Rising sales tax Domino’s supply chain

The company is adding supply chain capacity amid rapidly growing demand.

Domino’s same-store sales keep rising so fast that it’s taxing the company’s supply chain.

Speaking on their second quarter earnings call on Thursday, Domino’s executives said they are moving up the timeline on the construction of a pair of new supply chain centers in addition to the new supply chain center already being opened this year.

“The rapid growth of the U.S. business has created record level volumes in our supply chain centers,” Ritch Allison, who took over recently as Domino’s CEO, said on the earnings call. “Our volumes are up 50% the past five years. It’s time to accelerate our investment in supply chain capacity.”

The additional capacity, he said, would also prepare the company for future growth.

Domino’s same-store sales have surged in recent years amid the company’s marketing strategies and its technology expansion—unit volumes exceeded $1 million last year, according to Technomic. In 2009 they were just over $600,000.

Those volumes continue to rise this year. Domestic same-store sales rose 6.9% in the quarter ended June 17, the company said on Thursday. That was the 28th straight quarterly increase, meaning it’s been more than seven years since the company last reported a quarterly same-store sales decline in the U.S.

The results were a bit below investor expectations, and the company’s stock—up 50% this year—declined in early trading before recovering later in the day Thursday.

“We’re pleased with the performance of the U.S. business,” Allison said, noting that the company has “outstanding” same-store sales and has “sustained momentum on unit growth.

The company added 43 net new locations in the U.S. last quarter, and 113 net new locations internationally. Over the past year, the company has added more than 900 locations and now has 15,000 units worldwide.

While the U.S. business has been strong for seven years, international locations have performed well for more than two decades. Same-store sales rose 4% in the second quarter, the 98th consecutive quarterly increase.

Bill Clinton was early in his first term as president the last time that Domino’s had a decline in international same-store sales.

Domino’s has surged in its domestic markets largely by taking share from smaller chains and independents. But company executives say they see further opportunity to take share in the U.S. pizza market, even from chains.

“While a lot of [our] share has come from locals and regionals, as we look forward we see an opportunity to take share broadly across the industry,” Allison said.

Executives wouldn’t comment on the controversy embroiling rival Papa John’s. But the challenges at the country’s fourth-largest pizza chain promise to further shake up a competitive industry sector.

Domino’s said that its U.S. same-store sales in the quarter were driven largely by traffic. And executives said that the loyalty program the company implemented in 2015 continues to pay dividends three years later.

“Our program continues to gain active membership,” Allison said. “We continue to see a nice, solid tailwind from it.”

Domino’s earlier this year announced Hotspots, a new ordering capability that enables customers to get their pizzas delivered to parks or ball fields. The company now has more than 200,000 such spots nationwide, many of them recommended by customers.

Domino’s executives typically do not give out sales numbers from existing quarters. But Allison said the company is “pleased with the launch” and customer perception.

“It’s another way for customers to be able to access us anytime, anywhere they want to,” he said. “The hot spots are defined by our franchisees. The franchisees select those areas we can deliver to. The landmarks are easier to find than someone’s residential address. Whether it’s a beach, a baseball field or a park. These are areas that are well-known within the community.”

Domino’s believes it can continue to generate unit growth from 6% to 8% over the coming years. Executives said that the chain’s higher unit volumes and improved profitability should help generate that unit growth, as more profitable operators are more likely to open locations.

Much of that growth could come in the U.S. Executives believe Domino’s could grow to about 8,000 locations domestically—it has 5,700 units now.

“We see an opportunity for an 8,000-store Domino’s business within the next 10 years,” Allison said. “We’ve had success gaining share.”

By opening more locations, company executives said they can “tighten” the delivery radius—which both reduces costs and makes customers more likely to come back.

“By having our delivery areas tighter, we can get food to customers more quickly,” Allison said. “It brings them back more often, reduces cost and makes orders more profitable.”


More from our partners