It doesn’t quite get the notoriety of some other well-known value offers, but Domino’s dual $5.99/$7.99 platform has quietly been a big part of the chain’s success over the past decade.
Yet as costs for labor and food have increased in recent months, questions about the viability of such an offer have increased. On each of the past three earnings calls, in fact, an analyst has wondered how long Domino’s can maintain such a price.
The answer from CEO Ritch Allison has always been the same: The price point is not sacred. If it finds a national value offer that provides better long-term profitable growth for its operators, then Domino’s will make the change. For now, however, it appears that the price points will stay.
“There are cost pressures across the business, both on the labor side, but also inflationary pressures as it relates to commodities as well,” Allison said last week. “We’re taking all of those things into account, as we think about what our pricing looks like in 2022. While we are wedded to value, we are not specifically wedded to any individual price points.
“If a better price point yields better long-term profitable growth for our franchisees, then that’s where we’re going to go.”
This question has become even more relevant now, after the chain posted its first quarterly decline in same-store sales in a decade and as many of Domino’s fast-food brethren raise prices to offset rising costs.
As a rule, price point offers grow more obsolete over time as rising costs eat into profitability. Two of the most famous ones, for instance, were McDonald’s Dollar Menu and Subway’s $5 Footlong. Both value offers carried the respective chains through the recession but were largely abandoned in 2012 after costs made them more difficult for operators to earn a profit.
Domino’s $5.99/$7.99 platforms do not have the notoriety of either of those two value deals, but they have helped the chain succeed for the past decade. The company first started offering customers two from a selection of menu items, including medium pizzas, for $5.99 each. Six years ago it doubled down on this by selling any three-topping carryout pizza for $7.99.
Those offers helped keep the chain posting positive same-store sales every quarter for a decade. “Our core $5.99 and $7.99 platforms have been a reliable, important part oof the Domino’s brand experience for many years,” Allison said in February, according to a transcript on the financial services site Sentieo.
On that same call, however, analysts began wondering whether the chain would move away from those offers. At the time, executives said that the price point has survived routine increases in wage rates around the country. That includes Seattle, where wages were already above $15 to $16 an hour.
One of the reasons Domino’s can do this is volume. “There’s no way you can stay at that value level without having a high-volume business that we have today,” Allison said.
Analysts have asked Domino’s about the viability of its price point in each earnings call since. Executives have acknowledged that they test the price point frequently and that the $5.99/$7.99 price points frequently work the best.
One risk of such offers is that consumers come to rely on them and the chains come to depend on them. Companies can lose customers when they opt to move away from that value. Both Subway and McDonald’s struggled when they moved away from value. Only McDonald’s has fully recovered—and it has since moved away from its value-above-all business strategy to one in which it prices for convenience and aims only to be “competitive.”
Domino’s believes it needs value to maintain its volumes, which it says is key to its overall profitability. “$5.99 and $7.99 are not sacred,” Allison said in July, according to Sentieo. “The only thing that is sacred is that we’re going to bring value to the consumer because that’s what drives order counts. And ultimately, order counts, over time, are correlated with sales and with profitability at the store level.”
Whether Domino’s moves off that price point remains to be seen. But the cost increases aren’t making it any easier.