Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisen'tal and I'm Tracy Allaway. Tracy, I have
Speaker 1: a question about the lockdowns or I guess Hong Kong
Speaker 1: never really had all lockdown, did it? Well? So we
Speaker 1: had a lot of bars and restaurants that closed just
Speaker 1: because people weren't going out, But I don't think we
Speaker 1: ever ended up having a formal lockdown exactly like they've
Speaker 1: had in the States, which is kind of weird because
Speaker 1: if you think about it, you know, Hong Kong was
Speaker 1: early to the coronavirus and people were really worried about
Speaker 1: what would happen here. But I guess in the end
Speaker 1: we've we've come out pretty good and we've had like
Speaker 1: a decent experience of the lockdown, So you I guess
Speaker 1: you guys have missed and maybe it would be different
Speaker 1: in Hong Kong. Anyway, this phenomenon of like here in
Speaker 1: the US, like people are ordering pizza like crazy, and
Speaker 1: obviously pizza delivery is one of the big things. But
Speaker 1: I guess I don't know if, like I guess, pizza
Speaker 1: is probably not as big of a cuisine there, but
Speaker 1: without the lockdown, You guys have probably missed this whole
Speaker 1: phenomenon of people just eating tons and tons of pizza
Speaker 1: during this whole crisis, the cultural phenomenon of people ordering
Speaker 1: lots of pizza. You're gonna have to explain this to me,
Speaker 1: because yeah, I've missed this. You don't know. I was thinking, Tracy,
Speaker 1: I was thinking you should you should just move back
Speaker 1: to the US. You can talk about that another time.
Speaker 1: But anyway, it's wait, it's not fair to try to
Speaker 1: leure me back to the US using pizza. That's not fair.
Speaker 1: Come on, al right, Well we'll move on from that.
Speaker 1: But anyway, pizza is booming. In fact, I just last
Speaker 1: night I was on my bike and I biked buy
Speaker 1: a Dominoes and they had this big sign. Maybe i'll
Speaker 1: put it in the post where you post the podcast.
Speaker 1: They had this big sign that's his business is booming.
Speaker 1: We are hiring. People are ordering a lot of pizza
Speaker 1: these days. One other question, have you read the novel
Speaker 1: snow Crash by Neil Stevenson Snow Crash, No, I haven't.
Speaker 1: That's that. It's a sci fi book. I want to say, right,
Speaker 1: I haven't read it. Yeah, it's kind of like a
Speaker 1: it's a cyberpunk novel, so to speak of. There's this
Speaker 1: great line in they're talking about the description of society
Speaker 1: and this future state. He says, there's only four things
Speaker 1: we do better than anyone else. Music, movies, microcode, by
Speaker 1: which you mean software, and high speed pizza delivery. Like
Speaker 1: that is the essentially the U S economy of the future,
Speaker 1: and this world of music, movies, software at high speed
Speaker 1: pizza delivery. It's like I've been thinking a lot about
Speaker 1: snow crash during this crisis. All right, So coronavirus is
Speaker 1: proof of America's dystopian prowess for high speed pizza delivery.
Speaker 1: Is that what you're saying? Yeah, because it's all about
Speaker 1: how like all manufacturing has been outsourced to other countries. Um,
Speaker 1: the US doesn't build anything. There's all these divisions between states,
Speaker 1: and basically everyone is either a coder or eiza delivery
Speaker 1: person in this book, so everyone I should read it anyway.
Speaker 1: One other interesting fact, you know, I mentioned that Domino's
Speaker 1: was booming, and one of my favorite facts is that
Speaker 1: Domino's Pizza came public in two thousand four, about two
Speaker 1: weeks before Google. Did you know that? Yeah, I've seen
Speaker 1: the chart. By the way, can I just say, before
Speaker 1: we go any further, I feel like I feel like
Speaker 1: you could talk about pizza for like a good three
Speaker 1: or four hours if let you like, you've already brought
Speaker 1: in like cyberpunk sci fi fiction and now you're doing uh,
Speaker 1: now you're doing the stock market stuff. Okay, well anyway, Yes,
Speaker 1: I have seen the chart. Anyone who spent any time
Speaker 1: on Twitter has probably seen it as well. It's pretty amazing.
Speaker 1: The basic idea is that both Domino's Pizza and Google
Speaker 1: went public around the same time. I think it was
Speaker 1: two thousand four, and if you look at the chart,
Speaker 1: they've basically had like a pretty similar trajectory. So everyone
Speaker 1: thinks if you invested money in the early two thousands
Speaker 1: in Google, then you haven't made your you know this
Speaker 1: tech genius and you've made millions of dollars. No one
Speaker 1: ever thinks, well, actually, if you put money into this
Speaker 1: simple pizza company, you would have made the same amount. Yeah.
Speaker 1: So Google went public August two thousand four, Dominoes went
Speaker 1: Dominoes went public July or so, barely a month apart,
Speaker 1: and both of them are up about twenty eight and
Speaker 1: a half bold since then, Like it was truly incredible
Speaker 1: that the lines are identical. Anyway, Okay, that is a
Speaker 1: lot of set up. We're going to talk about pizza
Speaker 1: today because I want to get the story of how
Speaker 1: this one company did so well, how pizza company performed
Speaker 1: so well on the market. And I thought, you know,
Speaker 1: with the coronavirus crisis getting everyone to eat pizza, I
Speaker 1: thought this was a good time to sort of talk
Speaker 1: about the incredible story of Domino's Pizza. I feel like
Speaker 1: you've been waiting a long time for this. I feel
Speaker 1: like you have a lot to get off your chest here,
Speaker 1: so let's do it. It's actually done. Want to get
Speaker 1: off my chest. There's just a bunch I want to
Speaker 1: know because I've always been fascinated, but actually don't know
Speaker 1: about the story. Everything I've said so far is the
Speaker 1: extent of my knowledge. But we have a guest that
Speaker 1: knows a lot about the restaurant industry, knows a lot
Speaker 1: about the pizza business. There's a lot about Dominoes in particular.
Speaker 1: I want to bring in Jonathan Mays. He is the
Speaker 1: editor in chief at Restaurant Business Magazine. Jonathan, thank you
Speaker 1: very much for joining us. Thank you. I'm still trying
Speaker 1: to process connecting cyberpunk with pizza delivery. It's still I'm
Speaker 1: trying to register that, so you'll have to excuse me
Speaker 1: for a minute. But it's true, right that people are
Speaker 1: ordering a crazy amount of pizza these days. Yeah, yeah, yeah,
Speaker 1: and uh, it doesn't really matter like all three the
Speaker 1: well probably the fourth, but that the fourth one, Little Caesar's,
Speaker 1: is in public. But if you look at the big
Speaker 1: pizza chains are all doing double digit same store sales
Speaker 1: right now, and um, people are just sitting at home
Speaker 1: and they have all sorts of cash, and where else
Speaker 1: are they going to spend it? Might as well order
Speaker 1: a pizza. Wait, I have a dumb question, and you know,
Speaker 1: forgive me, but I haven't been in the States for
Speaker 1: this crisis, so you know, indulge me. But why pizza
Speaker 1: versus other food delivery? Like, I get that pizza is delicious,
Speaker 1: but it seems like you are both talking about a
Speaker 1: genuine pizza phenomenon here. So why is it so popular
Speaker 1: this time around? Well, all delivery is doing well. So um,
Speaker 1: if you look at whether it's a fast food chain
Speaker 1: or if it's a casual binding, if they do delivery, um,
Speaker 1: you know their delivery sales are way up. Everybody's delivery
Speaker 1: sales are way up. And and the thing about pizzas
Speaker 1: that we just they we can break it out. We
Speaker 1: have the best numbers, we have comparison numbers for for
Speaker 1: pizza chains, and of course they do it better than
Speaker 1: anybody else for the most part. Um, it's a big value.
Speaker 1: So that's kind of the story. Is not necessarily that
Speaker 1: everyone had this crazy craving for pizza. Uh But if
Speaker 1: there's one food in America that long before grub Hub
Speaker 1: or long before seamless or whatever, people have always ordered delivery,
Speaker 1: it's probably a Chinese food is the other one. But
Speaker 1: pizza it's just always been the sort of classic delivery state. Yeah,
Speaker 1: and they've they have the best. They have really good
Speaker 1: uh um set up, They control their delivery drivers, they
Speaker 1: you know, so you know, when it's from a value standpoint,
Speaker 1: it's still you can feed your family for like twenty bucks.
Speaker 1: It's it's uh you know, it's it's a it's all
Speaker 1: really easy to do and and that sort of thing,
Speaker 1: and people are really just accustomed to it. So so
Speaker 1: you mentioned they have a pretty good setup. Can you
Speaker 1: walk us through what makes the pizza delivery industry special,
Speaker 1: how do the economics of that platform or the way
Speaker 1: it actually operates again, how did they differ from other
Speaker 1: food delivery services versus third party delivery or I guess
Speaker 1: even like a Chinese food restaurant that does delivery, Like
Speaker 1: what differentiates the Domino's business model from other food chains
Speaker 1: that might do delivery. Yeah, that's a really good question.
Speaker 1: I mean, I think that there are some other issues
Speaker 1: with you know, Chinese restaurants that have prevented that sector
Speaker 1: from you know, being as sort of as big as
Speaker 1: a pizza chains. And I think a lot of it
Speaker 1: has to do with the process of cooking Chinese food
Speaker 1: and that sort of thing. Everybody eats pizza. It's a
Speaker 1: fundamental value. So you know, you get a pizza from
Speaker 1: from Dominoes, and you know, you it might cost you,
Speaker 1: you know, depending on whether you use a coupon, it's
Speaker 1: going to cost you eight, ten, ten, twelve dollars or whatever,
Speaker 1: and you're going to feed a couple of people at
Speaker 1: the very least, And you know, it's a really hard
Speaker 1: to beat that value. That value is a big deal.
Speaker 1: And it's also from a food cost and point. It's
Speaker 1: it's also fairly inexpensive, and um, that enables these companies
Speaker 1: to do these price deals which help them to do
Speaker 1: these values and uh and and that sort of thing.
Speaker 1: So um, it's enabled these large change to build up
Speaker 1: and build these these fairly sophisticated delivery networks, um all
Speaker 1: across the country, whereas they can't necessarily do it with
Speaker 1: with with Chinese food to the same degree. So I
Speaker 1: want to talk a little bit about, you know, how
Speaker 1: the why the model works so well for pizza, but
Speaker 1: it hasn't worked as well for the third party delivery
Speaker 1: companies that still don't make money and the restaurants seem
Speaker 1: to dislike them. But before we get to that, I
Speaker 1: want to just talk about the pizza change themselves. And
Speaker 1: so you mentioned there's three or were big chains that Domino's,
Speaker 1: Pizza Hut, Papa John's, than Little Caesar's. Tell Us, first,
Speaker 1: just think about the history of this. How did we
Speaker 1: sort of get this, uh, this industry in which all
Speaker 1: around the country pizza became this thing that became a chain,
Speaker 1: which we don't really see the same way again with
Speaker 1: Chinese food or other cuisines, but pizza very much became
Speaker 1: chained and franchised and there's a few dominant players. What
Speaker 1: is like, what is the history of that? And then
Speaker 1: I want to you know, then maybe we can get
Speaker 1: a little bit into what Dominoes did h in particular
Speaker 1: that has stood up. It's it's actually more fragmented than
Speaker 1: say fast fast food. Burger is very very consolidated. Their
Speaker 1: only really just a handful of chains or very I mean,
Speaker 1: you just don't go and see like a drive through
Speaker 1: burger counts an independent drive through burger concept for instance.
Speaker 1: Now lately that's changed because all of these burger restaurants
Speaker 1: have popped up, and that's a thing, but you know,
Speaker 1: pieces still a lot more fragmented um. But the the
Speaker 1: history goes back to what if you recall, it started
Speaker 1: out as these restaurants were dying in concepts, So Pizza Hut,
Speaker 1: for instance, was dying in restaurant um. In the sixties,
Speaker 1: you know, Domino's emerged with this idea that you could
Speaker 1: deliver these pizzas directly to people's homes and they would
Speaker 1: call and then you know, so Dominoes really grew a
Speaker 1: lot in the seventies and in the nineteen eighties, and
Speaker 1: then they had this deal where they would deliver the
Speaker 1: pizza within thirty minutes or it was free, and that
Speaker 1: enabled that company to just you know, that enfranchising, which
Speaker 1: it enables companies to grow very quick, really enabled it
Speaker 1: to grow very fast. And then you had competitors such
Speaker 1: as Little Caesar's which is also based in Michigan, like
Speaker 1: like Dominoes and and um, and then later Papa John's
Speaker 1: sort of emerged. Pizza Hut throughout this process sort of
Speaker 1: started converting its entire business model from that wait staff
Speaker 1: din in concept to a delivery model, you know, and
Speaker 1: it's just sort of became commoditized a little bit from
Speaker 1: a chain perspective. So I mean, you know, you might
Speaker 1: have a favorite between Little Caesar's, Pizza Hut, and Dominoes
Speaker 1: or Papa John's, but you know, unbalanced there not terribly
Speaker 1: different from one another. So it's becomes more of a
Speaker 1: price deal, speed, convenience type factors. So these chains have
Speaker 1: been competing. I mean, they've competed for you know, for
Speaker 1: quality and things like that, but on balance, you know,
Speaker 1: there really isn't a whole lot different between them, so
Speaker 1: they've competed based on price. Price. Competition is very fierce
Speaker 1: in that particular market. They have also been more than
Speaker 1: any other industry. They've been pioneers in adding technology to
Speaker 1: their to their restaurants. So they were very early adopters
Speaker 1: of ordering on the web and then of course mobile
Speaker 1: ordering to you know, to eliminate the pain point of
Speaker 1: having to call your pizza delivery restaurant and wait on
Speaker 1: hold for like ten minutes or whatever. That pain point
Speaker 1: is something that they've been able to to reduce over
Speaker 1: the years and compete then on sort of service and
Speaker 1: speed and things of that nature. That's kind of how
Speaker 1: that works. So I have to say, when I was
Speaker 1: growing up, I'm pretty sure I was a Pizza Hut
Speaker 1: to vote. I distinctly remember, yeah, having birthday parties at
Speaker 1: Pizza Hut, and I remember some of the commercials as well.
Speaker 1: We're gonna have to get our producer to insert some
Speaker 1: old like early nine Pizza Hut commercials into this for
Speaker 1: Nostalgiastic again. Hit Pizza Hut for Spring Pizza loaded with
Speaker 1: six delicious topics like mouth watering pepperonis, mushrooms, and green peppers.
Speaker 1: Right now, get a medium spring for seven and any
Speaker 1: other medium for just more bucks more. Yeah, I gotta
Speaker 1: think there's almost nothing Tracy that makes me more nostalgia
Speaker 1: than thinking about like going to pizza hut with my
Speaker 1: family and like those I remember the I think you know,
Speaker 1: the table clause and anyone and everything go on. But
Speaker 1: that is I think we both have a very nostalgic
Speaker 1: experience about pizza huts as a kid, for sure. Um
Speaker 1: oh gosh, really, I'm getting flashbacks to didn't they have
Speaker 1: like a Land Before Time dinosaur puppet promotion at some point? Okay,
Speaker 1: I'm getting really specific. Um, Jonathan, you mentioned the idea
Speaker 1: of um tech fitting neatly into the pizza delivery business model.
Speaker 1: Can you explain how that worked out for Domino's specifically?
Speaker 1: Like what was Domino's edge? Was it the way they
Speaker 1: did business, the way they used technology, or was it,
Speaker 1: you know, God forbid the pizza itself. Um, well, that's
Speaker 1: a that's a really interesting question because you know, the
Speaker 1: entire sector is actually fairly good at us use of technology.
