Jun 17, 2021 | Report Announcements

Domino’s is very well situated as the largest US pizza chain (36% delivery share & 15% carryout share) with a 40% domestic share among the top 4 players. Brand positioning emphasizes: leading-edge, digital ordering convenience/speed and seamless payments; a 100% contactless delivery model; and its long running $5.99 and $7.99 price point deals which are centric to their everyday value positioning. The chain’s impressive 75% digital sale mix drives higher group checks including more high margin add-on sales enabled by its broad menu (specialty chicken, wings, stuffed cheesy bread, salads & desserts). Its 27MM member Piece of the Pie Rewards loyalty program drives frequency with marketing customization and discounts (every 7th pie free). The brand’s marketing ideas are designed to start with an innovation that makes the pizza experience more magical (think Disney), consistent with its role as an e-comm business. Notably, Domino’s IT and marketing scale represents a key advantage relative to smaller industry players who represent the bulk of Domino’s competition and source of market share gains. As faster delivery times are correlated with higher frequency, the brand seeks to reinforce its reputation as a delivery leader by promoting tech solutions to speed/improve delivery (like GPS tracking, expansion of its AnyWare order platforms & automated delivery cars). Its “fortressing” market fill-in strategy improves delivery speeds (by 2 minutes) and plans to transfer orders to delivery drivers in the parking lot should further improve speed. Domino’s scale also facilitates: its value leadership around its long-running deals (price certainty) at $5.99 and $7.99; and one of the most cost-effective delivery options in the industry with a delivery fee which is far more affordable than DSP alternatives. In any case, as labor costs continue to rise and the challenge of hiring drivers increases (with the rise of DSPs), the incentive to drive carryout sales increases (particularly in high-cost markets). Relatively high margin carryout is key for Domino’s as it offers customers a less expensive option (without delivery charges & tips) which is better suited to a weaker, post-lockdown economy. To this end, the chain is challenged is to restore sales from lapsed carryout customers who have been reticent to enter the store post-lockdown (which explains the launch of carside delivery). In conclusion, while it is our opinion that Domino’s is doing a great job in strategy and execution, its competitive bar remains extremely high and a continued comp outperformance is challenged by difficult y/y compares and a return to normal which naturally diminishes the demand for contactless delivery.

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