supplier.
Back then, six years ago, Domino’s had global sales of more than $6.2 billion. By year-end 2015, that number had swelled to $9.9 billion following 90 consecutive quarters of same-store sales growth—not bad for six years on the job. I mentioned that it’s remarkable such a surge in good fortune came as the result of slow-but-steady progress, rather than an entirely new management team. Unsurprisingly, the CEO struck a humble tone regarding his track record.
While Doyle’s time during our interview is micromanaged (and literally watched through the window) by the company’s communications department, he is anything but intimidating in person. We chatted about his best and darkest days as CEO, the impact of all its recent good press on recruitment and how nervous he was before going on TV 10 years ago to announce that its pizza recipe was barely better than marinara-topped cardboard. He’s visibly proud of what the brand has accomplished, but careful to strike a modest, deferential tone.
“We refer to ourselves as a work-in-progress brand—we don’t think we’re ever there,” he said. “What we learned from the relaunch at the beginning of 2010 is that we are able to build a very different relationship with our customers, we can be completely transparent and talk about things we’re doing well and not so well.”
The foundation for the rebirth of Domino’s was poured a year earlier, in 2009, when the company brought all high-tech functions back to the farm with the creation of a huge, in-house IT department that has 265 employees—a young, diverse group that loves Star Wars judging by the cube-dwelling tchotchkes on display.
“It was certainly a very long-term decision that we took, because the easy thing to do was to outsource that, use somebody else’s point-of-sale system and have another company build the digital ordering experience,” he said. “We decided there was a real competitive advantage if we did it ourselves, even if that meant in the near term that it was going to be significantly more … both in capital and people to build it ourselves.”
As it completes a company-wide store refresh, its new “Pizza Theater” design includes little details like steps for kids to watch the dough being tossed around.
Tickets to the pizza theater
With everything seeming so rosy, I pressed Doyle on his remaining struggles and where all the skeletons are buried. He opened no crypts, but said he still has a lengthy to-do list and that Domino’s is far from perfect.
“There are still lots of things that I’m not happy with where they are,” he said, adding that improvements to the carryout experience are top of mind. “We’ve got to get better not only at having the physical environment be better for our customers, we’ve got to get better at hospitality, and at greeting and taking care of customers when they come into our stores—that is a shift from a company that has been very much about the efficiency of this delivery process.”
One massive part of that is nearing completion with the remodeling of its stores in recent years, a design theme internally referred to as Pizza Theater. Designed to make the in-store pickup process more enjoyable, Pizza Theater includes a much fresher restaurant with a transparent view into the kitchen that includes stairs for kids to step up and watch “the dough show.”
My tour guide and I agreed the stairs might be the most adorable design feature in the biz. Domino’s even invested in dough-tossing training to make the experience rewarding, rather than fodder for a YouTube fails compilation.
As the store refreshes wrap up, the clean, modern look is now fully in line with the company’s high-tech foundation. Doyle said drive-thru lanes might be added in some locations as a small part of his new focus on the company’s $3- to $4-billion carryout business.
Whether he was talking marketing, food quality, in-store ambiance or his own management style, transparency was the watchword throughout our conversation. Defining his approach to managing such a vast operation, Doyle said his focus is on empowering his staff, rather than a top-down approach.
“What I spend my time worrying about is do we have the right talent, are they getting the resources they need and, importantly, are they working well and productively with each other,” he said. “If you’ve got those people dynamics working well then you get twice as much done as an organization.”
He added a lot of his brainpower is expended making sure his employees are excited to work at Domino’s, which he said is crucial for attracting highly skilled IT and business professionals to move to Ann Arbor rather than Silicon Valley.
Doyle said one of the next focal areas at Domino’s is improving the in-store pickup experience, aided by the Pizza Theater store design that’s been rolled out across the system.
More from smaller territories
A short walk from the CEO’s eagle’s nest with a similarly panoramic view of grazing cows, Matthew Walls—vice president of franchise development and recruiting—occupies an important perch as the leader of the company’s franchise network. He acknowledged times are very good, but matched the CEO in saying there’s “a lot of cool things” that need to be done in the coming years.
“In an organization like this where you have a lot of tenure, I think it would be natural for people to be waiting for the other shoe to drop,” he said. “You just don’t get that sense here … I’m more excited about this today than the day I took the job.”
With nearly 800 franchisees in the United States at press time, Walls said Domino’s has a “completely different” approach to franchising compared with traditional large-scale franchisors, with more than 90 percent starting their careers as drivers or hourly workers.
Rather than feeling tapped out as its international growth eclipses its home, he has encouraged many of its existing U.S. franchisees to divvy up their territories to improve customer service, and increase delivery driver tips along with store-level profit margins.
Shrinking their turf can be a tough sell with some franchisees, but Walls said tighter trade areas are especially important in urban areas where the goal is finding the sweet spot to provide the best service possible—usually resulting in smaller territories.
