Businessweek Archives

With Tom Monaghan Back, Can Domino's Deliver?


Marketing

WITH TOM MONAGHAN BACK, CAN DOMINO'S DELIVER?

A few Sundays ago, the founder of Domino's Pizza was lounging on his bed reading when his daughter called. She needed help at the Domino's she owns in Ypsilanti, Mich. So Thomas S. Monaghan hustled over, tossed a few pies, then made a delivery. His tip: a big 90~.

Tom Monaghan is back. In 1989, the inventor of mass-market pizza delivery stepped back from day-to-day operations at Domino's while he tried to sell the private company, of which he is almost sole owner, for $1.2 billion. He didn't find any takers willing to pay more than half that. "I picked the worst time in history to try to sell a company of this size," Monaghan now says. While the sales effort went on, franchisees grew restive. Monaghan admits this all hurt operations: "Employees didn't know who their new owners were going to be."

Now, Domino's is off the block. Since April, Monaghan has been reacquainting himself with the details of the business. Back to full speed only recently, he's overseeing the efforts of the management team that ran the show in his absence, headed by President P. David Black, 41, who started out as a Domino's driver. Monaghan is also touring the franchises, pressing the flesh in the style of his hero, merchant Sam M. Walton.

As Monaghan refocuses on his chain, the many distractions that once filled his time are dropping away. Gone are a travel agency and the Domino Effect, a three-masted tall ship. Shopping centers and a sports cable network may go. Board directorships at most of the 16 Catholic organizations and colleges he's involved with will go, too. Says Monaghan: "This is what God wanted me to do: Push pizzas."

He'll have to use plenty of elbow grease. The competition has grown as hot as a blast from a pizza oven. Last year, giant rival Pizza Hut Inc., a unit of PepsiCo Inc., posted a 20% jump in overall revenues, to $4.9 billion from $4.1 billion in 1989. But for Ann Arbor-based Domino's, sales at company-owned and franchised outlets rose only 6%, to $2.65 billion from $2.5 billion, well below the sizzling growth rates of the 1980s (chart). "Franchising has matured while Monaghan was away," says Thomas Burnham, former general counsel of Domino's Pizza International. "This is not the simple, nice Ozzie-and-Harriet world it used to be." Burhnam now has a chain that delivers Chinese food.

Domino's pioneered mass-market pizza delivery in 1960, and it still has hardly any in-store service. But with restaurant-industry sales virtually flat, the 17% annual growth of the $6 billion pizza-delivery market is luring hungry rivals. Pizza Hut, the No. 1 pizza player in restaurants, has been successfully poaching on Domino's turf.

WATER BALLOONS. Since 1986, Pizza Hut has equipped half of its 7,000 units for home delivery. Industry analysts figure Pizza Hut has captured a quarter of the delivery market, while Domino's share of delivery, still the largest, fell from about 50% in 1989 to 46% last year. "We've seen erosion," concedes Mike Raymond, Domino's marketing vice-president. To further that erosion, Pizza Hut spent half of its TV-ad budget this year on Domino's-bashing commercials: One spot showed two Domino's drivers lunching on Pizza Hut pizza. The PepsiCo unit's chief executive, Steven S. Reinemund, brags that even Boris Yeltsin ordered out from a Moscow Pizza Hut during the Soviet coup attempt.

Domino's franchisee Robert A. Briggs knows how tough the pizza wars have become. Briggs recently spotted a clown in front of a rival Pizza Hut in Independence (Mo.) carrying a sign advertising daily specials. Briggs then paraded in front of the Pizza Hut hawking Domino's discounts. An argument ensued, and water balloons flew. Briggs figures things got out of hand, because the next thing he knew, he was coming to on the sidewalk. Local Pizza Hut restaurant managers won't comment, and Briggs did not press charges.

Corporate strategies to win the pizza wars may not be as scrappy, but they're closely guarded: Domino's insists that all managers wear photo IDs at major company meetings to ensure that competitors can't sneak in. But the broad theme of Monaghan's new strategy is a back-to-basics focus on delivery. That means backing out of experiments with other formats. An effort to sell Domino's pizza at Burger King outlets has been canceled by mutual agreement. Take-out stands at places such as airports are out, too.

Domino's is testing a joint venture with American Telephone & Telegraph to develop a toll-free telephone number that would allow customers to call one number anywhere in the country while a computer routes calls to the nearest outlet. That way Domino's will have just one number to promote, and pizza-hungry consumers will have just one number to memorize, whether they're at home, at work, or on vacation. The company says the new system will produce annual savings of $2.5 million in Yellow Pages advertising.

TOO AUSTERE? Then there's a new ad campaign, which Monaghan and Black say is needed to counter a perception that Domino's sells mediocre pizza. In April, the company dropped a local agency, Group 243, and switched to Grey Advertising Inc. in New York. The theme of the new $60 million campaign: "Nobody knows like Domino's." The straightforward ads push Domino's flavor and its leadership in home delivery.

The company has also been slashing costs. The regional offices are down from 16 to 9, and should drop further to four or five. Gone are Domino's corporate jet, 40-seat prop plane, and helicopter. The sale of the private air force brought a one-time $6.4 million gain and will save an additional $2 million in annual operating costs. Sports sponsorships of an Indy car racing team and national team-tennis tournaments are also out, saving another $2.5 million a year. Finally, a giant Christmas display that attracted 500,000 people annually to Domino's headquarters--and cost $1 million to run--has been canceled for good. Such efforts helped boost 1990 operating profit 45% to a still-low $14 million, about the same level as in 1988.

Some industry executives wonder if Domino's is too austere, or focused to the point of inflexibility. The company underwent a big internal debate last year, for example, before it decided to risk complicating operations by offering diet cola. One outside marketing executive who worked with the chain says Domino's has been slower than rivals in introducing pizzas with extras such as pepperoni or extra cheese to satisfy consumers who want something different.

Domino's executives figure they are offering specials at a pace that won't gum up speedy delivery. And insiders are simply glad that a clear strategy is emerging after the period of drift. Says franchisee Frank O. Meeks, who owns 45 outlets around Washington, D. C.: "Domino's was on hold for two years. The franchisees are relieved to have Monaghan back." Monaghan can only hope his strategy restores strong sales and profit growth. After all, he sure isn't back for the tips.Lisa Driscoll in New Haven and David Woodruff in Ann Arbor


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus