The Domino's Story

How the Innovative Pizza Giant Used Technology to Deliver a Customer Experience Revolution

Marcia Layton Turner

• Publisher: HarperCollins Leadership
• Year: 2020
• ISBN:
  9781400218806
• Topic: Betriebswirtschaft
• Subtopic: Wirtschaftsgeschichte

Imagine if you were present as?a small pizza joint became one of?the most successful restaurants in the world. The Domino's Story will help you understand and adopt the competitive strategies, workplace culture, and business practices that made the iconic pizza chain the innovative restaurant and e-commerce leader it is today.

As one of the most technologically advanced fast-food chains in the market, Domino's has cemented their reputation for innovation,?paved in industry-leading profits.?In February 2018, according to Ad Age,?Domino's unseated Pizza?Hut to become the largest pizza seller worldwide in terms of sales.

Rather than just tampering with a recipe that was working, they decided to think outside of the pizza box by creating digital tools that emphasized convenience and put the customer first.?For the first time, the adaptable strategies?behind the rise and dominance of?Domino's?are outlined?in these pages.

Through the story of the Domino's, you'll learn:

• How to create meaningful innovation without changing the core of the product that people already love.
• How to recognize and take advantage of unique opportunities to alleviate your customers' pain points.
• How to grow a company by taking a holistic approach to the business.
• The importance of delivering a quality experience that will keep customers calling for more.

Discover how this iconic organization got it right and created a successful long-lasting business, and how you can do the same for your company.

CHAPTER ONE

DOMINICK’S, DOMINO’S PREDECESSOR

Pizza in all its forms—fresh, frozen, parbaked, stuffed, round, square, thin crust, thick crust, cauliflower crust, gluten-free—continues to account for an ever-increasing portion of consumer meal budgets. Globally, pizza is a $155 billion industry that grew 4.6 percent between 2019 and 2020, reports PMQ Pizza Magazine’s “Pizza Power Report 2020.”¹ Consumer demand for convenient meals is one reason pizza remains a staple of most American diets, although preference for the dish continues to rise in other parts of the world. But it’s no surprise that consumer love for the dough-tomato-sauce-cheese combo is expected to remain strong for years to come.

Yet 2019 was a turning point for one pizza chain in particular: Domino’s. That was the year that Domino’s Pizza finally claimed the number one spot in total sales—a spot that Pizza Hut had long held. Domino’s sales increased 8.3 percent in global retail sales and the chain added 232 net stores during the third quarter of 2018 alone.

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Domino’s Pizza finally claimed the number one spot in total sales—a spot that Pizza Hut had long held. Domino’s sales increased 8.3 percent in global retail sales and the chain added 232 net stores during the third quarter of 2018 alone.

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There are a number of reasons for the sales surge, from an improved pizza recipe to rising investments in technology, including a realization of the importance of mobile as a sales channel, to a commitment to not just satisfying customers, but delighting them. Making ordering possible from nearly any platform was a big step forward. Today, Domino’s is the largest pizza operation in the world. It only took sixty years to get to that point.

Humble Beginnings

Although a massive company today, Domino’s Pizza began as a small pizza shop in Ypsilanti, Michigan, a suburb of Ann Arbor. Back in 1960, Dominick DeVarti, an Ann Arbor restaurateur, opened DomiNick’s doors, according to Franchising in America, with locations in Ypsilanti and two in Ann Arbor. It was not an immediate success and he quickly realized that he didn’t have the time or patience to give to the shop. He shuttered it in order to focus on the Ann Arbor business. But when DeVarti’s friend James “Jim” Monaghan overheard a conversation between DeVarti and a potential buyer about the closed pizzeria, Jim and his older brother, Tom, approached him about selling his shop. So, in December 1960, in exchange for around $900 in cash and an agreement to assume the store’s debt, which was somewhere between $2,200 and $8,000, depending on who you ask, DeVarti handed over the keys to DomiNick’s to the Monaghan men.

Despite the fact that DeVarti had struggled to make a go of the place, the Monaghans thought running a pizza shop would be a good investment. In fact, that was all Tom Monaghan had expected to be—an investor. Both brothers had visions of being able to staff the shop themselves in their spare time. It was a side hustle for Jim, who worked full-time at the post office. Tom’s main goal was generating enough cash to cover the cost of his tuition at the University of Michigan, where he was a student.