“A lot of these trade areas were developed 20 years ago, back when you could drive the lower part of Manhattan in nine minutes,” he said. “Now you can’t go a block in Manhattan in nine minutes.”
Describing the CEO’s personal impact on the company, Walls said Doyle’s transparency and high integrity makes it easy for others to make decisions without second-guessing themselves or worrying about the consequences.
Doyle himself is never intimidating, he said, but “his ability to process information on the spot is intimidating.” In a crowded category where taste profiles can be hard for the average consumer to remember between visits, he said that attitude of integrity, confidence and open-book clarity has a big impact on customers and franchisees alike.
Going forward, he expects the current growth spurt, growing sales and rising market share to continue, if not accelerate. “What you’ll find about our company, when we set goals they’re extremely aggressive and we usually crush them,” he said.
Bill Murray at the front door
For the inside scoop on the Zero Click app and a live demonstration as he tried to avoid actually placing an order, Domino’s Chief Digital Officer Dennis Maloney said his team seeks to use its leading-edge technologies to add both human-like interactions and more fun into the pizza ordering process—a food that’s already synonymous with celebration.
“It’s in a lot of ways circling almost all the way back to the pizza experience that used to exist before all of this technology,” he said. “If you end up creating that same experience, technology steps in to fill in all the pieces—so as technology advances, these experiences are going to advance with them.”
Pressed on how the pizza experience could improve given that it now takes a single screen tap to place an order, Maloney pointed to drone technology and driverless cars that are set to upend the global transportation infrastructure in the coming years.
“No matter how that transition occurs, it’s going to have a big impact on the business we’re in and we need to understand how that’s going to happen,” he said. “We know we need to be on the cutting edge of this, because once it happens, it’s going to happen really fast.”
Just how fast pizzas arrive to our front doors by drone remains to be seen, although like most experts personally involved in the process of testing and defining regulations for drone-based commerce, Maloney suggested the wait might be longer than some expect.
“Everyone may say five to ten years, but I would not be surprised if it took longer than that,” he said. “Probably a much longer period than that to actually get really broad acceptance; it’s never as fast as everyone thinks it’s going to be.”
With virtual reality slowly creeping into the mainstream, I asked how long until the likenesses of Beyoncé or Bill Murray are delivering pizzas. Maloney said such ideas have been discussed, but suggested that VR is better suited toward more visceral businesses, like cruise ships or luxury vehicles.
He’s particularly captivated by the Amazon Echo, through which Domino’s customers can place and track an order without even a single click from the comfort of an easy chair or while passing through the room.
I asked what was the next really big thing—on the order of Zero Click or the still-remarkable online order tracking—but he demurred.
“I’ll say we’re just getting started,” Maloney said. “Yeah, more to come.”
An analyst’s take on Domino’s versus Pizza Hut
An analyst of the $35-billion-plus American pizza market at BTIG in New York, Peter Saleh said the U.S. pizza business is much more fragmented than other restaurant segments due to the high number of local and regional players.
That fragmentation, he said, gives the large franchised players with in-house delivery a strong advantage over smaller pizza companies that are increasingly relying on third-party services like Grubhub and Seamless, which charge “a bare minimum of 10 percent just to be on their website and take the order.” Saleh added he expects Domino’s to overtake Pizza Hut as the No. 1 U.S. pizza company sometime in 2018.
“With the investment that’s been made in Domino’s in terms of brand and digital technology … Pizza Hut is far behind,” he said. “Part of the reason is Domino’s is primarily a delivery company” and about “half of Pizza Hut’s units in the U.S. are these sit-in, casual dining restaurants where they’re bigger formats, not delivery units.”
Jeff Fox, chief brand and concept officer at Pizza Hut, declined to specifically address Saleh’s prediction, but acknowledged that selling delicious pizza “simply isn’t enough” in today’s market. “We are making significant investments in technology, not only to bring our brand forward and make the current digital ordering experience easier, but we believe that you will begin to see things from Pizza Hut that are not available anywhere else.”
In a short laundry list, he included upcoming Amazon Echo ordering, as well as Twitter and Facebook Messenger ordering to ease the ordering process.
Examining a decade’s worth of data from our Top 200+ ranking, sales at Domino’s have rocketed ahead just after Doyle’s tenure began in 2007. From 2007, when global systemwide sales hovered near $5.5 billion, its steady growth has taken total sales to nearly $10 billion with no slowdown in sight.
While it started that period much higher, at $10 billion in 2007, Pizza Hut—still the No. 1 pizza delivery brand—has seen much more modest growth, with a few dips in its growth curve, to reach $12 billion at year end 2015.
Plotting both brands visually, it seems inevitable that Saleh’s prediction will come true that Domino’s will overtake the No. 1 spot before the end of the decade.