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Meij'd to Order

Wednesday, June 1, 2011 - 08:22

Is pizza the undisputed king of fast food? Domino's CEO Don Meij believes so and outlines the reasons for why his company's business mix is succeeding. By Jason Day

"Thinking outside the box and exploring new opportunities within the pizza business." This was how Don Meij described the way in which Domino's Pizza Enterprises Ltd would tackle sustainable growth in the company's 2010 annual report.

A strategy that resulted in more options in Domino's food categories, improved quality and greater value, plus being at the forefront of digital technology with online ordering via the net and iPhone, has paid off.

At time of printing, Australia's love affair with pizza has helped drive the fastest growth in local sales in eight years, with full-year profit guidance at the top end of its 10-15 per cent range.

Meij, CEO and Managing Director, has been in the Domino's business for 24 years. Abandoning plans to become a teacher, the weekend pizza-delivery job he had at the time turned into becoming a store manager and all the way up to Director of Operations for Silvio's Pizza, which eventually became part of the Domino's brand after a merger in 1996.

Fast-forward 15 years and Domino's Pizza Enterprises - the master franchisee - has over 850 stores in five countries including New Zealand, France, Belgium and the Netherlands. They are market leader in all but Belgium.

"What was a business that went broke three times in Australia is now the biggest franchisee, and one of the US parent company's most successful. It has been amazing growth since we listed in 2005 and we're really proud to be market leader in four of the countries that we operate in," says Meij.

Branding differently

How has an originally youth-pitched, home-delivered, pizza-and-beer-in-front-of-the-footy brand developed into one that now realises strong growth, in both good and bad economic times, and is hitting markets far removed from its initial skew to 18-24 year olds?

"We've been incredibly innovative," says Meij. "While we're one brand globally with the same logo and a very similar system, the way we position our brands is very different in every country."

Yes, the humble, modern pizza, said to have originated in Italy as the Neapolitan pie with tomato, is viewed very differently in different parts of the world.

"In Australia, we grew the business on the back of the 18- to 24-year-old male. Today, while we still skew that way, we've broadened our customer base greatly.

"However, in France, pizza consumption is more feminine. Just 200kms up the road in the Netherlands, it's very masculine; food is fuel to the Dutch. After analysing those markets, we decided on what we thought would be the place we could grow, took a very different journey from our competitors, with the result that we've taken market leadership using brand differentiation as the key driver."

Meij explains that there is very tight criteria of logo use and branding colours, but that menu design, the positioning of brand, and the look and feel of consumer touch points, are very much 'in country'.

It's not something that applies to all of their competitors. "Our biggest global competitor, Pizza Hut, is US-run," he says. "It's US-owned and behaves like an American company," he says.

"For us, it's very important that we behave local. When we went to France, we said: 'Look, we're not Australians, we're not Americans, we're not English; we're entrepreneurs'.

"What we do is talk about our business model, and how we're going to operate that business model."

Competition

When you think of fast food, you think pizzas, burgers and chicken, hot dogs, pies and sausage rolls, fish, ethnic takeaways, and chips with much of it.

Market analyst BIS Shrapnel's Fast Food in Australia 2009 report opined that, over the past decade, the fast-food market in Australia has experienced a vigorous growth as Australians made eating out something of a way of life.

In total, an estimated 1.64 billion meals and takeaways were served by fast-food chains and independent outlets during 2007. This accounted for 44 per cent of all meals served in the commercial food service sector. There are now perhaps 17,000 fast-food outlets throughout Australia, representing 28 per cent of all commercial food service outlets.

When talking about competitors and the market, Meij describes the 'share of stomach': a nicely visual metaphor for market share. "Yes, we talk a lot about that, about our share of the pizza stomach and our share of the fast-food market.

"Our most direct competition is the chain pizza companies. Second-tier competition for us is chain fast food. The local Indian or local Thai is a very different meal occasion to having a takeaway meal, so although they're a share of stomach, it's not a direct competitor."

Market trends

Meij ticks off three big areas that are affecting his industry: the cost of food, the cost of labour, and the trend to health.

"If you're in the food industry, one of the biggest trends of this decade is the cost of food, which is skyrocketing," he says.