Speaker 1: I mean, Papa John's has had you know, roughly the
Speaker 1: same digital ordering percentages as Dominoes for years. What what
Speaker 1: Domino's does differently, first off is, and this probably does
Speaker 1: does as much to explain why they have succeeded to
Speaker 1: the extent that they have is they roughly around the
Speaker 1: time they went public, they Dominoes required their franchisees to
Speaker 1: adopt the company's own point of sales system. Uh and
Speaker 1: it was actually a controversial step at the time because
Speaker 1: franchise in a franchise world, the franchise ease a lot
Speaker 1: of times when it comes to a technology or some
Speaker 1: construction requirement that they have to spend, they will want
Speaker 1: the company to give them the requirements and then they
Speaker 1: go shop around for a point of sales system. And
Speaker 1: there was there was, in fact, a very large lawsuit
Speaker 1: from some franchise ease against Dominoes over this poss them
Speaker 1: domino Is ultimately one, and then the franchise started converting
Speaker 1: their POLS system to two Domino system. So what what
Speaker 1: that's given the company is the ability to control the
Speaker 1: entire ordering process without having to actually go to another company.
Speaker 1: So if they want to add functionality to their mobile
Speaker 1: or online ordering, they simply can simply do it and
Speaker 1: do it very easy, relatively easily or more easily than
Speaker 1: most companies. So that's enabled them to do things such
Speaker 1: as add ordering on a watch or ordering your pizza
Speaker 1: on a car, or instance, if you want to order
Speaker 1: from a from an Amazon Echo or something like that.
Speaker 1: So that's the probably the biggest thing that they did.
Speaker 1: The other thing is that they marketed it by adding
Speaker 1: all of these cool things such as ordering on a
Speaker 1: car or whatever. They marketed the idea that you know
Speaker 1: that they're ordering process was easy. So one of the
Speaker 1: biggest things they probably did was convinced customers that they
Speaker 1: are more tech savvy than anybody else. They were doing
Speaker 1: double digit comps year upon year. It was kind of
Speaker 1: amazing to see for a while. So Dominoes took a
Speaker 1: risk of potentially alienating or antagonizing some of its franchisees
Speaker 1: by insisting that they all get on this unified point
Speaker 1: of sale platform. When did they do this, When was
Speaker 1: that decision made? And how strategic? Like, you know, obviously
Speaker 1: at the time years ago, they may not have anticipated, uh,
Speaker 1: the existence of an Amazon Echo or ordering on an
Speaker 1: Amazon to Echo, But what what was their strategic thinking
Speaker 1: at the time in terms of what that will what
Speaker 1: that would enable them to do? Well? I think they
Speaker 1: saw the like when they did this, everybody sort of
Speaker 1: knew that the Internet was gonna we were all going
Speaker 1: to be ordering on the Internet. Now, we didn't see
Speaker 1: the idea of of the echo or or anything like that,
Speaker 1: we're ordering on TV or ordering on your car, but
Speaker 1: people had a pretty good idea that we were going
Speaker 1: to be doing a lot more ordering on the internet,
Speaker 1: and that's sort of where they wanted to go, and
Speaker 1: you know, they you know, wanted to to control that process.
Speaker 1: But it was definitely a really big risk and it
Speaker 1: did anger a lot of franchisees at it. It went
Speaker 1: was Dominoes founded, and then when did they sort of
Speaker 1: make this leap? You know, that was I'm not sure
Speaker 1: that the exact year of when they did it, but
Speaker 1: goes back many years and it dates back before there
Speaker 1: before their IPL So this is now many year process
Speaker 1: that it took franchise ease to do. Interesting do you sorry,
Speaker 1: I don't know if you were covering the food industry
Speaker 1: around the time of the I p O, But do
Speaker 1: you remember what the like, what the business narrative or
Speaker 1: the investment story actually was around that time? What was
Speaker 1: Domino's telling investors was the growth story back in two
Speaker 1: thousand four? Well, I mean at the time it was
Speaker 1: sort of you know, between two thousand four and roughly
Speaker 1: two thousand and eight. They were sort of this you know,
Speaker 1: I mean they were just this well established franchise model. Um.
