Consumers responding favorably to Domino's technology investments

Domino's Pizza's domestic same-store sales grew 6.7 percent during the second quarter. Such growth comes at a time when the overall restaurant industry is experiencing slight or flat sales because of a still-challening environment. (See, McDonald's).

Perhaps more notably is that this growth came during a quarter in which Domino's had no new product news. The fourth quarter launch of its Handmade Pan Pizza continues to sell well, but most of Q2's momentum came from what CEO Patrick Doyle describes as being "in a very, very different place with our customer base than we have been in the past."

"We've developed a bigger brand message around transparency and consumer engagement that we believe is carrying us to a different place. We believe this is part of why we don't need constant new pizza news or limited-time products to drive our business," he said.

In addition to marketing and product initiatives, Domino's continues to invest heavily in the digital space and its new store design, both of which resonate well with the consumer, according to Doyle.

Digital initiatives

During Q2, Domino's introduced its app for Windows Phone 8, the company's first app that includes voice capabilities. Using this app, customers can pin their current order directly to their start screen, which allows access to Domino's Tracker. With this addition, Domino's now has an app for 95 percent of smartphones sold in the U.S.

Online ordering also continues to grow at a rate of about 5 percent year-over-year and now accounts for about 35-40 percent of U.S. orders. Doyle expects this platform to keep growing and to eventually reach above 50 percent. Because of the high customer satisfaction scores from this service, as well as higher ticket and order profitability, Doyle said Domino's will continue to invest in this area.

"The faster we can push it, the better," he said.

Accordingly, technology investment will take up a big chunk of the company's G&A expenses for the year. CFO Michael Lawton said the full-year G&A will increase an additional $9 million to $13 million over 2012. In addition to expanding the international support team, the increase also comes from planned investments in e-commerce and technology support, Lawton said. The investment has helped Domino's gain market share, mostly from independents and regionals.

Market share gains

"Our focus on technology and consumer access via digital ordering continues to give us an edge over our competition, particularly versus the smaller players that continue to lag behind. Even if the regionals catch up to the level of technology we currently offer, we're already several years ahead of them and expect to keep pushing to lead the industry on technological innovation," Doyle said.

He also likes the company's technology position compared to its national competitors.

"There are some pretty special things that are going on with our brand and business right now that are causing us to grow a little faster even than our national peers," Doyle said.

New store design

Domino's opened nine net new stores domestically, all in the brand's new image which was first introduced late last year.  Doyle said customer reaction to the new design has been positive, as it provides them with a "better in-store and carryout experience."

"We're doing what our customers are leading us to do, and they want a better looking store. They want to see the stores opened up so that they can see the food prepared," he said. The better carryout experience, he adds, hasn't sacrificed the company's delivery efficiencies.

Product pipeline

Although Doyle touted the company's strong product pipeline, he added that the R&D team has purposefully slowed its pace of introductions. This gives them a chance to "work on things that are meaningful."

"The R&D team, as opposed to coming up with 5 or 6 products a year, is working on a couple maybe a year that we hope are going to materially improve the overall experience for customers," he said.

International

Finally, Domino's execs said the company's international investments are also paying off, helping to yield 78 straight quarters of positive results. Highlights from this division include South Korea, which experienced a double-digit sales increase, Brazil's improved operations, and Canada's strong results from the Handmade Pan Pizza launch.

Doyle also said the company will continue its China expansion as the company's footprint is currently small, but a big opportunity is available. Domino's has experienced "nice" same-store growth in that market.

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