Because DeVarti had only opened the shop between 5 p.m. and midnight each night, the Monaghans envisioned being able to juggle work or school and their pizza venture simultaneously. DeVarti allowed the Monaghans to continue to use the name DomiNick’s and, in a fifteen-minute lesson, showed them how to make pizzas. Tom Monaghan recalls in Living the Faith that DeVarti told him, “The secret of good pizza is in the sauce.” He says, “That made a lasting impression on me. I vowed right then that I would have the best pizza sauce in the world.”²

Although the brothers made only $99 their first week in business, it was a start. It was also quite a feat since they had no phone service initially; the phone company demanded that they pay for the quarter-page ad that DeVarti had bought before the phone would be turned on. Although they wanted to refuse, the Monaghans understood the importance of the phone line. They paid the bill.

At first, the brothers had no problem with the nightly schedule. And as they expanded the pizza shop’s hours, business also picked up. By June, the duo was reportedly earning about $400 a week in profits. That number quickly dropped, however, when students at Eastern Michigan University (EMU), which was across the street, left campus for the summer. That’s also when Jim accepted the reality that running a pizza shop was a poor choice for a side job. Eight months in, he sold his share of the business to Tom in exchange for ownership of the shop’s 1959 Volkswagen Beetle, which they had been using for deliveries.

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DeVarti told him, “The secret of good pizza is in the sauce.” He says, “That made a lasting impression on me. I vowed right then that I would have the best pizza sauce in the world.”

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Tom stepped up his involvement in the business after Jim’s departure and was soon faced with a decision: the shop needed more of his time and attention to be profitable, but he couldn’t give that and still go to college full-time. He had to choose. Seeing the business’s potential, he opted to drop out of the University of Michigan in 1961 to devote himself to DomiNick’s.

Rather than feeling conflicted about his decision, Monaghan is reported to have said, “In that instant, I made the decision to commit myself heart and soul to being a pizza man. And I felt a tremendous sense of relief.”

When he wasn’t working in the shop, Monaghan was conducting market research. He apparently sampled the pizza at nearly every restaurant in Ypsilanti and Ann Arbor, taking careful notes of each pie’s pros and cons. He wanted to be sure DomiNick’s had the best pizza sauce around. During a conversation with a supplier one day, the supplier told him the best pizza sauce he’d ever had was at an old Italian restaurant in Lansing. So Monaghan took a drive to Lansing to taste for himself, ultimately agreeing that it was the best sauce he’d ever tasted too. He complimented the owner, who promptly took him into the kitchen and showed him how to make it.

Armed with a delicious sauce, DomiNick’s sales rose to $750 per week by April 1962, but dropped again to around $200 a week when the semester ended. During the summer, Monaghan used his free time wisely, studying how to make the pizza operation more efficient. He knew he had a great product, so the next step was increasing profits. He was obsessed with improving the layout of the oven and the counters, he recalls in Living the Faith. Little by little, he shaved seconds and minutes off the time it took to prepare and bake a pizza, improving his bottom line incrementally with each adjustment. When the EMU fall semester started, the shop’s revenues rose in concert, buoyed by Monaghan’s decision to also simplify DomiNick’s menu.

That decision actually came out of necessity, when, one Sunday night—DomiNick’s busiest night because the dorms didn’t serve meals that day—most of Monaghan’s employees failed to show up. Half-staffed, Monaghan struggled with whether to open that night when someone suggested, “Why don’t you just cut out the six-inch pizzas?” There were five sizes of pizzas on the menu, but the six-inch “took just as long to make as the big one and just as much time to deliver, but cost less,” Monaghan explained to Fortune Small Business.³ The shop got busy but not overwhelmingly so and sales rose 50 percent that night. “All of a sudden I was making money,” he says. The next night, they nixed the nine-inch pizza and income from that night let him get caught up on his bills. “I learned then that keeping things simple could be more profitable,” Monaghan says.

Feeling like the business was running smoothly, with two employees on the payroll at that point, Monaghan began considering opening other locations in college towns, such as in Mount Pleasant, Michigan, home to Central Michigan University’s five thousand students. But realizing his precarious financial situation, Monaghan retreated. A conversation with a regular customer seemed to create another opportunity for him, however, when he discovered the regular was an Ann Arbor pizza legend—Jim Gilmore, founder of Pizza from the Prop, which was the first known pizzeria in the country to offer free delivery. Monaghan was enamored with his experience and, with some prodding, agreed to bring Gilmore in as a 50/50 partner, in exchange for a $500 buy-in that Gilmore would have to work off. Gilmore’s attorney drew up the legal paperwork that, in hindsight, was clearly in Gilmore’s favor, putting all future debts and obligations in Monaghan’s name, since Gilmore’s recent bankruptcy disqualified him from signing such a contract, the story went. Gilmore also let Monaghan know that he intended to keep his day job cooking in the University of Michigan dorms, but assured him it wouldn’t interfere with pizza making.