Speaker 1: I think they're most of their growth was in international markets,
Speaker 1: not in the United States. It was largely considered you know,
Speaker 1: an established legacy brand by the time they went public
Speaker 1: in two thousand four, so it's it's not your classic
Speaker 1: I mean, they've been around for decades by the time
Speaker 1: they went public, you know, so they were probably something
Speaker 1: more akin to a Wendy's for instance, where you know,
Speaker 1: Wendy's has a well established international market, but that's where
Speaker 1: it's growth is going to be in the future years,
Speaker 1: but it's in the United States. It's you know, it's
Speaker 1: it's growth is basically was basically behind them. Nobody and
Speaker 1: I would argue Dominoes, nobody saw what what was coming,
Speaker 1: So that that raised an interesting question. So, okay, they
Speaker 1: had made the strategic decision prior to having gone public
Speaker 1: they were going to sort of really build in the
Speaker 1: potential for the use of tech. But at the time
Speaker 1: they went public still they were not being thought of
Speaker 1: really like that. They were just like, you know, sort
Speaker 1: of mature company like a Wendy where it's like, okay,
Speaker 1: it's a business. It makes money, but it's mature and
Speaker 1: it's kind of boring. And so this sort of gets
Speaker 1: us to the crux of what we were talking about earlier,
Speaker 1: which is that yet, despite this perception of them being boring,
Speaker 1: the stock is up about twenty eight fold since the
Speaker 1: type po and really it's almost like matched Google since then,
Speaker 1: tick for tick. When did perceptions of the company start
Speaker 1: to change? When did people start to realize like, Okay,
Speaker 1: there's like they're really executing extremely well, they're growing really well,
Speaker 1: They're just this is an exciting company and not just
Speaker 1: an old line food Jim. Yeah, the big turning point
Speaker 1: for them from a public perception standpoint was when they
Speaker 1: advertised that their old pizza was carible. All right, I
Speaker 1: remember that, Yeah, that is this is one of the
Speaker 1: few restaurant companies where we could really say that there
Speaker 1: was this absolute moment when everything sort of turned for them,
Speaker 1: for them in the public, in the public's eye. And
Speaker 1: you know, that was around the two thousand, two thousand
Speaker 1: and eight, two thousand nine time frame. Going into that
Speaker 1: um and I remember writing at one point wondering whether
Speaker 1: people were getting tired of pizza because all the pizza
Speaker 1: chains were sort of struggling at and including Dominoes. In fact, Domino's,
Speaker 1: uh you know, Domino's had done a securitization around the time,
Speaker 1: and uh you know, so they were heavily in debt
Speaker 1: around at the time of the Layman Brothers collapse, and
Speaker 1: so you know, they were one of those companies that
Speaker 1: you actively wondered would survive over during the recession. But
Speaker 1: what they did was they decided to reformulate their pizza recipe.
Speaker 1: They then advertised that their old pizza was junk then
Speaker 1: and actually had comments from customers on their advertisements that
Speaker 1: their whole pizza was terrible. And then they told people
Speaker 1: that we've got we've got this new recipe, you should
Speaker 1: come and try it to them. That is sort of
Speaker 1: the base of their comeback. That fixing the food and
Speaker 1: making it better and more palatable to the customer base
Speaker 1: was the first step towards towards their actual comeback. So
Speaker 1: that that was sort of the turning point in the
Speaker 1: public's perception. When did they start doing the delivery insurance
Speaker 1: or pizza insurance, Well, I think that was they did
Speaker 1: that last year. Wait, what is that I did pizza? Well,
Speaker 1: they started, they started they offered started offering last year
Speaker 1: where if they if something happens with your delivery delivery order, um,
Speaker 1: you could get you know, something for you could get
Speaker 1: it for free. Um. And then they extended it to
Speaker 1: carry out because that's where they see their growth in
Speaker 1: the future years is with carry out orders. But it's
Speaker 1: a lot of that is just to sort of establish
Speaker 1: their their delivery bona fides against their party delivery. So
Speaker 1: they had that marketing campaign and I remember that now
Speaker 1: that you mentioned it. To take our old pizza is bad,
Speaker 1: the new pizza is good? Is it a lot better? Like?
Speaker 1: I don't I ordered Dominos a couple of weeks ago,
Speaker 1: though it is pretty good, but I remember it being bad.
Speaker 1: But I don't remember. Was there like an agreed upon
Speaker 1: like what did they do differently? How did they actually
Speaker 1: make the pizza better from the old recipe in the
Speaker 1: new recipe? Oh, they their crust is better. I think
Speaker 1: it's it's the crust is a lot more flavorful, if
Speaker 1: I recall correctly. The sauce was also changed. Yeah, you know,
Speaker 1: I do don't remember exactly, but their pizza used to
Speaker 1: be just awful. I mean it, without question, it was
Speaker 1: it was it was just a terrible product that absolutely
Speaker 1: earned the cardboard reputation, and it's definitely a better product,
Speaker 1: and it's it's just a little bit spici. But yeah,
Speaker 1: in two thousand and ten, I'm looking, I'm looking at
Speaker 1: the numbers, and they did fourteen point three percent comps
Speaker 1: in the first quarter of two thou after that was introduced.
Speaker 1: So if we fast forward to now, clearly pizza pizza
Speaker 1: delivery is enjoying a resurgence during the coronavirus shutdown, but
Speaker 1: we've also seen a surge in just food delivery in general.
Speaker 1: How does pizza compete against the third party food delivery
Speaker 1: companies in this environment? Well, first off, on price. So
Speaker 1: one of the challenges I think the long term challenges
Speaker 1: the third party delivery is that it costs you a
Speaker 1: lot of money to get that order. Pizza chains do
Speaker 1: that much more efficiently and they control the process then
Speaker 1: than in a third party situation. So for instance, if
Speaker 1: you order chicken wings, for instance, and you order through
Speaker 1: a third party delivery app, you're probably gonna pay fifty
Speaker 1: six more than if you were to go pick it up.
