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How Domino’s plans to get its US business back on track

2022 is shaping up to be a tough year for Domino’s US business. Same-store sales fell 3.6%, the biggest drop in years, due to the impact of inflation and a shortage of delivery drivers.

This first-quarter performance stands in stark contrast to same-store sales increases reported by Domino’s during the early quarters of the pandemic, including a 17.5% spike during the third quarter of 2020. Pizza delivery surged in arrow at the height of the COVID-19 crisis when people were stuck at home, but now it’s lagging behind.

Same-store takeout sales, however, are up 24% from the first quarter of 2019 and 11.3% from the first quarter of 2021, Domino CEO Ritch Allison said at the conference Thursday. telephone on the results of the company. Online takeout orders generate higher tickets and “lower cost of service” than orders placed over the phone, he said. Overall fulfillment is also less expensive than delivery as delivery drivers are not required.

The company’s $3 tip campaign, which offers $3 coupons to customers who pick up their order online to use the following week, led to a 5 percentage point increase in online delivery business, said Domino’s Chief Operating Officer and US President Russell Weiner. Weiner will replace Allison as CEO in May.

Domino’s U.S. Same-Store Sales Drop in Q1 2022

After peaking in the third quarter of 2020, the pizza chain’s growth has moderated.

Delivery isn’t Domino’s only problem: Inflation and rising food basket costs are strangling margins and driving up costs. The pizza chain expects store food basket inflation to be between 10% and 12% from 2021 levels, Domino’s chief financial officer Sandeep Reddy said.

“While none of us were satisfied with first quarter U.S. sales, I am confident in our ability to return to the levels of growth that we and our franchisees expect. As indicated by our performance in postponement and the strength of our business in stores less constrained by labor shortages, we believe demand for Domino’s remains strong,” Weiner said.

To combat cost and labor issues, the company is rethinking pricing, adjusting its cost structure and strengthening its ability to meet customer demand and drive incremental sales growth, Reddy said.

“Once implemented, we expect the initiatives…will allow annual operating margins to return to pre-pandemic levels after 2022,” Reddy said.

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Domino’s Delivery Notes

Same-store sales for the chain’s delivery channel fell 10.7% in the quarter compared to the first quarter of 2021 due to lower orders, partially offset by an increase in tickets, Allison said. . Many stores have struggled to meet customer demand for delivery and stores have had to reduce their opening hours. Those closures resulted in a cumulative total of six days of downtime, Reddy said.

The gap between the company’s top 20% stores and the bottom 20% of stores has now widened to 17%, Allison said.

“It is this disparity in delivery performance that is driving the contrast and overall performance of our US business,” he said. “We are strongly focused on improving underperforming stores.”

Customer demand remained strong, which was encouraging for Domino’s, executives said. Capacity constraints, however, have made it difficult to meet that demand, and U.S. businesses have had to reduce hours of operation, not answer phones and restrict online orders, Weiner said.

“These bottlenecks are largely within our control and that of our franchisees. And as we move away from the peak of Omicron’s impact, we address them with our franchisees,” he said.

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Menu price increases can reduce delivery costs

Domino’s has explored changes in menu pricing at various levels to allow franchisees and corporate stores to better cover increases in labor and food costs, Reddy said.

In March, Domino’s raised its price for its Mix-and-Match delivery offering to $5.99 for the first time in 12 years to $6.99 each for two or more items from that menu, Allison said. The pricing strategy should help cover the increased costs associated with delivery, Allen said.

“This approach can enable our franchisees to achieve balanced growth between tickets and orders, which is critical to generating long-term profitable growth for their businesses,” he said.

As menu prices increase for some items, the company also plans to offer more promotions.

Domino’s will bring back its “Boosted Weeks”, which include offers with many coupons, this summer. Although it will take time to reach full staffing levels, most of its franchisees are supporting these stimulus weeks and more aggressive promotions, Weiner said.

“Revival weeks are critical to growing our business,” Weiner said. “They drive customer acquisition and grow our loyalty program.”

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Create a more efficient working model

Domino’s will use call centers and provide more flexibility for delivery drivers to create more efficient work models, executives said. The company works with a third-party call center in select stores and plans to expand that partnership to help stores focus on production and delivery during peak hours, Weiner said. By mid-May, Domino’s expects to have between 2,500 and 3,000 stores using these call centers to some degree, he said.

Additionally, the company will work with its franchisees to return to standard business hours and rolled out a service evaluation program at the end of the quarter to provide specific service improvement goals based on individual results, said Weiner.

Domino’s is also looking at the work of drivers, including analyzing how delivery has changed due to the pandemic, he said.

“We continue to work on this important initiative and believe that many solutions to scale and improve our driver workforce already exist in our system, as evidenced by the performance of our top quintile stores,” Weiner said.

These top-performing stores typically hire faster and are in markets that make more strongholds. Their drivers are also more on the road, and their general managers have been on staff longer, Weiner said.

Domino’s is stepping up its marketing to attract more drivers, such as a TV ad that features a 27-year-old franchisee who started her career at Domino’s as a driver, Weiner said.

“If you want to be a general manager at Domino’s and an owner at Domino’s, it all starts with being a driver,” Weiner said. “Marketing staffing is something we haven’t done before.”

Domino’s also rolled out a new app system that people can browse in five minutes, Weiner said. Domino’s is also looking at how best to schedule drivers once they’re on payroll, such as offering more flexibility with shorter shifts or fewer hours over a full week, Allison said. .

Weiner hinted that working with third-party delivery providers to increase capacity is within the realm of possibility, which would be a huge strategic shift for a chain that has resisted partnerships with such companies.

“Nothing is on the table, but I have great faith in Domino’s system,” Weiner said. “Our job is to respond to customer demand. Fortunately, we don’t have a demand problem at the moment.