Domino's eyes sandwich success

March 16, 2009
Last year, the pizza industry braced for a battle with the sandwich chains. Subway and Dunkin Donuts were just two of the sandwich sellers who announced plans to add pizza to their menus.
At least one pizza chain is taking the fight to Jared and his gang this year. Domino's is going toe to toe with Subway with its introduction of Oven Baked Sandwiches.
By adding sandwiches to its menu, Domino's saw an opportunity to build traffic when pizza sales have traditionally been slack, especially at lunchtime. The company rolled out the sandwiches in all of its 4,000 U.S. stores last September.
"The strategy with oven-baked sandwiches was multi-faceted," Brandon said during the company's year-end 2008 conference call with investors.
"First and importantly, we wanted to ensure that we got all of our stores open for lunch to open up in the daypart," he said. "We've successfully achieved that, and obviously, sandwiches have put us in the lunch business in a material way and that's been great. The second thing that we wanted to accomplish with sandwiches was to create something that could provide us the ability to attract new customers and generate traffic activity in our stores."
Domino's isn't pulling any punches in promoting its new line. Last September, the company gave free Oven Baked Sandwiches to 1,000 people named Jared, a direct jab at the well-known Subway spokesman. More recently, Domino's CEO David Brandon participated in a commercial where he used a pizza oven to burn a cease-and-desist letter the company had received from Subway regarding ads that claimed customers chose Domino's sandwiches 2-to-1 over Subway.
"Everything's better when it's oven baked," Brandon says while placing the letter in the oven.
Building business a sandwich at a time
Adding sandwiches to the menu accomplishes a number of goals for the No. 2 pizza chain, industry observers said. While pizza is normally thought of as a group meal, lunchtime diners often eat alone. Having sandwiches on the menu could help attract those customers.
And broadening the chain's menu could help bring in customers who might not want pizza.
"This way if somebody's saying I don't feel like pizza, I want a sandwich, well, Domino's has sandwiches too," said Darren Tristano, executive vice president with restaurant consultant Technomic. "It helps to eliminate a veto vote and easily satisfy a larger group."
Succeeding with the strategy could prove difficult for Domino's, Tristano said.
Sandwiches generally don't maintain their integrity over time as well as a pizza does and could lead to a quality issue. Because the Oven Baked Sandwiches are priced at $4.99 and most Domino's typically require a $10 minimum order for delivery, customers would either need to order at least two sandwiches or an accompanying pizza, possibly undercutting the goal of serving those dining alone. 
And for in-store orders, the lower price point could drive down check averages. Domino's officials admitted during its conference that food costs as a percent of revenue were due in part due to lower check averages.
That's a price Domino's seems willing to pay.
"We are happy to accept the lower average ticket in return for the increased traffic we have received from our oven-baked sandwiches and other traffic-building initiatives," said Domino's chief financial officer Wendy Beck.
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Being great at what you know
Pizza Hut tapped a similar niche several years ago with its calzone-style P'Zone product. After initially introducing the P'Zone as a limited-time offer in 2002, Pizza Hut added it as a permanent menu item the following year. At the time, Pizza Hut said the P'Zone held a company record for the most repeat purchases of any of the restaurant's menu items.
No. 3 chain Papa John's hasn't announced any plans to add sandwiches or similar products to its menu. But many smaller players have long seen the benefits of having sandwiches on the menu.
Chicago-style sandwiches are a must-have at Chicago Pizza Cafe in Frisco, Texas and its sister location Chicago Street Pizza in Plano, Texas, says owner Rodney Mason. The restaurants serve Italian beef and green peppers and Italian sausage sandwiches. 
"We've found the majority of our sandwich orders are incremental on top of a pizza order and not in place of pizza," Mason said. "People like the variety, even when we are catering."
Others, though, prefer to stay away from complicating their menu, preferring to stick with what they know.
"We want to be really great at a few things," said Gabe Connell, co-owner of Indianapolis-based HotBox Pizza. "I see a lot of places getting into the scenario of they do pizza, they do wings, they do sandwiches, they do desserts, they do salads, and they  end up becoming mediocre at a whole bunch of things."




Topics: Domino's Pizza , Public Companies

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