Delivery Delivers for Domino’s
It’s a good time to be in the pizza delivery business.
For Q2, Domino’s Pizza global retail sales grew 5.9% vs. the prior year. In the U.S. same store sales for grew 16.1%.
U.S. sales were driven by both an increase in ticket size and the number of orders. “During the pandemic, we have continued to attract new customers to our brand, while focusing on safety, convenience and value,” explained CFO Jeff Lawrence in a Q2 earnings call with analysts. “We also note that existing customers, many of whom are part of our best-in-class loyalty program continue to order in larger order sizes.”
Delivery Reigns Supreme
During Q2 food delivery accelerated in the U.S., “and we were certainly no exception,” said CEO Ritch Allison. “Our 37th consecutive quarter and strongest in that 9+ year run for same store sales, with evidence of this tailwind in delivery.”
Nearly 75% of Dominos U.S. sales are coming through digital channels, Allison explained. “Through the second quarter, this combined with loyalty adoption, gives us a good proven chance at driving additional customer frequency,” he said. “And I am glad more than ever that we have this direct digital and loyalty relationship with our customers and that we're not dependent upon a third party to bring us orders.”
Demand for delivery is outpacing carryout.
Domino’s does not disclose the percentage of delivery orders vs. carryout, except to say, there was a “significant increase” in new delivery customers during Q2.
“…Customers sought a contactless experience and an experience where they didn't have to leave their homes to get their food … more so than in the carryout side of our business where there was a lot of caution out there among customers about going out into public, into places of business during the quarter,” said Allison.
Consumer Behavior
“There remains much to sort out and still much left to unfold regarding the future of customer behavior, we realize there's an opportunity to capitalize on the engagement with both new and returning customers,” said Allison.
“And our task there is to take those new customer opportunities and convert them into the second purchase and the third and ultimately loyal customers going forward.
To that end, the brand ramped up its loyalty marketing efforts, and Q2 “was our best quarter for driving new active loyalty members. The best quarter we've had since Q1 of 2019 when we ran our Points for Pies promotion,” said Allison.
Strong digital sales, “popping up as much as 80% in any given week,” gives the brand an opportunity “to grow that engagement with our customers and an opportunity to continue to bring them on and into our loyalty program,” said Allison.
Operations Overhaul
There was a lot of work done behind the scenes to roll out and ramp up contactless services. Domino’s spent much of Q2 “retooling almost 60 years of standard operating procedures and doing that over a matter of weeks,” admitted Allison. “Our teams and franchisees have done an outstanding job of implementing many things rather quickly, including protocols around contactless delivery, including the innovation of the pizza pedestal to deliver pizzas to our customers' front doors. The roll out of Domino's car side delivery, which provides an incredibly convenient and contact-free carryout experience for our customers. And many digital enhancements that our teams have developed to make ordering, selecting service methods, paying and tipping even easier.”
The brand has been working with 800+ U.S. franchises to roll out new technology solutions to better enable contactless experience, Allison said. “…We're going to continue to invest in tech across our business from the technology that you hold in your hand with your smartphone when you order from us all the way through the store. And how we run and operate our business inside the four walls of the box,” he said. “That's going to continue to be a big focus for us in an area where our franchisees would love to have us continue to help them … run efficient businesses and continue to drive their bottom-line profitability.
The Future of Voice
Its recent partnership with Vonage and its “programmable voice capabilities to enhance the customer journey and connect more than 6,000 franchise and corporate locations across the U.S.” is part of its overall strategy to invest and “get smarter” in the voice technology, said Lawrence, adding that customers can place orders now with their mobile phone using a voice assistant Dom.
“…We've been working on phone Dom trying to use artificial intelligence to take a full order. We've made great strides in that,” and declined additional comment on the subject citing competitive reasons.
“But do know that one of the great things that we've been able to do and even during this pandemic is continue to invest with the long-term, the long-term brand in mind,” Lawrence added. “We have not slowed down in our technological investments and in some ways we've actually accelerated as you've seen us roll GPS. You've seen us roll car side delivery.
“So I think that this crisis has really shown us that we can move faster. We can with our great franchisees execute a little bit faster. And we're meeting the customers where they want to meet us on technology and voice is just part of that.”
- Thoughts on Third-Party Delivery
When asked to comment where third-party delivery is headed -- and on the recent news of JET striking a deal for Grubhub and Uber buying Postmates, Domino's Pizza CEO Ritch Allison said, “I've been talking for a long time about the fact that the only way that business gets to profitability is through some form of consolidation over time. Given what has happened recently with a couple of deals that have been announced, frankly, I don't see that change in the competitive dynamic a whole lot. Certainly for the near term I expect those aggregators to still remain very promotional in terms of how they're going out to acquire customers. And I expect them to remain pretty aggressive in particular with how they go out and cut deals with the largest QSRs. So when we take a look at it from Domino's perspective, we expect it to continue to be a highly competitive environment that we will participate in and we expect it to continue to be a pretty tough environment for the third-party aggregators in terms of their ability to drive profitable transactions.”
Domino’s has long been a believer in native delivery, and has historically shunned partnering with third-party delivery providers. Domino’s plans to stay the course. “It's only strengthened by point of view that we don't need to be on those platforms. I cannot imagine that we would have been able to move as quickly as we have and meeting our customer as Jeff described where they wanted to be, if we didn't have full control over that digital experience and the actual contactless experience at the point of delivering the food.”
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