Product Management Driving Domino’s 12X Stock Growth
While watching the Boston Bruins take a 3-1 series lead over the Detroit Red Wings, commercials advertising Domino’s new “Specialty Chicken” caught my attention. I began thinking that chicken dishes were an interesting product expansion for a restaurant known for 30 minute pizza delivery. So the next day, I Googled Domino’s and was shocked to see that Domino’s stock value has generated a 12x return over the last 5 years! Further digging has brought me to the conclusion that Domino’s is winning through product management by improving and expanding upon its menu with the help of technology to increase spend per order, as well as interacting with its customers to increase customer retention.
12X Growth, Amazing!
The great part of this story is that Domino’s stock performance is outpacing the competition and the uptick in the economy. The graph below depicts how well Domino’s has performed over a five year period compared to its largest competitors, Papa John’s and Pizza Hut (Yum Brands), as well as compared to the S&P 500 (overall economy).
Over the time period, Domino has a Compounded Annual Growth Rate (CAGR) of 67%, nearly doubling its closest competitor’s, Papa John’s, CAGR of 38% (which isn’t too shabby) and outpacing the S&P 500’s CAGR of 18%. So how are they doing this? The largest driver is Domino’s same stores sales. Over the five year time period, Domino’s average same store sales have increased 4.5% for domestic stores and 5.9% for international stores. At the same time, Domino’s has opened new locations at an average pace of 425 stores a year, with a majority of the growth in international markets.
Driven by Product Management
The same store sales growth is great, but how did Domino’s generate this growth? Answer: product management. Product management involves the analysis of a company’s product portfolio and promotion of customer engagement with products. The business function requires in-depth knowledge of customer wants, constant review of product offerings, and facilitation of customer interaction with the product. If done properly, profitable products will emerge.
Domino’s revamped its product management process in 2002, with the introduction of its proprietary point of sales software, PULSE. The system allows for “real-time dissemination of data” from stores, which provides data on customers wants. Based on this data, the review of product demand and customer behavior becomes easier. I assume that these data points contributed to the decision to change the core pizza recipe in 2009. With an improved product, Domino’s began to engage the customer through developing its Pizza Tracker, which allows customer to track which stage in the ordering, creation and delivery process their order is in. As of March 2014, Domino’s offered a mobile app for the iPhone, iPad, Android smartphones, and Amazon’s Kindle Fire, which has been downloaded 11.3 million times. These apps allow for 30 second ordering and, more importantly, a constant touch point with its customers.
Domino’s has these tools as its fingertips; perhaps this is how product management is increasing same store sales.
So Why Chicken?
I believe Domino’s product management experience fueled its decision to launch its Specialty Chicken menu offerings. Its CEO recently said that chicken is its second largest seller behind pizza. He also pointed out that store owners already stock chicken, so the product expansion does not require them to purchase extra ingredients. Domino’s experience with chicken will allow for a quicker rate of customer adoption, as chicken is a known quantity in the Domino’s product ecosystem. Also, the menu items are complementary to its core pizza offering and priced as such, at $5.99. This will entice customers to increase the amount spent on their purchase. Finally through a mobile strategy, Domino’s has access to in-depth data on the 11.3 million customers who have downloaded its mobile app to enhance its databases. The app also provides an instant communication portal with its customers. Through data analysis of customer order history, demographics and geolocation, Domino’s can communicate with customers with preferences for chicken and launch marketing and promotional campaigns in an effort to increase repeat orders for these targeted customers. If this product strategy succeeds, Domino’s can expect continued upward trends in same store sales.