On the Margin
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Domino’s 2016 dominance was unreal

Blog: No restaurant chain came even close to Domino’s 12.2% fourth quarter

This post is part of the On the Margin blog. 

Domino’s same-store sales rose 12.2 percent in the company’s fourth quarter, a number that easily bested its primary pizza competitors — and everybody else in the restaurant industry.

Consider this: On average, restaurants’ same-store sales fell 0.7 percent in the last three months of 2016 — without some numbers from chains that have yet to report. That means Domino’s bested the overall restaurant industry by an insane 1,290 basis points.

Or think about this: On average, pizza chains’ same-store sales fell 2.4 percent in the last three months of 2016. Remove Domino’s, and that average was negative 5.3 percent.

Only one restaurant company that has reported quarterly earnings so far has come within 700 basis points of Domino’s fourth quarter performance: Del Taco, where same-store sales rose 5.5 percent.

To be sure, some of this speaks to the weakness of the restaurant industry in the period. We will write about that weakness later this week, but suffice it to say a decline of 0.7 percent on average is not a good number. Consumers were clearly opting not to eat out late last year.

Domino’s escaped whatever caused those declines, whether it was low grocery prices, bad weather, calendar shifts or depressed retail traffic. “We clearly weren't feeling that,” CEO Patrick Doyle said on the company’s most recent earnings call. 

The obvious answer to Domino’s performance is its technology. Domino’s has used technology more effectively than just about any other restaurant chain — giving consumers the ability to order just about anywhere, in as simple a manner as possible.

And indeed, the only other pizza chain to record growth in the last quarter was Papa John’s International Inc., at 3.8 percent. Papa John’s, like Domino’s, has been effective at convincing customers to use technology — 60 percent of both chains’ orders now come through digital channel.

Yet that might be simplistic. Domino’s is able to embrace technology in a way that most chains can’t, because it years ago implemented a single-store point of sale system that it operates in-house.

As I detailed in a story last year, this enables the company to make changes faster and more efficiently. It was quickly able to add new ordering capabilities because it already had the foundation in place and engineers on hand eager to do the work.

More to the point is the way Domino’s uses technology, adopting the saved “easy order” system, enabling capabilities like no-touch ordering, orders via watch, television or the Amazon Echo. 

Then add effective marketing, which is getting stronger all the time thanks to the chain’s impressive growth, and an aggressive store remodel program that is attracting more carryout business.

And Domino’s 12.2 percent same-store sales growth came on top of a succession of strong years — its three-year same-store sales in the period increased an astounding 38 percent, cumulative.

To be sure, it will be difficult for the chain to maintain this momentum. But, at least for the moment, Domino’s has proven that customers will flock to a chain that does its job exceptionally well.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]com

Follow him on Twitter at @jonathanmaze

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