By Sarah Halzack
(c) Copyright 2014, The News Journal. All Rights Reserved.
Domino’s Pizza and Pizza Hut are the titans of the $38 billion U.S. pizza market, and at this moment, one chain is piping hot and the other is in need of reheating.
Domino’s dazzled investors this week with third-quarter results that showed sales at stores open at least a year grew 7.7 percent in the United States and profits jumped 8 percent. The chain, which has 5,000 restaurants in the U.S., also said it attracted more customers and saw the average size of their tabs increase.
But things at Pizza Hut are looking decidedly less upbeat. Its parent company, Yum Brands, said last week that Pizza Hut’s same-store U.S. sales fell 2 percent in the most recent quarter and that its operating profit for the full year is likely to fall short of initial forecasts.
So why are these companies in such dramatically different postures?
The delivery food business has always been about convenience, and now the battle for the biggest slice of the pie is increasingly being waged online. So far, Domino’s has outmaneuvered its competitors with a popular app that is helping drive sales.
“I think it has really boiled down to convenience and the ability for Domino’s to really capitalize on the move toward online and mobile,” said Stephen Anderson, a restaurant industry analyst with Miller Tabak.
Domino’s says that 45 percent of its U.S. sales now come from customers ordering online and that they are running up a higher tab than people who call in their orders.
In a conference call with investors Tuesday, chief executive J. Patrick Doyle said that digital ordering capabilities are also leading to a higher volume of orders from repeat customers.
“It’s ultimately about the better retention of customers, better frequency of orders from customers, and as they have a better experience with Domino’s, we get more orders from them,” Doyle said.
Domino’s added a voice-ordering capability to its mobile app in June. Before the company started advertising the feature a few weeks ago, 200,000 orders had already been placed this way.
On social media, some consumers seem befuddled by the feature, wondering how it’s any improvement over ordering a pizza the old-fashioned way – by picking up the phone.
But Mark Kalinowski, lead restaurant analyst for Janney Capital Markets, said the voice app could be valuable to customers because it brings consistency to the process and it eliminates long hold times.
Meanwhile, Pizza Hut says that while its digital business is growing quickly, it has also acknowledged it is lagging its rivals.
“Our goal is to not only catch the competition on the digital front, but to surpass it in 2015,” said Yum chief executive David Novak in a conference call with investers earlier this year.
Yum says it is working hard to turn around the poor performance at Pizza Hut, not only by strengthening its digital offerings but by overhauling its marketing efforts and debuting new menu items that will connect with millennial diners.
The company said it recently “had good success” with the debut of its Hershey cookie dessert offering and its bacon and cheese stuffed crust pizza.
While the shift to digital pizza ordering is putting pressure on the major national brands to innovate, it could be creating problems for mom-and-pop shops and regional chains. These smaller operations likely don’t have the dollars to invest in such technology, meaning they might face fresh challenges in attracting convenience-focused customers.
Domino’s digital strategy has been crucial to its recent success, but analysts say the company has also gotten a boost from an effective marketing strategy that focuses on the improved quality of its ingredients. The company has also introduced a concept called “Pizza Theater” to some of its stores which allows the customer to see their pizza made fresh before their eyes. The hope is that this model can help boost its dine-in business and emphasize freshness.
“They’re really starting to reinvest in their brand by trying to shift the model from quick service to fast-casual,” said Darren Tristano, executive vice president of Technomic, a food and restaurant industry research firm.
Pizza Hut, meanwhile, has been more focused on emphasizing low prices with deals such as a large two-topping pizza for $7.99. Promotion-oriented strategies have been common in the quick-service restaurant industry lately as retailers try to get price-conscious consumers off the sidelines.
Both companies say they expect to remain focused on building their digital platforms to win market share in the future.
“You’re only going to be as good as your next platform or your next innovation,” said Chris Brandon, a Domino’s spokesman. “So we’re already starting to look at what are customers are telling us they want more of.”