Sunday, February 20, 2005

Domino's aims to double its slice of industry pie

Ann Arbor-based pizza chain pins hopes on faster delivery and expansion overseas.

By Tenisha Mercer / The Detroit News

John T. Greilick / The Detroit News Jason Cook helps manage a Domino's franchise in Westland. Tim Brown, the store owner, says he's excited about Domino's renewed push to improve delivery times, an effort led by CEO David Brandon. Domino's stock has risen 30 percent since its IPO in July. Quotes from the quarterback THE PLAYBOOK: "I don't have to spend a ton of money on research to know that people call us when they're hungry. The longer you let them stay hungry, the angrier they get." CALLING THE NUMBERS: "We have to figure out how to get 150,000 people in 7,600 stores in 55 countries and get 1 million pizzas delivered every night; that's one hell of a job." TEAM PRIDE: "Domino's is a mega brand that's recognized around the world; people see that logo and they know it's a pizza company that delivers."   PLAYING TO THE CROWD: "We don't let any one person's taste buds overrule anyone else's. If I don't enjoy a pizza we're testing, that doesn't mean the vast majority of consumers will agree with me. That's why we listen to customers; they're the people we sell to every night." David Guralnick / The Detroit News New toppings have to pass muster in Domino's Ann Arbor test kitchen, where quality assurance manager Steve Rooney works Comment on this story Send this story to a friend Get Home Delivery

ANN ARBOR -- Domino's Pizza CEO David A. Brandon had plenty of reason to celebrate at the company's annual franchise meeting in San Diego last September.

The world's second-largest pizza maker had trumped the low-carb diet craze, opened hundreds of new stores and saw its stock rise as fast as its pizza dough -- climbing 30 percent since its initial public offering raised $337 million in July.

But Brandon didn't wax about the company's burgeoning business. Instead he delivered a tough message: Domino's had "lost track of time," falling down on its central mission of delivering pizzas hot and fast.

"We must recommit ourselves to the very foundation that has made our brand and business great: Time is money," Brandon told 300 franchise owners and employees. "Having 80 percent of our orders out-the-door in 20 minutes or less just isn't good enough."

That pep talk was a page out the playbook of his former football coach, Bo Schembechler, at the University of Michigan. Brandon, a quarterback who earned three Big 10 Championship rings, remembers the coach focusing on the things the team could do better after every game, even a blowout win.

"It's easy to take your eye off the ball -- feeding hungry people -- and we can't forget that," Brandon said during a recent interview at the company's Ann Arbor headquarters.

"Tonight is our biggest challenge. Great organizations always challenge themselves to improve. If you are not getting better, it's likely you are getting worse."

The pizza chain will need that motivation as it embarks on a bold international expansion strategy that Brandon says could double the chain's size as the company stretches its roots to serve pizza-crazed Icelanders and Mexicans, and tweaks its formula to find the right strategy in Taiwan and China.

The strategy is ambitious for anyone, much less a restaurant-industry neophyte recruited in 1999 to Domino's.

Brandon was brought to Domino's by founder Tom Monaghan after he sold the company to Bain Capital Inc. for $1.1 billion. The Boston-based private investment firm still owns 44 percent of Domino's shares.

Under Brandon, Domino's has renovated nearly all its stores, including the 90 percent owned by franchisees, while grabbing a slice of market share away from rivals such as Pizza Hut and Papa John's International Inc. with splashy ad campaigns promoting its Doublemelt and Philly Cheese Steak pizzas.

The company attacked a sky-high annual turnover rate of 158 percent that forced the company to go through 200,000 employees a year. Through a series of programs, Domino's has reduced turnover by 60 percent.

This summer, Domino's is adding new technology, training facilities and laboratories as part of renovations at its 200,000-square-foot headquarters at the Domino's Farm complex near Plymouth Road -- the first major improvements since it leased the building in 1985.

Domino's posted a 1.8 percent same-store sales increase in domestic stores in fiscal 2004, which ended Jan. 2. The company will report its 2004 earnings Tuesday, but worldwide sales topped $4 billion in 2003, a 5.8 percent increase over 2002. The pizza maker is still known for its promise to deliver pizzas in "30 minutes or its free" even though it phased out the promotion in the early 1990s. Now, franchisee Tim Brown is glad to see the company renew its focus on delivery time. Brandon has encouraged stores to whittle the time they take to make a large pepperoni pizza to less than a minute.

