Domino’s digital investments reap rewards sooner than expected thanks to COVID-19

Profile picture for user ddpreez By Derek du Preez July 17, 2020
Summary:
Pizza franchise business Domino’s has long invested in ‘frictionless experiences’ for customers. The COVID-19 pandemic has created a perfect storm for the company.

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Businesses around the world are having to adapt their operations and rethink how they service their customers, as the COVID-19 pandemic continues to grip nations and social distancing measures become the new normal. Whilst the long-term impact of the health crisis is too hard to predict at this stage, what's become clear is that fragility in operations is quickly being exposed for many companies - often driven by a long term lack of technology investment.

However, one company that has seemingly benefited from the ‘new normal' because of a number of changing consumer behaviours driven by COVID-19, as well as its early investments in digital, is Domino's. The franchise pizza delivery company has seen another stellar quarter, with buyers looking for convenient, safe and digitally enabled food delivery options.

In the quarter ended June 14, Domino's revenue rose by 13.4% to $920 million. In addition, second quarter US same-store sales grew by 16.1%, beating analyst estimates of around 10%. For previous insights on diginomica into the digital delivery journey at Domino's, see our previous analysis here.

Domino's CEO Rich Allison and CFO Jeff Lawrence were clear on a call this week with analysts that the COVID-19 fallout has accelerated the returns the company has made in frictionless experiences for customers, supply chain and digital development. Lawrence said:

What I would tell you is this; customer behavior that we're seeing during the pandemic is really meeting Domino's where we already were with great carryout, great delivery, a frictionless technological experience, [and] great value. And so in many ways I think this pandemic has just accelerated a lot of what we thought we probably would have earned over time. But it came to us quickly.

That doesn't mean, however, that the route through COVID-19 has been easy. CEO Allison said:

The COVID-19 pandemic set the background for the second quarter, creating challenges that were certainly unlike anything we've ever seen as a brand and unlike anything I've ever seen as a leader or frankly would hope to see again. We operate in over 90 markets and across six continents none of which were spared by this virus. Throughout the quarter, our focus as a global brand and the focus of our local operators remain steadfast on serving our customers and our communities and doing that with a convenient, affordable and safe food and service experience.

Trends

Allison noted that in Domino's US business, the second quarter saw an "unprecedented acceleration" for food delivery - where the company saw its 37th consecutive quarter for same-store sales, with the strongest quarter in nine years.

Despite the disruption, Domino's was able to absorb the increase in volume, whilst maintaining high service levels, according to Allison. As other companies have learnt during this time, supply chain resilience has been key. He said:

And I can't say enough about our supply chain division, which did a terrific job handling heavy volumes and ensuring continued supply of product to our stores. So while there remains much to sort out and still much left to unfold regarding the future of customer behavior, we realize there's an opportunity to capitalize on the engagement with both new and returning customers.

During the quarter Domino's saw, on average, nearly 75% of its sales in the US coming through digital channels. Some weeks the volume reached 80%. The company hopes that new customer acquisition during COVID-19 will give it an opportunity to create loyalty over the long-term. Allison said:

Through the second quarter, this combined with loyalty adoption gives us a good proven chance at driving additional customer frequency. And I am glad more than ever that we have this direct digital and loyalty relationship with our customers and that we're not dependent upon a third party to bring us orders. Beyond anything else executing a terrific delivery and carryout experience will be the ultimate way to convince these customers to come back and to remain Domino's customers for the long term.

We are getting an incredible opportunity today to bring more customers into the brand. As you look at the delivery business in particular we've seen a significant increase in new customer acquisition over the course of the second quarter. And our task there is to take those new customer opportunities and convert them into the second purchase and the third and ultimately loyal customers going forward.

Retooling at pace

CFO Jeff Lawrence said that the crisis has proven to Domino's that it can move faster and that the company wants to meet customers with technology where they want to be. CEO Allison said that Domino's has had to spend the quarter quickly retooling in order to meet demand and not lose out on the opportunity of customer acquisition. He said:

I'll now turn my attention to operations. We spent much of the quarter retooling almost 60 years of standard operating procedures and doing that over a matter of weeks. Our teams and franchisees have done an outstanding job of implementing many things rather quickly, including protocols around contactless delivery, including the innovation of the pizza pedestal to deliver pizzas to our customers' front doors. The roll out of Domino's car side delivery, which provides an incredibly convenient and contact-free carryout experience for our customers. And many digital enhancements that our teams have developed to make ordering, selecting service methods, paying and tipping even easier.

Looking forward, I can tell you that we don't know exactly what the new normal is going to look like in the US. COVID-19 has accelerated some of the trends that we were already seeing in motion around delivery, carryout and digital adoption. And we expect that customer expectations around safety and contactless experiences will remain heightened for the foreseeable future.

One such future investment is likely to be voice enabled delivery. Domino's has already invested in voice-enabled AI assistants to varying degrees of success, but also recently announced the rollout of unified comms solution Vonage. Domino's is planning to make use of Vonage's programmable voice capabilities to "enhance the customer journey" and connect more than 6,000 franchise and corporate locations across the US.

Lawrence shed some light on the deal, by saying:

I think everybody who follows Domino's knows that we are a believer, a big believer in voice technology generally. You can order obviously on your digital or your mobile phone right now using a voice assistant. And we've been working on trying to use artificial intelligence to take a full order. We've made great strides in that.

The partnership [with Vonage] is just part of our overall strategy to continue to invest and get smarter in this area. But more than that it starts to get into kind of future strategic stuff that we're quite frankly not going to disclose because of competitive reasons. But do know that one of the great things that we've been able to do and even during this pandemic is continue to invest with the long-term brand in mind.

My take

Not every company that has invested smartly in technology up until early 2020 is going to see success in the new COVID-19 world. However, companies such as Domino's, which would have benefited regardless because of changing consumer behaviours as a result of the pandemic - and have invested smartly in tech experiences - will likely soar over the coming year.