Domino's CEO - I'm not handing my data to third party digital delivery providers

Profile picture for user slauchlan By Stuart Lauchlan April 29, 2019
Summary:
Third party digital delivery services providers have disrupted the fast food industry, but Domino's is having none of it.

The legendary Intel CEO Andy Grove famously declared that:

Only the paranoid survive.

I was minded of this wisdom when considering the latest views of Ritch Allison, CEO of Domino’s Pizza, on the rise of digitally-enabled third party food delivery aggregators:

It’s just not clear to me why I would want to…give up the data in our business to some third party who will ultimately use it against us.

In an era of Deliveroo, JustEat and Uber Eats, that’s drawing a pretty firm line in the sand. But while Allison is adamant that it’s a policy that makes the most sense for his firm:

Every time we look at this, we are the lower-cost delivery channel versus using some other third-party aggregator in our business. We’re probably advantaged in that relative to the other players simply by the fact that we’ve got significantly more scale. What really drives that cost per delivery is the number of deliveries per hour that we can get per driver and the distance that we ask those drivers to take the food away from our restaurants. It comes back to what we’re trying to do on our ‘fortressing program’ of really shrinking down these delivery areas and making sure that we not only improve our service, but we continue to be the lowest-cost delivery provider.

It’s also about the customer experience, he adds:

The other element of it, which I just can’t emphasize enough is that we really, at our company, placed a high level of importance on the quality and the safety of the product that we bring out to our customers. I’d have a tough time sleeping at night if I was handing our food to an untrained random third-party driver to then carry that over to our customer, because what happens when you have a service failure or you have a product quality problem in that situation? Who’s to blame? I really like the closed system and the control that we have, that our franchisees have, around making sure that the great pizzas that they’re producing every day get to the customer hot and fresh and delivered by uniformed Domino’s Pizza driver.

With a US loyalty program with more than 20 million active users, there’s a lot of valuable customer data and insight at stake here as well:

When I take a look at our US, I don’t see any need for us to go on to these third-party platforms. We have an incredibly strong digital channel in our business. We’re far and away the digital leader in pizza. So it’s just not clear to me why I would want to give up our franchisees margin or give up the data in our business to some third-party, who will ultimately use it against us.

So it’s a firmly held belief, albeit one that doesn’t seem to be maintained outside of the US where various international franchisees are open to tying up with third parties. This seems to be something of a sore point, although Allison does have a theory about how this situation has arisen:

We’ve seen penetration of aggregators in those markets that has come earlier than we’ve seen it here in the US. What we’ve found is that, in the markets where we are doing the things that we need to do to run our business, providing fast-delivery, great consistent service to our customers and exceptional value, we’ve found that we’ve been able to succeed and grow faster than the market even when aggregators have a very intensive presence in a particular city or country.

I will tell you that our success in using those order aggregators outside the US has frankly been a mixed bag. We have some markets where I think they have done a very good job of working with some aggregators and doing that in a way that works alongside us and is consistent with their own strategies about how they grow their digital channels. But I’ll also tell you that we’ve got some international markets that frankly haven’t done a very good job of setting up the deals in the structure in terms of how they work with aggregators. We’ve tried to, based on the learnings across all of these markets, help our franchisees make better decisions.

Spreading the word

Educating the non-US franchisees is something of a big theme in terms of the wider digital transformation success story that Domino’s has enjoyed. The US has trodden the road before and wants its experiences to be shared and shaped internationally, particularly around a key aspect, argues Allison:

This centers around the use of and reliance on customer insights, research and data in making big strategic decisions for the business. This has been a huge driver of our success for the past decade in the US. Data-driven decision making has improved our performance in many areas, including advertising, pricing, new product strategy, e-commerce and loyalty. Lately, it has enhanced our performance in store siting and development to support our fortressing initiative. This is an area where our US business is significantly advanced relative to our international markets. There are very few decisions that we make about product, about pricing, about marketing, about digital, about loyalty, very few decisions that don’t involve a deep reliance on consumer data and insights. We’ve established inside the business now with our new global operating structure center of excellence focused in this area, and we’ve got team members that are now positioned and accountable to work with our master franchise partners to help bring some of these same best practices and learnings to their business.

Our belief is that, over the medium and the long-term, we’ll be able to help our master franchisee partners just simply make better decisions about their business, just as we’ve been able to do here over the last decade in the US. A prime example of this involves that 20 million plus loyalty program. Allison explains: The modernization of that loyalty base has really been happening for more than three years since we began, because we know that our loyalty customers order from us more frequently and significantly more frequently than the average customer. So, our team, once again driven by the data and analytical tools that we have, we’re constantly looking for ways to continue to be more relevant to those customers in our loyalty program, such that we can increase the number of times that they do business with us over the course of the year.

My take

Paranoia or pragmatism? You pay your money and pick your topping. As noted before, the US pizza industry was built on the foundation of delivery. The digital disruption of the delivery operating model, both in-house and via third party delivery services providers, in recent years has been a defining characteristic of the QSR - Quick Service Restaurant - sector, even if its not right for everyone. Domino’s rightly picks up many plaudits for being ahead of its rivals in terms of digital transformation. Whether its stance on the new generation of tech-enabled aggregators earns as much respect is something that will become clear over time.