Speaker 1: For instance, that price is a big deal. Pizza tends
Speaker 1: to you're you're still paying more if you order domino
Speaker 1: is delivered then if you order carry out, but the
Speaker 1: value is still a major, major, major selling point. It's
Speaker 1: one of the quietly one of the biggest reasons why
Speaker 1: pizzas historically so popular. Is it again, it's just fundamentally
Speaker 1: cheap to to to feed your family with it, so
Speaker 1: because they control the process. Like if you think about
Speaker 1: the delivery system in pizza restaurants or Chinese for that matter,
Speaker 1: anybody that does self delivery, or like Jimmy John's, you know,
Speaker 1: you do it from a hubb in spoke model. You
Speaker 1: have your delivery drivers at the restaurant, the people order
Speaker 1: from the restaurant, and then the delivery drivers go out
Speaker 1: to the homes to deliver the food. In a third
Speaker 1: party system, it's just a lot more jumble. You're going
Speaker 1: your people are ordering either from the restaurant on order
Speaker 1: or from the third party delivery app, and then those
Speaker 1: orders go to independent contractors that may be close to
Speaker 1: the restaurant or they may be a couple of miles away,
Speaker 1: and then they're going, so they're all these points they're going.
Speaker 1: It's just a much more jumbled mess, and it's much
Speaker 1: more difficult to do that efficiently, and that's probably a
Speaker 1: bigger reason why third party delivery doesn't make the money
Speaker 1: that say domino stuff. So it's really, in your view,
Speaker 1: it's about that having the people there, having them go
Speaker 1: out the job of pizza come right back, and a
Speaker 1: sort of consistency and the efficiency that you can get
Speaker 1: from having that entire infrastructure just devoted to your restaurant,
Speaker 1: to your product. And the third party entities, the delivery
Speaker 1: companies and you know, rub hubs and door dashes and
Speaker 1: all these other ones, they just can't compete with that
Speaker 1: efficiency in your view. No, so they really can't compete
Speaker 1: from from an efficiency standpoint. And then the other thing
Speaker 1: is that you you know, Domino's controls all of that process.
Speaker 1: So and it's a simple explanation if you order from
Speaker 1: Dominoes and go back to that delivery insurance situation, If
Speaker 1: you order from Dominos or Pizza Hut or Papa John's
Speaker 1: for that matter, and something is wrong with your pizza,
Speaker 1: you can contact Dominoes or Pizza Hut or whatever, and
Speaker 1: you know, you know, Dominoes will get that pizza to
Speaker 1: you for free. You'll get your pizza I ordered. I
Speaker 1: remember I ordered. I wanted pie delivered to my house.
Speaker 1: I was craving pie. It was terrible. And I ordered
Speaker 1: from a family dining restaurant and and we ordered dinner
Speaker 1: and a couple of pies. And we got the order
Speaker 1: and the food came, the pie wasn't there, and so
Speaker 1: I contacted the delivery provider and all I got was
Speaker 1: my money back. I didn't want the money. I want
Speaker 1: to pie. And so I mean, it's so the problem
Speaker 1: to me is that Dominoes can just control that quality
Speaker 1: a lot better than third party delivery can and eventually,
Speaker 1: you know, right now, you have a captive audience sort
Speaker 1: of spee. People are at home and they really want food,
Speaker 1: and delivery is still a fairly safe way to get
Speaker 1: your food in a pandemic. But eventually quality really will
Speaker 1: take over and consumers aren't going to give them a
Speaker 1: break to the extent. And and you know, that's one
Speaker 1: area where third party delivery companies have to fix is
Speaker 1: get that quality down a lot better. Okay, So, given
Speaker 1: that Domino's has this very competitive delivery business where they
Speaker 1: have a lot of efficiencies built into it that allows
Speaker 1: them to compete quite effectively with third party food delivery services.
Speaker 1: Why are they looking at carry out as a potential
Speaker 1: growth area, as you mentioned, because a certain percentage of
Speaker 1: customers hate delivery. M that's basically it. So um, they
Speaker 1: explain it as there is a you know, I mean,
Speaker 1: like I think it's roughly two thirds of consumers are
Speaker 1: perfectly fine having food delivered to to umu to their home.
Speaker 1: But then there's like thirty dish some some substantial percentage
Speaker 1: of consumers that don't like delivery. I'm actually one of
Speaker 1: those consumers. I really don't like having food delivered to
Speaker 1: my home. I would much rather go and control the
Speaker 1: process and go pick it up. Um. Is that is that?
Speaker 1: Is that just like a sense of control thing? Or
Speaker 1: is it you worry that the food is going to
Speaker 1: come in for you're not going to get what you want?
Speaker 1: Or yeah I'm a control freak. Yeah, I'm an admitted
Speaker 1: control I don't like Um, you know, I I can
Speaker 1: go pick it up when I know it's ready, get
Speaker 1: it as hot as I can. I don't have to
Speaker 1: wait for somebody who may or may not get to
Speaker 1: my house is quickly as as they should. And uh.
Speaker 1: And also the fact that like I know I'll get
Speaker 1: I could at least check my bag to see if
Speaker 1: my pies are there. I'm sensing pie is important to
Speaker 1: you if I well, I mean, well, when you want pie, man,
Speaker 1: you have to have pies. And I think the Dominos
Speaker 1: has seen that, you know they, I mean, they're they're
Speaker 1: very data heavy company. They use data for every single
Speaker 1: decision that they have, and so they know that there
Speaker 1: is this percentage of consumers that just do not like delivery,
Speaker 1: and that's the consumer that historically they've never really targeted.
