Dominos Pizza - Growth & Strategy (Part 2) - Innovation, Service and Smart Operations

For a hugely consumer-centric business Dominos must always be keenly aware of consumer needs and wants and stay tuned to when they change. My own experience is probably not atypical. I want hot pizza, competitively priced, produced to a consistently good standard, delivered on time and ordered and paid for over the internet with the minimum of fuss! That gives Dominos five operational and quality hurdles to overcome and doubtless there are many more for different groups of consumers – for example the hundreds of thousands of people who enjoy a pizza but who are glucose intolerant.

But the challenge is clear – a successful business must innovate and maintain a high quality of product day in day out. The value and sustainability of the brand also depends crucially on the performance of thousands of employees at the front end of the business – Dominos employs over 25,000 people in the UK. There is a clear link between the quality of Dominos people and the quality of the customer experience and product.

So what are the core ingredients for the rising profitability of the Dominos operation?

Ultimately the success of the brand depends on the people who run it and finding the right franchisees is crucial to the chances of Dominos meeting those ambitious growth targets mentioned earlier. But two aspects of the business seem to me to stand out. In this note, I’ll focus on the scale and productvity of Dominos.

Costs and Efficiency

The typical Dominos store has a weekly turnover of £17,000 making and delivering close to 1000 pizzas per week. Annual turnover is close to £800k per store and each pizza sold makes £3 profit. In 2009, 68 stores had sales in excess of £1 million.

A crucial element of the commercial viability of the business is in improving efficiency within the stores and here Dominos focuses a metric known as “out of the door time” – the time it takes between new orders being placed online or in store and the ready to eat pizza leaving the store en route to the customer. Dominos has managed to get this down from 17 to 13 minutes in recent years (typically it takes less than a minute for the pizza to be readied before going into the oven!) and their average delivery times has shrunk to just twenty three minutes.

Once on the road, investment in improving routing software for Dominos vehicles provides another way of cutting costs. Although Dominos cannot be immune from rising fuel and food prices globally, for a pizza delivery business they have become ultra-efficient in getting products to the consumer – in 2009, fuel accounted for only 10% of total distribution costs.