Domino's digital channels drive ticket growth

Oct. 16, 2012 | by Alicia Kelso

Domino's Pizza posted third quarter same-store sales increases of 3.3 percent domestically and 5 percent internationally.

The international division turned in its 75th consecutive quarter of same-store sales growth.

Additionally, Domino's net income for Q3 was $26 million, compared to $22.1 million for the same period last year.

During today's earnings call, Mike Lawton, chief financial officer, said the main drivers for the company's nearly 18 percent jump in profits were higher domestic and international same-store sales, international store growth and higher company-owned store margins. The latter category jumped 3.2 percent in part due to higher tickets and lower commodity prices, particularly cheese.

"You've heard this all before – our adjusted EPS was up 23 percent – because Domino's model is a model of consistency. This is the hallmark of a business that is reliable and growing," said CEO Patrick J. Doyle during the call. "Our international business is continuing a long string of success, with nearly 19 years of solid growth. We're confident that's a record in the restaurant industry."

Technology helping bigger players gain market share

In addition to international growth, the other big story coming from the third quarter was Domino's digital business. In Australia, 40 percent of all digital orders are done through mobile phones.

In the UK, digital now accounts for 58 percent of delivery orders, which is up by 39 percent from the same quarter last year.

In the U.S., about 40 percent of the company's delivery orders come from the digital space, and about one-third of all orders are through digital channels.

"Improving and expanding this platform will continue to be an important focus of our strategy," Doyle said.

He said the growth in online and mobile orders, in part, helped increase the company's order count and ticket totals during the quarter, and also suggested that technology initiatives are a factor in the larger pizza players' increase in market share in the crowded pizza category.

"I think you're finally starting to see some gains by the larger players, taking share from the regionals and the smaller players. The real change has been the digital side," Doyle said. "I'd expect to see more share gains over time. Technology, and its efficiencies, offers a better customer experience and there is difficulty that regional and smaller players have in putting together a digital ordering platform like we have."

International highlights

Also during Q3, Domino's UK acquired rights to do business in the Switzerland and Luxembourg markets, with an option for Austria. And, Domino's India's franchisee, Jubilant FoodWorks, was named as the "Emerging Food Group of the Year" by Economic Times.

The company is also experiencing growth in new markets such as Nigeria and Macedonia, and reached its 10,000-store milestone in September with an opening in Turkey.

"That we have more than 10,000 units makes us a significant brand. We're not finished growing. Reaching that milestone is just a platform for us to launch our next phase of international growth," Doyle said. "There are only eight restaurant chains that can claim to have 10,000 stores worldwide."

Doyle also briefly touched upon Domino's new store model, which was introduced in August. It's too soon to gauge the prototype's success; however Doyle said the design is "inspiring to franchisees and friendlier to customers who pick up orders."

"The store growth and new store designs are important in setting us apart from our competition," he added.

Franchisee capital and the economy

Doyle added that the bigger pizza chains were also able to weather the economic downturn better because of scale, purchasing power and brand equity. In terms of system growth, he said larger franchisees are now better off financially than they were a few years ago, but there remains conservatism, particularly among smaller franchisees.

"Overall, store level profits are up materially from three years ago. The good news is the availability of debt for the larger players has gotten better," Doyle said. "The bad news is the availability of debt for smaller players is still pretty weak. Our franchisees are exposed to the same things all of us as consumers and business people are, and the environment is still perceived as a little bit wobbly."

Domino's franchisees average about four stores in their portfolio. There are fewer than 100 franchisees that operate 10 or more stores in the system.

Doyle was also asked how the company was preparing for changes expected to come from the Affordable Care Act. He said right now there are too many details that still need to be ironed out to know how the business will respond.

"Until those rules are settled, I can't give a tight answer. The overhang is uncertainty around the market in total -- not around health care as it is with the overall economy, tax rates, all of these things," he said. "Until the election is over and the rules are resolved with health care reform, there is some uncertainty. Once there is more certainty one way or another, people will get more aggressive again."

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Topics: Cheese , Domino's Pizza , Franchising & Growth , Marketing / Branding / Promotion , Online / Mobile / Social , Operations Management

Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with, and has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, and Franchise Asia magazine.
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