Domino's: Survival of the fittest means going global

During Domino's Pizza's Investor Day today, CEO Patrick Doyle said the restaurant business is a game of scale and those tapping into international markets are in the best position for the future. He pointed to the fact that 95 percent of the world's population exists outside of the U.S.

Domino's is one of the companies ideally positioned for this "international scale game," Doyle said, along with McDonald's, Yum! Brands, Dunkin' Brands, Starbucks, Burger King and Subway.

These companies have advantages — such as national advertising and supply chain contracts — that could, over time, drive regional brands out, Doyle added.

"People who have a global scale over time are the people who are going to win. Those with just a domestic footprint are limited. We think we are in an incredible position with our international business," he added. "There are only a handful of companies that have it and will continue to drive that business."

Regional players are already getting squeezed in the pizza segment, according to Doyle. A similar fate happened in the packaged goods segment (where Doyle came from) that caused the bigger global companies to dominate and led to more consolidation.

Technology advantages

One of the biggest advantages to having a larger scale is in having more resources for technology infrastructure.

Chief Information Officer Kevin Vasconi, who joined Domino's about a year ago, said the investment in digital channels is important because it drives higher tickets across global markets. It also yields high customer satisfaction and maximizes operational efficiency.

"Our customers love the digital experience and that is a competitive advantage, especially when you look at the regionals and the mom and pops. If they can't afford to do something like this, they're usually using a third party provider and therefore letting someone else talk to their customers. We don't have to do that," Vasconi said.

One of Domino's most resonating online features is its pizza tracker. Customers can track the location of their pizza after placing their order in anticipation of the delivery.

"What other ecommerce company allows you to keep your eyeballs on the product for 30 minutes after you close your transaction? This allows us to maintain that relationship with the customer, to have a ubiquitous customer experience," Vasconi said.

Customers have responded to Domino's efforts in this space — digital orders were up 27 percent in 2012 compared to 2011. The chain's digital business passed $2 billion in sales in 2012, as well. There are 23 markets that receive more than 10 percent of sales through digital, and three markets doing more than 50 percent in digital sales.

What's notable, according to Vasconi, is each time Domino's has introduced a new digital channel, there has not been cannibalization from any other channel.

"New channels equal new customers and more growth," he said. "As digital trends continue to evolve, so will our strategy."

Responsive Web Design is part of that strategy

Keeping pace with the fast-moving digital platforms, however, can be costly and daunting. For example, in Q4 2012 alone, Samsung, Apple and Microsoft all rolled out new devices.

To navigate the rapid market, Domino's plans to launch a Responsive Web Design platform by mid-summer, which allows a site to provide an optimal viewing experience, and to size itself, regardless of what device a customer is on. Starbucks is one of few companies that have this system already in place.

"The reason we do this is because it's a low-cost way to hit a lot of platforms. Because device propagation happens all the time, we need to be on every ordering channel and have a rich experience on each," Vasconi said.

Domino's is also currently updating its proprietary POS infrastructure called Pulse. Pulse was originally developed in house in 2001. The next generation is being built to meet future needs, including an increasingly complex menu. According to Vasconi, Pulse is managed like a commercial software product and will continue to be enhanced to address the chain's rapid international growth.

Technology initiatives have become such a priority for Domino's, Doyle said that one-third of its Ann Arbor, Mich.-based headquarters are devoted to IT.

"It's really interesting to get into all of this, but it's hard and it's expensive. In a lot of ways, that's great news because this is a competitive benefit for us," Doyle said. "We put a lot of time and capital and analytics into this and it's not something a smaller player can do. It's a differentiator."

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