Respect the king of delivery.
Fast-food giants, including McDonald's Corp. (MCD) and Dunkin' Brands Group Inc.'s (DNKN) Dunkin' Donuts, have finally started entering the delivery game. But make no mistake, Domino's Pizza Inc. (DPZ) has got it down to a science, literally.
From being the first to launch ordering options through social media sites like Twitter Inc. (TWTR) to revolutionizing with the "pizza tracker," Domino's has always been one step ahead of the competition in creating innovative delivery services. And its rivals have taken note.
Following in Domino's footsteps, Papa John's Int.'l Inc. (PZZA) announced, in its Tuesday, Aug. 1, second-quarter earnings report, that it's debuting a direct ordering option through Facebook Inc. (FB) . After Papa John's announced it would buy back $500 million in stock, its shares soared, up 10%, to $78.64, in mid-afternoon trading Wednesday.
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For Domino's, its advanced approach to tech and delivery has shown in its financial results, at least in the U.S. For its recent second quarter, Domino's reported that its domestic same-store sales popped 9.5%, compared to Papa John's tepid 1.4% rise for the period ended June.
On Wednesday, Domino's CEO and President Patrick Doyle gave TheStreet his thoughts on everything from the future of tech and fast-food to the pizza chain's new national launch of "bread twists" in garlic, Parmesan and cinnamon flavors.
Here's a condensed and edited version of the interview.
Question: When it comes to delivery, Domino's has been the winner, largely by being first. Now we're seeing other big players like McDonald's and Dunkin' Donuts, and even Papa John's with its launch of Facebook ordering, playing catchup. How, if at all, will this rising competition affect Domino's?
Answer: How it's going to affect us is harder to answer. We are certainly tracking it very closely. We have looked at the markets where new delivery options are more penetrated, so think major cities—New York, Chicago and Los Angeles, versus smaller-town markets where they may not be available. To date, we haven't seen any impact. There are a lot of companies experimenting right now.
To be effective in delivery, it has to work for four parties—the company providing that service, most of the companies that you talked about are using third-party delivery services [UberEats, for example], so it has to work for them; the restaurant; the drivers; and the customer. And also the food has to be right.
But getting that economic equation right for all isn't easy. We've been doing this for 57 years, so we're pretty good at delivery. A lot of folks are still working their way through that.
Q: What happened with your sales in the U.K. this past quarter? [Domino's international same-store sales grew a tepid 2.6% due to weakness in Europe. The company had anticipated an increase of 3% to 6%].
A: We got our value equation off a little bit. Our International President Rich Allison is in the U.K. It's a fixable problem and it's within our control, and it's not anything that's going on with the market, with the economy, with competition. This is something that the team there is on top of.
Q: How did bread twists come about?
A: For a few years, we've methodically been going through our menu, looking at everything we serve, all the products and toppings, and asking if this is the best it can be. Our old bread sides were fine, as good as what else was out there. But our new bread twists are terrific.
Our approach from a menu innovation standpoint has been to focus our efforts on how do we launch new things or improve on existing things we think could be permanent additions to our menu? As opposed to the monthly or quarterly products that frankly are news-generating and then are gone 90 days later. I think that's an efficient use of our franchisees' and store members' time to learn the new products, for supply chain to roll them out and spend advertising dollars on them and not eliminate them 90 days later. As we looked through our menu, we thought there was a real opportunity to do something better with bread, and twists are definitely better.
Q: We're on the cusp of the [Apple Inc. (AAPL) ] iPhone 8 launch. It seems like everyday our tech team here at TheStreet is writing about artificial intelligence. What are your thoughts on the rapid change in technology and how do you stay ahead of what's going on?
A: The reality is, you're already seeing it. Often, you don't know what's being applied behind the scenes. I'm always careful to say technology and analytics as the answer around those questions. What you're able to do with the data you've generated from having your customers on digital platforms is every bit as important as how we've been growing our business and the availability of those platforms themselves. We've got a significant team of people behind the scenes. You really have to split it between two things—machine learning and artificial intelligence. Artificial intelligence is anything that uses machine learning and then mimics human behavior. So, if you're ordering now through Facebook messenger, for Domino's, that's getting into artificial intelligence. We're anticipating what you're saying, we're going to translate it back, giving you the interaction that feels more natural. Machine learning is simply the analytics that are behind the scenes and the algorithms that are driving the offers you're seeing, or when you get an email or text message from us. All those things are from analytics. Those have become an increasingly powerful way to drive our business and how a lot of restaurants and retailers do the same.
Q: What is next for tech and delivery? It went from the phone to online to social media. Domino's U.K. business [Domino's Pizza Group plc (DPUKY) ] just launched ordering through the [Amazon.com Inc. (AMZN) ] Echo. Is that the next wave? Through these smart devices?
A: Absolutely. The Amazon Echo ordering launched with us in the U.S. We were on it, when it went out. Same with [Alphabet Inc.'s (GOOGL) ] Google Home. Natural voice is where we think consumers and technology are going. Personally, I think summing things into a relatively small screen is not an ideal interface for people. The far more natural way to do it is to speak. We launched natural-voice ordering on our apps three or four years ago. A couple of years before Amazon Alexa and Google Home, Domino's had Dom. We've been working on Dom for three or four years. It is a far more logical way for people to interact with technology long term, and we've been investing heavily there. It's going to be a big part of the future.
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