Disclaimer: This article is not meant to be investment advice. Also full disclosure, I own stock in Domino’s pizza. If you don’t want to read the entire article, here’s a summary.
Domino’s stock price
The best performing stock of the 2010s is not what you probably would have guessed. It wasn’t Google, Apple, Amazon, or Facebook. It was actually Domino’s Pizza. If you invested $10,000 in Domino’s back at the beginning of 2010, you would now have more than $445,000 today.
It might be surprising that Domino’s has done so well. After all, there are definitely better restaurants out there. While most people know that Domino’s is great at delivery, you probably would expect actual tech companies like Doordash and Uber Eats to be better at executing. So let’s explore some of the reasons Domino’s did so well in the last decade and see what the company can teach us.
How Domino’s turned things around in 2010
In 2010, Domino’s stock was doing terrible. Part of it was general market conditions. The stock market as a whole had taken a huge hit due to the Great Recession.
But Domino’s had its own problems. The company had been focused on convenience and low cost for years. That means by 2010, they were using low-quality ingredients and their pizza ended up tasting like garbage. Domino’s brand was so toxic that in tests, customers rated pizza worse if they knew it was from Domino’s than if they didn’t know at all.
Domino’s realized that the best way to deal with this problem was just to be open and honest. The company ran a big ad campaign where they admitted that their pizza was awful and told the world they would do better.
It seems like the campaign paid off. It took about 7 years, but after publicly admitting how badly it failed, Domino’s became the biggest pizza company in America in terms of market share.
Domino’s: A tech company that delivers pizza
Now, Domino’s has 50% of the pizza delivery market, compared to 29% for Pizza Hut and 21% for Papa John’s. But honestly, taste alone does not explain why Domino’s is doing so well. Again, it’s not as if its pizza is so amazing that it’s obviously better than any competitor. What does set Domino’s apart is how its used technology.
Domino’s former CEO once described it as “a tech company that sells pizza”. Domino’s invested more heavily in tech than anyone else in the space. It was the first company to deliver a pizza by drone. It even has delivery cars with built-in ovens. Companies like Pizza Hut, could not keep up with this pace of innovation, especially since they had long been focused on customers eating inside the restaurant and not delivery.
But the biggest competitive advantage that Domino’s has is how convenient it is for customers to both place and track a delivery order.
Why Domino’s delivery is so easy
Back when I was in college, I used to love ordering from Domino’s. There were plenty of other options available. But Domino’s was super convenient. I never loved the pizza, but I knew I was getting a cheap and solid meal that would be at my house fast.
There were some features Domino’s had for placing an order that I never used. For example, when a customer sets up a profile on Domino’s website, all they would have to do is text a pizza emoji to Domino’s to get their favorite pizza delivered. Domino’s was also a pioneer in allowing customers to place orders through their mobile app voice assistant.
None of that really mattered to me. The biggest reason why I liked ordering from Domino’s is that I never had to wonder how long it would take for the delivery guy to actually get to my house. I could track all of this on my laptop.
How Domino’s kills uncertainty
If you’ve ever ordered Domino’s pizza, you know that the company shows a “Pizza Tracker” online. It’s a little progress bar that shows you the status of your order. You can see whether your pizza is being prepped, baked, or if it’s out for delivery.
This Pizza Tracker makes the entire delivery experience way better for one reason: it eliminates uncertainty, an emotion that humans are hardwired to hate.
Uber actually has the same advantage in the rideshare market. In his book Alchemy, Rory Sutherland argues that Uber was so successful because the company was better than the taxi industry at eliminating uncertainty. Twenty years ago, if you called a taxi to the airport, you would not be sure how much time you had to be ready and would constantly have to leave your house just to check if the driver had already shown up. With Uber, there’s no need for all this. You just check your app to see how much time you have left.
Domino’s makes ordering pizza just as easy. There’s no uncertainty for you as you sit in your house and wonder whether the delivery guy is actually going to show up before you’re planning to go to sleep. All you have to do is check the Pizza Tracker.
Uber Eats and Doordash can’t offer the same amount of convenience in ordering and tracking that Domino’s does. Unlike Domino’s, they don’t own the restaurants that make the food, so they can’t show what stage your food is during the cooking process. Even other pizza companies like Pizza Hut have similar problems since they work with third-parties for delivery.
How Domino’s makes customers happy
Another big advantage that Domino’s has is its focus on customer happiness. While every company has some bullshit mission statement where they claim to be “focused on the customer”, Domino’s isn’t all talk. The company’s policy empowers all of its workers to take whatever action they need to take to satisfy customers, with no need for a manager to get involved.
This same strategy works great for Amazon. If you’ve ever dealt with Amazon customer service, you know how easy it is to get an order refunded. They’ll usually ask you one or two questions and then either give your money back or resend you the order. It’s important to remember that Jeff Bezos doesn’t do this out of the kindness of his heart. He does it because he knows it only takes one bad experience for someone to stop using Amazon forever.
Domino’s seems to share Jeff Bezos’s philosophy. However, its competitors in the delivery market can’t do the same thing. If you get a bad meal from Uber Eats, your options are limited. Uber Eats only refunds you if you had missing or incorrect items. Since Uber doesn’t actually own the restaurants, employees can’t do things like provide an extra side if an order is late.
But that’s not the only way Domino’s makes customers happier. Domino’s also uses customer data to offer better experiences, which again is just like Amazon. Just as you see personalized shopping recommendations when you log in to your Amazon account, you see different coupons and deals in your Domino’s app based on the actions of customers with similar characteristics.
I still don’t think Domino’s pizza is that great. It’s true the work that Domino’s did to fix taste made a big difference in how the brand was perceived. But at the end of the day, it’s not really about the pizza. It’s about selling the best possible delivery experience anyone could ask for. Because the company owns the process from start-to-finish, invests heavily in tech, and is focused on the customer, it managed to win big.
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Originally published at https://sundayspecial.substack.com.