Digital apps. Neural networks. Omnichannel analytics. Pepperoni. Which of these things is not like the others?

Tuesday, December 5, 2017

Trick question.  Actually, all four are fundamental to the success of Domino’s, the Ann Arbor, Michigan-based pizza delivery and takeout company.

While pepperoni is a star component of its pizzas (it’s the most requested topping in the U.S.), Domino’s real success comes not from its toppings, but from its pioneering investments in technology, said Patrick Doyle, the company’s CEO.

The Kenan Institute hosted four dozen students from UNC’s Kenan-Flagler Business to hear the Domino’s story from Doyle and Ritch Allison, president of Domino’s International (and Kenan-Flagler alumnus), on Wednesday, November 29, at the Kenan Center in Chapel Hill.  Attendees snacked on – you guessed it – Domino’s pizza while hearing how cutting-edge technology has transformed the company’s brand from a fading relic (whose own customers called its pizza “cardboard”) to a global pizza powerhouse with $10 billion in sales and 14,400 stores in 88 countries.

The route to Domino’s success took many twists and turns.  The company was founded in 1960 in Ypsilanti, Michigan, when brothers Tom and James Monaghan borrowed $900 to buy a local pizza store named Domi-Nick’s.  Tom aspired to enroll at the University of Michigan as an architecture student but couldn’t afford tuition.  He thought running a pizza store would help him raise enough money to attend college.  Unfortunately, said Allison, the business failed miserably, and Monaghan was forced to relinquish his educational aspirations.  On the plus side, he stuck with pizza.  He had an idea that people might want to have their order brought to them, so he loaded a sterno burner in the back of his car, and guaranteed the door-to-door delivery of piping hot pies in 30 minutes or less.  “It wasn’t OSHA-compliant,” joked Allison, “but it was a game changer.”

By the early 1990s, though, that 30-minute guarantee became a source of headaches, from driver accidents to litigation.  At the same time, the quality of the company’s offerings began to suffer.  After three years of sharply declining sales, said Allison, it was time for the brand to take an honest look at itself.

As part of their soul-searching, Domino’s executives re-sourced their ingredients and revamped their recipes.  They tested hundreds of combinations with customer focus groups.  And they made perhaps the boldest move of all – their 2010 advertising campaign, in which they admitted that their product tasted awful.  They promised not only improvements, but full refunds if customers didn’t like the new pizza.

It was a well-timed move.  The country was still reeling from the economic crisis that began a few years earlier, and people were tired of corporate lies.  “This message of transparency, of honesty, hit at a time where it really resonated with the American people,” said Allison.

The company’s radical candor resulted in a stunning turnaround.  In first three months after the ad campaign, sales increased by 14.3 percent.

There were more changes to come.  In another bold move, Domino’s adopted a culture of risk-taking, encouraging out-of-the-box thinking, even if it resulted in failure (such as the disastrous Oreo-topped pizza the company once tried).  They completely restructured their menu offerings, adding sandwiches, salads and desserts.  They launched a loyalty program and redesigned their storefronts.  And they put their time and money into world-class technology, becoming first in the industry to adopt many innovations.

Today, customers can order from Domino’s via tweet, Facebook message, Amazon Echo or smartwatch.  Text a pizza slice emoji to place an order, and a thumbs-up emoji confirms it.

Allison said the depth and breadth of the company’s analytics has changed how they market to customers.  They can now engage customers “on a device that makes sense to them, at a time that makes sense to them, and with messages that make sense to them.”

Innovation and exploration have become part of the company’s DNA, said Doyle.  He described the work of an internal group that meets quarterly to discuss new ideas for the business.  “They ask, ‘How much will it cost?  How much work will it take?  How much is it worth to the company if it works?’”

These questions also jumpstart the budgeting process.  Doyle said that most companies begin planning their budget by asking, “How much do you think we can grow next year?” and use that baseline number to determine spending priorities, attempting to innovate with whatever money is left over.  Domino’s turns the process on its head, starting with the question, “What new things can we be doing to help grow the business?” and funding those chosen innovations first, before determining the rest of the budget.  Doyle added that not every idea works, but the law of averages ensures that Domino’s will have at least some big wins.  “We take a lot of risks, we place a lot of bets,” he said, “and then we essentially let the odds work in our favor.”

Doyle believes that fostering a culture of risk-taking not only helps the bottom line, but also enhances employee morale and, by extension, customer service.  Employees get “jazzed up” about the freedom to take chances, he said, which transforms how they interact with customers.

The rebranding efforts are working.  In just seven years, Domino’s has added some 5,000 stores in 25 countries, including Egypt, Slovakia and even Italy.

What’s next for Domino’s?  The company is already working hard to revolutionize the delivery paradigm.  In 2015, it rolled out its first fleet of Delivery eXPert cars, equipped with warming ovens.  Last year, it began working with Ford on the feasibility of driverless delivery vehicles.  And while those vehicles are likely five to ten years away from hitting the road, Domino’s is ready to be the first to roll them out.

From big-data analytics to digital customer interactions to cars that will drive themselves, the Domino’s team – and their shareholders – are having their pie and eating it, too.