News

Pains, chains and automobiles

Senior editor Steve Coomes encourages operators to follow the leads of Pizza Hut and Domino's, whose sales are smokin'. Also, Coomes takes operators to task over rising gas prices and driver reimbursements.

November 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.

Not to be outdone, Domino's Pizza reported this jaw dropper on Oct. 19: an 8 percent domestic comp-store increase for this year's third quarter. Even the analysts, who predicted the quarter would come in strong, 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

Steve Coomes, Senior Editor

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. Sure, you know the lean-pocketed frat boys will tear into this bargain on game day, too. But the lesson to be learned is clear: Define your core customers and don't let them out of your sight.

Should such news strike fear in the hearts of smaller chain operators and independents? Not in my opinion. Outside of national advertising campaigns, both companies are executing strategies easily replicated by all operators. Pizza Hut and Domino's have identified their customers and positioned their products in a manner that appeals to those customers first. In other words, they're working a shtick that drives repeat purchases from those who already love them, while pulling in a few newcomers at the same time.

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!"

Still not convinced? Then remember the old phrase, "A rising tide floats all ships." When the industry leaders are doing well, it's a good sign others are, too. The trick is to catch the wave that comes off that rising 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. Not because it'll boost driver retention, but because it's the right thing to do.

Let's examine this situation closely. For starters, operators, you opened a business with the goal of selling a product that can be delivered to customers' doors. You needed people to move that product, so you hired drivers. You pay them a base rate for showing up and you reimburse them for the use of their automobiles to move your product. If all goes well, the product is cooked quickly, correctly and in drivers' hands for the ride. If traffic is cooperative and if directions to customers' houses are correct, drivers might be rewarded with a tip for the service.

Meantime, fuel prices rise and now it's more expensive for your employees — hourly wage earners — to deliver your product. Customers, who also are paying higher fuel rates like the idea of others burning their gas to bring your product to them. The service hasn't changed, so tips don't either.

Meanwhile, those customers continue to pay you the same price for your products and your drivers are still bringing them to customers' doors. Yet, with every price increase at the gas pump, drivers get a pay cut. Bottom line, the boss's/factory's cost of doing business isn't going up, but the workers' wages are declining. The situation is out of balance.

Is it really that hard to develop a sliding-scale reimbursement rate that addresses fuel price increases? When gas prices rise, drivers need to receive a relative reimbursement increase. What should that be? A penny or a nickel for every dime it goes up? I'm not sure what would be fair, but consider this:

If gas costs $2 a gallon one day and it rises to $2.10 the next, is it really that onerous to bump the per-run reimbursement rate from 50 cents to 55 cents, or $1 to $1.05?

You say it would be a hassle to change the scale daily as prices fluctuate? I'd agree. 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 nearest 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 by making 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.