Pains, chains and automobiles

Dec. 27, 2004

It's one thing these days for a large pizza chain to be pleased with 3 percent same-store sales gains, but watching Pizza Hut post an average 5 percent comp-store gain throughout 2004 is nothing short of amazing. Domino's Pizza wouldn't be outdone: Oct. 19 it reported a jaw-dropping 8 percent domestic comp-store increase for this year's third quarter. Even analysts were surprised the number was that large.

Why the growth spurt?

Operationally speaking, the Domino's machine is humming. Trial-generating new products like the Doublemelt are flowing through the pipeline and marketing support is everywhere. Plus, bargain-basement deals like its three medium pizzas for $15 offer are driving check averages and cementing core customers.

Pizza Hut is doing much the same with its brand-new Full House XL Pizza. The company said the XL is 30 percent larger than its traditional large pizza (which bumps up total bites by about two slices); and the intro price is a favorable $9.99.

Like a candidate running for office, Pizza Hut has not wavered from its message of reaching families with large, sharable items sold at affordable prices. Other customers may jump at this bargain, but the lesson to be learned is clear: Define your core customers and don't let them out of your sight.

This is a lesson smaller chain operators and independents should take to heart. Pizza Hut and Domino's have identified their customers and positioned their products in a manner that appeals to those customers first.

The very fact that Pizza Hut and Domino's are filling the airwaves with their messages also means more folks hear about pizza more often. The challenge for all other operators becomes taking advantage of those giants' marketing expenditures by finding ways to remind customers why their pizza is better, faster, cheaper — whatever their point of differentiation is. Amid all that advertising cacophony, the goal is to say, "Hey, we're over here!"

If you're still not convinced, remember the old phrase, "a rising tide floats all ships." The trick is to catch the wave that comes off that tide and claim it as your own.

Gas pains

This won't make me popular, but I'll say it anyway: Operators should compensate delivery drivers for rising gas prices.

Consider what happens to delivery drivers' income when fuel prices rise. While customers continue to pay the operator the same price for their delivered pizza, with every price increase at the gas pump, drivers get a pay cut. The boss's cost of doing business doesn't go up, but the worker's wage declines.

When gas prices rise, drivers need to receive a relative reimbursement increase.

It would be a hassle to change the scale daily as prices fluctuate, so work on monthly average. Apply your reimbursement rate as a floor on Nov. 1. If gas prices are at $2, all subsequent increases will result in a proportionate reimbursement increase.

At the end of each week, record the gas prices posted at one filling station near your store. At the end of four weeks, total an average price and compare that to the floor price. If the average is below $2, then don't give an increase. If it's above $2, give them a nickel more for every dime prices increased and multiply that by the number of each driver's runs.

I'm sure this sounds like a pain in the neck, and maybe it's not practical. It does, however, address the problem of fluctuating gas prices with an apples-to-apples adjustment. Base-pay increases should be reserved for good performance and loyalty. And since operators don't compensate drivers when they're stiffed, tips should never be relied upon as a means of cushioning the blow from high gas prices.

It's your business, operators, so take full responsibility for it.

Topics: Commentary , Domino's Pizza , Independent Operation , Marketing , Operations Management , Pizza Hut

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