Speaker 1: And in recent years they've just really been pushing for
Speaker 1: that particular group quite a bit, which is sort of
Speaker 1: sustained um. That's helped them sustained growth in the past
Speaker 1: couple of years, as as their delivery businesses offtened while
Speaker 1: all these third party delivery companies started to emerge. Do
Speaker 1: you see any hope for those third party companies? Like
Speaker 1: is there a path in your view to sustainable profitability
Speaker 1: or is there just like do they really need to
Speaker 1: potentially rethink things? I mean, I was on TV talking
Speaker 1: to Jim Chaino's who was very skeptical these companies, like, look,
Speaker 1: they didn't make money during the boom times. Now businesses
Speaker 1: up a lot but they're still not making money. He
Speaker 1: was talking about grubhub in particular. Is there a path here,
Speaker 1: in your view, for that third party model to work well?
Speaker 1: I think people want food. I mean a certain percentage
Speaker 1: of consumers want food delivered to their home and are
Speaker 1: willing to pay for it. And as long as that
Speaker 1: market exists, they'll figure out a way to make it work. Now,
Speaker 1: how that looks remains to be seen. I know that
Speaker 1: there's still a lot of people out there looking at
Speaker 1: delivery and trying to figure out how to make it work,
Speaker 1: whether it's an entirely different model of some sort, whether
Speaker 1: it's a lot of consolidation, and then maybe like rubhub,
Speaker 1: they use it as a loss leader to sort of
Speaker 1: established their overall business. To me, I you know, that's
Speaker 1: that's a really really good question to me. As long
Speaker 1: as that market exists, somebody is going to figure out
Speaker 1: how to do it. You know, there are a lot
Speaker 1: of markets where you can actually get efficiency, you get
Speaker 1: enough efficiency in that market to where it can work.
Speaker 1: New York City is a perfect example because everybody is
Speaker 1: packed in so tightly. That's why it works so well.
Speaker 1: In China, for instance, everybody is packed in so tightly,
Speaker 1: you can do a lot of deliveries and short radius.
Speaker 1: I live in a suburb and it's very difficult to
Speaker 1: do delivery efficiently there. So I think eventually they figure
Speaker 1: it out. It remains to be seen. Could it be
Speaker 1: plausible that more companies, beyond just pizza companies adopt our
Speaker 1: own hub and spoke model, maybe with some infrastructure help
Speaker 1: from a third party company, but have more dedicated drivers,
Speaker 1: dedicated systems on their own. Is data path or does
Speaker 1: that not work for most kinds of a company. I
Speaker 1: think that's that is one route they absolutely could go.
Speaker 1: And then you could see some companies that sort of
Speaker 1: help along along those lines, and that maybe third party
Speaker 1: in delivery players as well. I mean, I think long term,
Speaker 1: ultimately a lot of companies bring this stuff in house.
Speaker 1: You know, we we have seen it with with some
Speaker 1: some chains that have in house delivery in some form
Speaker 1: or fashion. Again, as long as that market is there
Speaker 1: and people wanted, I think that customers, you know, companies
Speaker 1: are going to figure out a way to do it,
Speaker 1: and that very well could be the restaurants themselves. Yeah.
Speaker 1: I think the things that have prevented restaurants from doing
Speaker 1: it is things like insurance and um labor. Labor has
Speaker 1: been a massive barrier towards companies doing their own delivery.
Speaker 1: That's one of the biggest reasons why they haven't done
Speaker 1: that more aggressively, uh than you might have expected, given
Speaker 1: all of the questions with third party delivery and the
Speaker 1: the existence of that market is like companies that have
Speaker 1: tried it, like Burger King and others, really struggled when
Speaker 1: they did it. Um though Panera Bread has their own
Speaker 1: delivery and some others. But I think ultimately, because that
Speaker 1: market is the way it is, I think ultimately you're
Speaker 1: probably going to see a lot more companies doing self delivery.
Speaker 1: So you know, when Joe and I started this episode,
Speaker 1: we mentioned the chart of Google versus Dominoes and how
Speaker 1: they've both performed very similarly since they actually went public.
Speaker 1: When you look at that chart, do you think that
Speaker 1: performance is justified? Do you think Domino's is as good
Speaker 1: a company or as much of a tech company as
Speaker 1: something like Google. Well, I don't think there's much of
Speaker 1: a tech as much of a tech company as Google
Speaker 1: at all. No. I mean, they are definitely a tech
Speaker 1: company without question. Um. They are very technology heavy, but
Speaker 1: their main product is still that pizza, whereas Google their
Speaker 1: main product is you is search and advertising and whatever
Speaker 1: else they they do that I can't think of off
Speaker 1: the top of my head. So no, I mean they're
Speaker 1: not as much of a tech company, but I mean
Speaker 1: they're you know that. You know, the stock movement is
Speaker 1: as justified as as anything else. And it's not like
Speaker 1: Dominoes is going to go away. You know, they were doing.
Speaker 1: Some of the sales growth that they had in the
Speaker 1: last few years have been really incredible, and I mean
Speaker 1: no other company can even come close to what they've done,
Speaker 1: except maybe Chipotle. So you know, their unit volumes are
Speaker 1: much much bigger than their competitors. Um, they rocketed past
Speaker 1: Pizza Hut to be the largest pizza chain in the
Speaker 1: in the country and in the world. Um they still
Speaker 1: have plenty of growth in international markets. They have a
Speaker 1: very high profit franchise model. I mean yeah, I mean,
Speaker 1: there's no real reason why they shouldn't have been they
Speaker 1: shouldn't have gone up as much as it has. It's
Speaker 1: just been sort of incredible to watch, especially given the
Speaker 1: fact that somewhere and then two thousand eight timeframe, we
Speaker 1: were wondering if they were going to go bankrupt. So
Speaker 1: before we go, I mean, put on your future hat
Speaker 1: for futurist hat for a second. We talked about maybe
Speaker 1: different ways that the third party delivery industry could work.
