The case of Dominos Pizza

In conventional terms, Dominos Pizza is a winner. Are CEO, Rich Allison, was on CNBC’s Mad Money yesterday, praising Dominos’ strong financial performance after the pandemic, its nearly 2000% growth in market capitalization in 10 years and its successful digital transformation. Dominos has defeated his old rival, daddy johns, to become the dominant pizzeria worldwide. His stock has even outperformed Apple and Amazon for 7 years. But in the digital age, the challenge for Dominos to become a lasting success is just beginning.

I learned why in my conversation with business analyst Ray Wang, author of the illuminating new book, Everyone wants to rule the world (HarperCollins, July 2021). Wang explained that in the digital age, Dominos’ real long-term competitor is not Papa Johns: it is door bar, which already has a market capitalization three times that of Dominos, as shown in Figure 1. Wang predicts that by 2050, the global market will comprise about 50 giant duopolies. In any market, there will be only two dominant digital giants. 90% of the current Fortune 500 will be gone. The odds of Domino’s being one of the long-term winners depend more on data than pizza.

The case of Dominos Pizza

Steve Denning: Can you tell me why the long-term future of Dominos depends more on data than pizza?

Ray Wang |: It is scary. Domino’s Pizza is the showcase for digital transformation. You can order pizza as you want. You can order on Alexa. Their back-end logistics and capabilities are amazing. Automation and artificial intelligence (AI) are here. If you order pizza at 5pm on a Friday, Dominos knows, two weeks later, to remind you that you might want to order a pizza?

So you ordered a pizza. Very well! Dominos follows the pizza from the moment it is ordered. It goes to the furnace. It sends you a message: it’s in five minutes! It’s in a minute! Are you ready to eat? And you’ve already paid for it online. You can take a picture of the pizza, run it through an AI bar and it will tell you the quality of the franchisee. It is awesome. They are one of the few companies to have won the battle for digital transformation.

Steve: What’s the problem?

Ray: Think about how often people order from food delivery apps, not just Dominos. You may want to have Thai food delivered to your favorite local restaurant. Or Italian, or maybe a Polish specialty? Or something German? Maybe French? It’s all delivered. The long-term winner will be the company that can offer all of those specialties, not just one.

And in the midst of the pandemic, the food delivery apps like by Dash, started to take the essential steps to become the dominant digital giant in the food sector, especially managing customer accounts with intermediaries. Small businesses voluntarily gave their customer data to these food delivery apps saying, Take our customers: Just order from here! And then these delivery app companies took the payment information. They started tracking the data. They can understand from your zip code whether you are in a high-end or a downscale area. And they started to understand the data. And over time, instead of working with hundreds or even thousands of clients that a small restorer job might have, they start getting millions of clients. And so they turned off customer account management. They competed for data supremacy. They built the largest network they could. They basically took customers from the small businesses. They competed on dates. They use that information to improve their products, improve their offerings.

Now they can generate digital revenue through advertising, search products, services, memberships and subscriptions. They can think long term to win in these markets.

And the challenge for a firm like Domino’s is difficult from now on. Because what do they do? Will they continue with these delivery apps and offer more products? That will be difficult because the categories are already taken and Dominos does not have culinary expertise in all of those categories.

So if I was recommending Domino’s, I’d suggest: Provided by Domino’s! and allow small businesses across the country to use Dominos’ digital infrastructure and its digital technology to co-create a separate joint venture startup with Dominos, in which they can participate and help local businesses succeed and form partnerships with payment organizations and that possibility along the way.

We’ll see if they have the vision, the will, the talent and the courage to convince their board and their shareholders to see Dominos as a potential digital giant in the long run.

Creating a data-driven digital network

Steve: And so they should launch a digital data network, a food delivery ecosystem?

Ray: Yes, it would be a data-driven digital network, Dominos already has the platform. Now they can license that to other restaurants.

Steve: What does that mean?

Ray: To achieve this kind of transformation, a company must start by changing the mindset of the organization, including the following steps:

It is about changing the life cycle of the organization and finding a catalyst, a turnaround catalyst; sometimes an owner operator or more investment comes in.

They have to attract the right talent.

It means taking advantage of a new technology to change the way the offering is delivered.

It may mean that markets need to be changed. Rather than thinking about geographic markets or vertical markets, a company may need to think about where its data value chains are and how they play a role and how they want to capture that upstream and downstream data in that value chain.

It may mean encouraging or removing shareholders who don’t understand what a long-term mindset looks like. It may also need some management training,

It means building partnerships and ecosystems that can compete with the Agile giants who invest ten times as much as a company does with capital expenditures. Some companies are working on that turnaround.

Steve: Are C-suites up to the challenge?

Ray: Even if it is, boards often aren’t. And that’s where much of the challenge comes in.

Steve: Why is that?

Ray: Boards often don’t want to rock the boat. The average independent board member sits on three or four boards. Their mission is to ensure that shareholders get what they want. But the biggest challenge does not lie with the independent directors. It’s really in the 40-50% of companies with a similar ownership structure, be it investor groups, pension funds or sovereign wealth funds. These groups have much more influence than one realizes. It is a concentration of control.

And also read:

Why the entire economy will be run by digital giants

Why ecosystem companies are the future of management