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dominos-delivery-bike.jpg Domino's
Domino's is focusing on store density to ramp up delivery and takeout dominance.

Here’s why Domino’s fortressing strategy is a winner for the takeout and delivery-heavy company

How Domino’s fortressing growth strategy, delivery dominance (sans third-party partnerships) and careful menu innovation led to pandemic-era success

In a Tuesday presentation at the 23rd annual ICR Conference 2021, Domino’s reiterated its confidence in the Ann Arbor, Mich.-based pizza chain’s delivery dominance during the pandemic, citing their continued fortressing strategy, takeout/delivery growth with zero third-party partnerships, and thoughtful menu innovation.

“We offer a great product, great value, and great service: if we can do that then everything else will fall into place,” Domino’s executive vice president and CFO Stu Levy said Tuesday. “You get some tailwinds early on in the pandemic but ultimately that’s not going to last forever.”

At the start of the pandemic, Domino’s Q2 2020 sales were up 7.1% despite COVID-19-related woes, with digital sales soaring to 75-80% of total revenues at this time. By the end of 2020, the company reported its strongest quarterly performance in decades, attributing much of their Q4  success to growing delivery demand and loyalty memberships. But the aforementioned headwinds — namely, costs from paid sick leave, PPE, frontline hourly compensation, and store-level cleaning supplies — totaled $11 million in costs for the company.

Despite these setbacks, Levy said that they’re confident in their ability to succeed by going against the crowd in some of their strategies. For example, whereas many of their competitors have been focused on expanding their delivery zone, Domino’s has stuck with their fortressing growth strategy to appease both delivery and takeout customers.

“How do you provide great service? By getting as close as you can to the customer,” Levy said. “We do that at a lower cost which enables delivery drivers to make more deliveries and make more tips. Then they’re happier, the customer is happier, and it drives all of that growth.”

He added that people won’t come to the store for carryout if “they’re 30 minutes or more away.”

“We’ll continue to make investments in building stores out,” Levy said.

Another area where Domino’s has zigged while others have zagged is in delivery. While their competitors and indeed, much of the restaurant industry, has scrambled to secure third-party delivery partnerships both before and during the pandemic, Domino’s has stuck with their in-house-only delivery strategy. Among other reasons, saying no to third-party has allowed them more flexibility and control over fees and customer experience, Levy said.

“The feeling you get when you see so-called free delivery with a $12 service charge, it doesn’t start to feel free anymore,” Levy said, adding that while Domino’s charges customers delivery fees, they try to be upfront with them before customers place their order. “We have a lot of questions about what long-term sustainability means [for third-party].”

The final key aspect of Domino’s differentials is thoughtful menu strategy. While the brand is still averse to implementing LTOs, they don’t want their menu to be stagnant. This summer, Domino’s released its new pizzas — cheeseburger and chicken taco pizzas — in almost a decade. Moving forward, there won’t be such a long wait between new menu items.

“For us to put something on the menu it has to have staying power,” Levy said. “We want to make sure we have a product that we can do profitably.”

Contact Joanna Fantozzi at [email protected]

Follow her on Twitter: @JoannaFantozzi

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