Patrick Doyle can remember when customers struggled to order pizza through sketchy dial-up Internet connections. Now the Domino's Pizza Inc. CEO and nearly 20-year company veteran has to pause to think before naming all 17 different ways of ordering a Domino's pizza today, which include texting a pizza emoji or via Amazon's AI persona, Alexa.
Digital orders now make up more than half of Domino's sales and are feeding its growth: Sales at established U.S. locations rose 13 percent in the latest quarter from the year before. Digital orders come with higher transaction amounts, and give Domino's data to track customers, helping it better target them with offers. The company's tech focus partly justifies its Silicon Valley-like valuation.
Domino's is staying hot while much of the rest of the restaurant industry has gone cold, in what some are calling a restaurant recession. Sales at chains tracked by research firm MillerPulse increased by a mere 0.3 percent in November from the year before, following six months of year-over-year sales declines.
At least some of this is due to the changing dining habits. People are getting pickier about when they go out to eat, only leaving their couches for an experience that's really worth the effort -- pretty much the way shoppers feel about going to a mall these days. And when customers order fast-food delivery, they care just as much about the "fast" part as they do the food.
To meet these changing demands, restaurants have to be anywhere their customers are, Doyle told Gadfly.
Domino's recent success stems from an early and ongoing embrace of digital-ordering technology. Nearly all its locations are operated by franchisees, so investments by Domino's in a single, unified system to take orders and ring up customers keep transaction costs low for franchisees and enable smaller operators to keep up with the fast pace of change. That way, franchisees focus on making pizzas and Domino's uses the cash that comes in to invest in better technology.
In fact, technology will increasingly determine the winners and losers among restaurants. Just look at Panera Bread Co. and Starbucks Corp., two other chains on the right side of the digital divide.
Panera spent years investing in digital-ordering technology, from a mobile app to in-store kiosks, building what it calls "Panera 2.0." Mobile orders now make up 22 percent of its sales, far ahead of companies like McDonald's Corp. which just recently launched mobile ordering. Average checks can be $2.00 higher on digital orders, lifting sales at company-operated cafes -- most of which have already upgraded to Panera 2.0 technology -- compared to franchised locations, which have yet to upgrade.
Mobile ordering and payment has also fueled growth at Starbucks. Mobile makes up 25 percent of the company's total transactions. Earlier this month, Starbucks announced the ability to order through China's popular social media platform, WeChat, as well as through "My Starbucks Barista," a mobile AI that takes orders via voice command or text message.
Meanwhile, restaurants that have dragged their feet on digital are paying the price. Chipotle Mexican Grill Inc. only this month made it possible to place catering orders online, finally upgrading from fax. As the burrito chain struggles to recover from last year's food-safety crisis, its lines are growing not from returning customers but because it's taking longer to simply order and pay. Mobile ordering and payment could help.
Other companies such as Jack in the Box Inc. are just now rolling out mobile apps, while Popeyes Louisiana Kitchen Inc. is only now starting work on digital ordering, which could take a year to 18 months at the earliest to complete, according to Bloomberg Intelligence analyst Jennifer Bartashus.
Such investments certainly take time and hefty capital spending. But the customer demand is there--and chains that could be offering delivery service aren't doing it. Chain restaurants are almost twice as likely as independent restaurants to get delivery orders, according to industry research firm Technomic. A third of surveyed consumers said they placed an order with a third-party delivery service that picked up food from restaurant chains that didn't offer delivery on their own, Technomic said.
As for Domino's, Doyle is not done thinking about technology. The new focus is transportation, one of the company's largest costs and challenges. Domino's recently invested in a fleet of fuel-efficient cars with built-in ovens that keep pizzas warm. Facing a dearth of delivery drivers and high labor costs, Doyle is also studying driverless cars and testing pizza-delivering drones in New Zealand.
It's a long way from dial-up. But then so is the restaurant business.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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