"We're only in the middle of what we believe is a hyper-growth period of the cost of ingredients; it's a massive global trend. The average person in the street has certainly noticed it.

"In certain countries, the cost of labour is a big trend. Australia is a leader in that regard at the moment," Meij says. "We pay our delivery drivers three times in US dollars what a US delivery driver gets paid.

"Australia is becoming the most expensive retail labour market in the world. We pay more here than in France. It's a challenge with no sign of abating.

"The final trend is health. People are much more aware of what they're putting in their mouths. They're also interested in the providence of food, and the quality. Television shows such as MasterChef have sped that up: what was bizarre and gourmet yesterday is normal tomorrow.

"Sophisticated food allows us to add more value to it. When you're just dealing in commodities, it's really hard to differentiate. But when people start being aware of quality, then you can differentiate on quality. That's a powerful tool for us."

A final trend, Meij says, that's hitting everybody is the rising costs of utilities, such as electricity, gas and oil. This drives transport costs, and Domino's is nothing if not in the delivery business.

Innovation

Pizza, as fast food, nominally a luxury that competes for discretionary spend in the wallet, did well for Domino's during the GFC. The company continues to raise its revenue. It took the opportunity to increase its market share during the three-year period following the first economic flutters in late 2007.

Meij says, since consumers won't simply cop a 10 per cent price increase for pizza every year, they simply retreat: innovation has been crucial.

"If you're in the food business right now and you're not innovating, you're probably going to get taken out in the next three years, because the costs are just too high," he says.

Domino's Brisbane offices house a whole floor of innovation. Meij says that the company was a follower in the early days until they asked themselves: 'Why the hell are we imitating the leader? We should find our own place'. It served them well during the tough times of the GFC.

"We picked it before the GFC hit and, while everyone went into deflationary discounting, we innovated on value and quality," says Meij.

"Consumers were migrating to the supermarket, away from casual restaurants and takeaway. We were able to keep a lot of them, grab some more and grow our market share."

The major strategy for Domino's was a completely new menu. The company rolled out 20-something new items in January 2009, built, says Meij, around the mentality of the consumer in that troubled economic environment.

"Our value proposition is No.1," says Meij. "You can feed a family with a cooked meal, delivered into your home for between $25-$30; there isn't another meal that can substitute for that."

Digital offering

Domino's say they are not only the largest pizza retailer online but the largest in food and beverage restaurant chains anywhere. And, when Meij talks about meeting the customer, one area that has worked has been in their digital service offering.

While they won't divulge actual figures, more than one-third of Domino's sales come through its digital platforms, specifically the internet and the company's iPhone application.

It's a situation that only hints at the scenario unfolding in 12 months' time where, Meij says, customers will be offered complete mobility and transparency. It's an insight into the sales transaction around pizzas and the strategic thinking with which Domino's is obsessed.

"Our biggest problem is that, when you place a pizza order, there's an anxiety curve, because now I've placed the order, when is it going to arrive? 'The guy told me 40 minutes last time and it arrived in 20. That upset me because I had the kids in the bath, and hubby was down the road getting some cash'.

"This anxiety is the biggest difference between us and the burger and chicken guys, particularly when you are having pizza delivered."

Domino's get a pizza in the oven following an order in 2-5 minutes, ready in store in 12 and delivered, on average, in 26 minutes. To conquer the anxiety curve, Domino's provide a pizza-tracker service where customers can keep tabs on when their pizza is cooked, when it has come out of the oven, and when the driver leaves the store.

The future

Meij firmly believes that Domino's recent success can be maintained. Indeed, he says that social trends in the master franchisee's western markets are set to provide new opportunities.

"We're on the cusp of something new," he says. "We used to talk about one customer: 18- to 24-year-old males who could not eat enough Domino's.

"The problem is, the next lot of 18-year-old males came and said: 'You know what? No thanks'. Suddenly, those teens were including sushi and salads in their repertoires; they were carb counting! Why? They want to look good on the weekend."

Meij shakes his head at how the pizza market has changed. "If you had told me three years ago that 20 per cent of our pizzas were going to be sold today with fresh spinach, I would have said: 'That's ridiculous. You can't be serious.'."