Speaker 1: But from a pizza specific standpoint, or for a Domino's
Speaker 1: specific standpoint, what's the next thing we should be watching
Speaker 1: for in terms of the strategic future of pizza itself.
Speaker 1: I mean, you know, it's hard to see, you know,
Speaker 1: what they can do from a technology standpoint. There's the
Speaker 1: thing that's gonna work is that you're no longer when
Speaker 1: you call a pizza restaurant, you're no longer going to
Speaker 1: talk to a human being. So that's probably the biggest
Speaker 1: change that you'll see down the line. And what about
Speaker 1: driverless card delivery? Is that going to be a big thing?
Speaker 1: I mean as soon as I think they definitely want
Speaker 1: to do it. I mean, Domino's has been working on
Speaker 1: this for for years. You know, they still absolutely play
Speaker 1: around with it. They have robots at their company headquarters
Speaker 1: and things like that. So I mean I think kind
Speaker 1: of like if they're working on a driverless car technology,
Speaker 1: they're kind of more like Google than you let up. Yeah,
Speaker 1: well they work well, maybe they are a little bit
Speaker 1: more like Google than I really went on. But I
Speaker 1: mean they do have but they're working now with uh,
Speaker 1: with a robotics company on on that they've been testing
Speaker 1: these really more robotic driverless cars and um, so you
Speaker 1: could definitely see that. But you're gonna see you know,
Speaker 1: the the you know in the next couple of years,
Speaker 1: you know, these automated voice ordering where the digital orders
Speaker 1: are taken even from from people who old fashioned people
Speaker 1: who call on the phone. Right. Uh, Jonathan may Is,
Speaker 1: that was fantastic. Really enjoyed it. I learned a ton
Speaker 1: about pizza and food and I gotta want your answers
Speaker 1: to question and I've had for a long time, so
Speaker 1: I really appreciate you, Johnny. All right, thank you, Thanks Jonathan,
Speaker 1: Thanks Jonathan Tracy. I've been eating a lot of pizza
Speaker 1: like everyone else during this crisis, and I think I'm
Speaker 1: going to order another pizza because I'm gonna order a
Speaker 1: Domino's too. Nothing like talking about the efficiencies of a
Speaker 1: business model to get the cravings going. But yeah, hubband
Speaker 1: spoke model. Nothing nothing makes me again to be hungrier
Speaker 1: than hearing about the hubband spoke moddle delivery. But you
Speaker 1: know what, I was thinking while we were talking about that,
Speaker 1: I was actually thinking what would happen if Google went
Speaker 1: into the pizza delivery business, Like what if they just said, well,
Speaker 1: we have as much data as anyone, and we do
Speaker 1: tech as good as anyone else, and the pizza is
Speaker 1: kind of an afterthought in this business model. It feels like,
Speaker 1: well except as you pointed out that domino has really
Speaker 1: turned it around when they made the pizza itself better,
Speaker 1: so at least Google would have to execute on the product. True,
Speaker 1: or they came up with a very good marketing campaign
Speaker 1: that worked for them. It's crazy, by the way, Tracy,
Speaker 1: you should come back just because, like I ordered Dominoes
Speaker 1: the other day, and I guess I should ask Jonathan
Speaker 1: about this, But like what they do with crust, like
Speaker 1: they're in order like Brooklyn thin crust, thin crust, Like
Speaker 1: there's like there's literally like twelve different crush they have.
Speaker 1: Like if pizza is getting so advanced, that sounds amazing.
Speaker 1: I think the last time I ordered pizza from Dominoes,
Speaker 1: there were still only two options, which were thin and
Speaker 1: thick crust. That was pretty much it. I miss it.
Speaker 1: I would come back. You gotta come back, just for this. Yeah, wait,
Speaker 1: do you order Dominoes when you're in New York? I'm
Speaker 1: going to, but I might start I feel if when
Speaker 1: I'm in the city, I do feel bad about ordering dominos,
Speaker 1: But maybe I'll start. It's really good. Maybe you'll be
Speaker 1: so attempted by the efficiencies of the Hubb and Spoke
Speaker 1: model that you'll have to. But yeah, a fascinating conversation,
Speaker 1: something that really like brings a current business trend into focus,
Speaker 1: I think. And I wasn't aware that pizza had become
Speaker 1: such a massive thing during the coronavirus shutdown. But Jonathan
Speaker 1: did a really good did a really good job of
Speaker 1: explaining why he's great. All right, should we leave it there? Yep,
Speaker 1: let's do it. This has been another episode of the
Speaker 1: All Thoughts podcast. I'm Tracy Alloway. You can follow me
Speaker 1: on Twitter at Tracy Alloway, and I'm Joe Wisenthal. You
Speaker 1: can follow me at The Stalwart. And you should follow
Speaker 1: our guest on Twitter, Jonathan May's He's at Jonathan Mays.
Speaker 1: Be sure to follow our producer Laura Carlson at Laura
Speaker 1: and Carlson. Follow the Bloomberg head of podcast, Francesca Levi
Speaker 1: at Francesco Today and check out all of the Bloomberg
Speaker 1: podcasts under the handle at podcasts. Thanks for listening to