The Business Grows

Soon thereafter, in 1962, Monaghan took Gilmore to Mount Pleasant to scout for a location for their next pizza shop. They found a tiny hole-in-the-wall in the back of a diner and set up shop after Monaghan shelled out $2,200 for a used oven, refrigerator, and a stainless-steel counter. Gilmore still owed the company $500 for his stake, but until that point had contributed only his expertise. Monaghan put him in charge of running the Ypsilanti shop so that Monaghan could focus on the new one.

The Mount Pleasant location opened its doors under the Pizza King brand, which Gilmore had suggested, serving the same great pizza as in Ypsilanti, also delivered for free, and sales quickly eclipsed the Ypsilanti location. In a matter of months, the two stores combined were generating $3,000 a week in sales.

Over the next few months, Monaghan became somewhat alarmed at Gilmore’s frequent requests for money to support the now-struggling Ypsilanti location, where sales had declined by one-third. Gilmore told him he was working hard to upgrade it, but when Monaghan dropped in unexpectedly a few months later, he was shocked by the poor appearance of the shop and the poor taste of the pizzas. He wondered where the money was going because it surely hadn’t been invested in the business.

After expressing his alarm and displeasure with Gilmore, Monaghan shifted gears to how to turn the situation around. In response, Gilmore told him about a great opportunity to open a third shop in Ann Arbor, just blocks from the University of Michigan’s central campus. After seeing it, Monaghan agreed and sold half of his stake in the Mount Pleasant Pizza King for $4,000 to raise the needed funds to renovate and outfit the new shop with cooking equipment.

The new shop opened in May 1962 but didn’t take off as the partners had expected. The Ypsilanti shop, which had moved to a new spot when the lease was up, was breaking new sales records, but Ann Arbor was languishing. Gilmore argued that they needed to expand the menu offerings, so Monaghan sold his remaining interest in the Mount Pleasant Pizza King for $4,000 and took on a third partner, local restaurateur Red Shelton, for another $4,000.

That was also the year that Monaghan married Marjorie Zybach, whom he had met when delivering pizzas to her dorm. The Monaghans lived in a trailer while he put in hundred-hour weeks building his business.

In 1963, Monaghan opened another pizza delivery location on the east side of Ypsilanti under the Pizza King name. “There wasn’t enough room to do prep work, so he came up with a brilliant solution: do the prep work for both stores at the Cross Street location and drive supplies to the second location daily. Centralizing prep work, he recognized, would allow him to have smaller, more efficient stores focused exclusively on making and delivering pizza,” James Leonard reports in Living the Faith.⁴

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There wasn’t enough room to do prep work, so he came up with a brilliant solution: do the prep work for both stores at the Cross Street location and drive supplies to the second location daily. Centralizing prep work, he recognized, would allow him to have smaller, more efficient stores focused exclusively on making and delivering pizza.

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Sometime that year, Monaghan dropped in to see DeVarti in Ann Arbor and, discovering he wasn’t in, spontaneously ended up pitching in to help make pizzas when a flurry of orders came in. The next day, when DeVarti heard about how Monaghan had shown off his pizza-flipping skills to DeVarti’s customers, he was upset, apparently assuming that Monaghan was trying to poach customers. As a result, DeVarti told Monaghan that he no longer had permission to use the DomiNick’s name, indicating that the name had been confusing to customers—especially after witnessing Monaghan behind DeVarti’s counter—about whose restaurant was whose. Not wanting to suddenly change the shop’s name, he complied—sort of. For the next year, Monaghan marketed his pizza shop as Ypsilanti DomiNick’s, while he pondered what name to use instead.

At the end of 1963, the partners bought out Red Shelton’s interest and, the next year, at Gilmore’s urging, bought a full-sized restaurant for $90,000 and named it Gilmore’s Restaurant. Much like Monaghan’s other partnerships with Gilmore, it lost money from the start.

In 1965, Monaghan severed ties with Gilmore. The final straw in that partnership’s history was when Monaghan discovered that while he and his wife were sacrificing for the business, working long hours and living in a trailer, his partner had been living large, spending more time making improvements to his large home than working at the pizza shop he had been responsible for.

He could now have a fresh start.

“Our growth was just a symptom of the franchise fever that was sweeping the nation at the time. M...