"It's going back to the basics," said Brown, who owns 11 franchises in Metro Detroit. "We've always been known as the fastest pizza maker in the world and we kind of took it for granted. We want to get back to that emphasis."

David Brandon, Domino's Pizza CEO: "We must recommit ourselves to the very foundation that has made our brand and business great: Time is money."

The chain's small-but-steady growth comes at a tough time in the pizza industry, which recorded flat domestic sales of $26 billion in 2003, according to Technomic Inc., a food consulting firm in Chicago. The pizza industry has limped along amid heavy competition from burger chains and sub shops such as Quizno's.

And chains like Domino's have struggled under the weight of increased competition from independent pizza shops, which control nearly 50 percent of the market, according to estimates from Technomic.

"There are so many options that go beyond pizza, and new competitors are coming all the time," said Steve Coomes, an industry analyst and senior editor at pizzamarketplace.com in Louisville, Ky. "Independents are stepping it up a notch with better-made pizzas, and that's always going to be a source of competition for the chains."

The company is testing new technology that could one day dramatically change how customers order pizza. Customers would be able to order pizza using their television remote controls -- ordering a deep dish pizza by clicking on a prompt that would appear on the television screen following a Domino's commercial. Domino's plans to open about 250 new stores nationwide annually, but the real opportunity for growth for the 7,600-store chain is abroad. Last year, Domino's opened nearly 200 stores internationally, compared to about 65 in the U.S.

It has locations in 55 countries (its largest international market is in Mexico, where it owns 500 stores, but it also has a heavy presence in Asia, Australia, Japan, Taiwan, India and Central America). Three of the chain's top 10 stores are in tiny Iceland, where the population is less than 300,000 people and where the favorite toppings are fish.

Domino's nixes pepperoni in India; people there prefer spicy, non-meat toppings. The Japanese tend to forgo traditional pie toppings like sausage and hamburger. Their favorites? Calamari, crab meat and a sliced potato, corn and mayonnaise concoction.

Nearly all of those combinations are perfected at the company test kitchen in Ann Arbor. New pizzas must pass what Brandon calls the "Dave Rule." Brandon personally makes new products himself to see if the pizzas are too complicated to produce fast and consistently.

A few years ago, working at a local store on New Year's Eve, he found out why new Italian Original pizzas were flopping despite off-the-charts market tests. They were so hard to make the stores shied away from offering them. The prosciutto, for example, was so thin it had to be applied with tweezers.

Brandon wants the 44-year old company's focus on what its does well -- making and delivering pizza. It has added buffalo wings and cheesy bread, but doesn't sell salads. And it has remained steadfast to what it says draws customers -- hefty discounts and advertisements that bank on Domino's name and formulaic commercials that include shots of steaming hot pizza, stretching cheese, a telephone, a doorbell ring and, finally, a Domino's pizza delivery person.

"If we do it right, we'll get you motivated to call in," Brandon said.

Still, Domino's will break the rules now and then. When sales in Taiwan were falling well short of projections, the company did some research and found that the country's younger generation loved pizza but older, more traditional family members were nixing the orders.

The solution: Add fried chicken to the menu in Taiwanese stores.

Pizza orders skyrocketed because everybody could order something they wanted, instead of older family members nixing a pizza-only order.

But by and large, the Domino's philosophy is simple: Make a quality pizza and get it to customers fast and hot.

"The mistake people make in this business is forgetting about what business they are in," Brandon said.

Diversifying has worked for some chains, such as Idaho-based Smoky Mountain Pizza and Pasta, but Gregg Thomas, principal of restaurant consulting firm THG CFO Partners in Rochester Hills, doesn't think Domino's should enter the fray.

"They would fall flat on their face," Thomas said. "It's like running a McDonald's compared to a Morton's Steak house. Clearly, it's all about the pizza and they aren't going to do anything to risk that."

There may be more than just pizza in Brandon's future. Brandon, who has long been a force in Michigan Republican circles, is thought to be a possible contender in Michigan's gubernatorial race in 2006.

The former finance director for the state Republican Party deflected speculation about running for office anytime soon, saying he "loves his job" and isn't running for anything except to beat Pizza Hut and Papa John's.

You can reach Tenisha Mercer at (313) 222-2401 or tmercer@detnews.com.