The recent announcement that Patrick Doyle would step aside as Domino’s Pizza CEO later this year, ceding the title to one of his lieutenants, has shed a light on one of the best comebacks in restaurant industry history.
When Doyle came on board, the company was coming off three brutally weak years in which same-store sales declined a cumulative 10%. At one point in early 2009, Domino’s stock was trading in the low single digits.
Today, Domino’s same-store sales have increased 26 straight quarters in the U.S., and not the cheap way, either: They’ve averaged an increase of more than 7% over that time, mostly on traffic. That has helped triple the cash flow a franchisee unit generates, leading to increased unit development.
The company’s stock price under Doyle has increased 13-fold. But the price is 67 times the company’s level back in early 2009.
There are lessons for other restaurant chains that are looking at improving their own sales and profits. While they may not see a stock price increase of quite the level of Domino’s, they are an important consideration in the modern industry.
Get a single POS system
Domino’s comeback can actually be traced back more than 15 years, when the company made the controversial decision to convert to a single point-of-sale system.
Franchises have long preferred single systems, but have given franchisees the ability to shop for their own systems in the name of cost cutting. Domino’s took the controversial step of forcing a single system on its operators, one it developed in-house. Franchisees sued. Domino’s won.
Today, it’s hard to find anybody who disagrees with the system. The single POS system has made it much easier for Domino’s to add technology and gives the company more information on its operators’ performance.
Improve the food
Doyle was named CEO in 2010, coinciding with a remarkable campaign by the company that essentially acknowledged that its pizza wasn’t good. The company spent years reconfiguring the recipe for its pizza, and then won numerous fans with a campaign that more or less apologized for the previous version and promised it was better.
At the end of the day, consumers want good food. If they don’t like the product enough to buy it, they won’t.
Easy is important
The biggest, longest trend in the restaurant industry is toward convenience. As Americans get busy, with multiple parents working outside the home, commutes getting longer and workplaces demanding more hours, they’ve wanted convenience as much as anything else.
Domino’s effective use of technology and its “Easy Order” has enabled it to ensure that consumers can order its pizzas as simply as possible and from numerous sources—a car, the Amazon Echo, a television, by simply opening an app.
It’s not simply the technology. It’s the way Domino’s has used that technology.
Don’t be in a rush to expand
For years, even as Domino’s same-store sales were surging following the we-improved-our-pizza campaign, the company didn’t grow.
Many franchises at the time, including some of the company’s competitors, were throwing incentives at operators to add units. Domino’s didn’t do that, focusing rather on unit economics to do the job for them.
These days, of course, Domino’s is growing at a nice pace. The company opened 53 units in the third quarter alone.
Franchisee profits matter
The growth would not have come if Domino’s operators weren’t making more money. With more restaurant chains relying on franchisees to run their restaurants, this is a vital consideration.
Franchisee earnings before interest, taxes, depreciation and amortization, or EBITDA, has nearly tripled since 2008, from $49,000 that year to $133,000 in 2016.
The improved profits have not only helped with expansion, they've also helped the chain encourage franchisees to remodel units under its “Pizza Theater” design—which the company believes will help increase pickup orders.