Domino's regains its momentum

The pizza chain is regaining delivery customers as profitability improves, thanks to better operations, staffing and higher prices. It is now focused on accelerating growth worldwide.
The "Pizza Theater" inside Domino's Michigan headquarters. | Photo courtesy of Domino's.

Domino’s on Thursday said that both same-store sales and transactions on delivery orders are up so far in the fourth quarter.

It’s a rare bit of mid-quarter transparency for the Ann Arbor, Mich.-based pizza chain, which typically doesn’t reveal sales data until the actual quarter is over. And while it may not seem like much, it’s been a long time coming for a company synonymous with delivery.

Specifically, it’s been two years of falling delivery sales and transactions, losing business to third-party aggregators. “Internal headwinds, external headwinds, I don’t care, those numbers should not be” declining, Domino’s CEO Russell Weiner told investors at the company’s Investor Day presentation on Thursday.

The improvement has helped the chain’s franchisees generate more profits. Operators’ profitability, which had fallen in 2022 amid inflation and weak sales, has been recovering this year. The company now expects the typical location to generate $160,000 in EBITDA this year, or earnings before interest, taxes, depreciation and amortization.

That’s $10,000 more than the company projected in September and would be 15% higher than last year.

The improvement is giving Domino’s more confidence that it can generate stronger global growth in the coming years. The company increased its expectations for store growth and annual sales growth. It expects to generate at least another $7 billion in system sales over the next five years.

“That’s the equivalent of taking the No. 10 QSR today and adding it to the current Domino’s business in five years,” Weiner said. The 10th largest quick-service chain in the U.S. is Sonic Drive Ins, which generated $5.5 billion in system sales in 2022.

The company also said it expects to add at least 1,100 locations per year over the next five years, adding 5,500 over that period.

Domino’s had been losing delivery sales coming out of the pandemic due to a variety of reasons. Staffing issues starting in 2021 hurt delivery times and ultimately sapped sales. “We were short-staffed,” Weiner said. “We couldn’t answer the phone calls. We had a capacity issue.” Inflation also caused problems.

The company shifted much of its focus to operations, working to improve delivery times inside its stores while getting staffing back up to pre-pandemic levels. Improving commodity costs and higher prices have also helped improve profitability.

The company has further efforts to improve those operations in the coming years. Domino’s plans to add an automated dough stretcher, which it calls DJ, and initially stretches pizza dough, which executives say saves time and helps with in-store training. Those devices are being rolled out to stores right now.

Domino’s also has a new operating system inside its stores, called DomOS, which is designed to improve workflow inside the chain’s stores, orchestrating orders and operations. The company plans to improve the program next year, while leveraging more of the data it gets from customers.

Company executives noted that its restaurants have effectively become two businesses, as carryout surged over the years to now account for half of the chain’s total transactions. The business represents 40% of sales, as a typical carryout order is smaller.

Domino’s believes it can generate another $3 billion in total U.S. sales over the next five years, in part by using third-party delivery platforms that have become popular with a segment of customers.

Those customers are younger and wealthier, executives said, and there is only about a 35% overlap between Domino’s customers and aggregator customers. That market alone represents a $1 billion sales opportunity. Domino’s has inked a partnership with Uber Eats this year, its first such aggregator deal.

“We deliver one in three pizzas throughout the category,” Weiner said. “We can believe we can deliver one in three pizzas within aggregators.”

But the company also believes it can generate sales in the U.S. in the coming years with improved marketing—Weiner said Domino’s needs to do a better job boasting about the quality of its products—product innovation, store growth and improved operations.

Its loyalty program, which the company upgraded earlier this year, is already paying dividends. The improvements, which enable customers to earn points with less spending and redeem them sooner, has captured more of that carryout market that has become so important to the company.

Executives said it has gained more than 1 million members in the program since its relaunch and customers are more likely to use it. “It’s working,” said Jordan, Domino's U.S. president.

Perhaps more important for the company: It actually costs less. “The cost per point for our franchisees for the food cost of the redemptions has actually gone down,” Jordan said. “So customers are getting more and it’s costing the franchisees less.”

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