In conventional terms, Domino’s Pizza is a winner. Its CEO, Rich Allison, was on CNBC’s Mad Money yesterday, touting Domino’s strong post-pandemic financial performance, its almost-2000% growth in market capitalization over 10 years, and its successful digital transformation. Domino’s has defeated its long-time rival, Papa John’s, to become the dominant pizza shop, world-wide. Its stock has outperformed even Apple and Amazon over 7 years. But in the digital age, the challenge for Domino’s to become a lasting success has only just begun.
I learned why in my conversation with business analyst Ray Wang, author of the illuminating new book, Everybody Wants to Rule the World (HarperCollins, July 2021). Wang explained that in the digital age, Domino’s real long-term competitor isn’t Papa John’s: it’s Door Dash, which already has a market capitalization three times that of Domino’s, as shown in Figure 1. Wang predicts that by 2050, the global marketplace will comprise around 50 giant duopolies. In each market, there will be only two dominant digital giants. 90% of the current Fortune 500 will have disappeared. Domino’s chance of being one of the long-term winners will depend on data more than pizza.
The Case Of Domino’s Pizza
Steve Denning: Can you tell me why Domino’s long-term future depends on data more than pizza?
Ray Wang: It’s scary. Domino’s Pizza is the poster child for digital transformation. You can order pizza any way you like. You can order on Alexa. Their back-end logistics and capabilities are amazing. Automation and artificial intelligence (A.I.) are there. If you order pizza on a Friday at five p.m., Domino’s knows, two weeks later, to remind you that, maybe you want to order a pizza?
So you ordered a pizza. Great! Domino’s tracks the pizza from the time it’s ordered. It goes to the oven. It sends you a message: it’s five minutes away! It’s one minute away! Are you ready to eat? And you’ve already paid for it online. You can take a picture of the pizza, run it through an A.I. bar and it will tell you the quality of the franchisee. It’s amazing. They are one of the few firms to have won the battle of digital transformation.
Steve: So what’s the problem?
Ray: Think of how often people order from food delivery apps, not just Domino’s. You might want Thai food delivered from your favorite local restaurant. Or Italian, or maybe some Polish specialty? Or something German? Maybe French? It’s all being delivered. The long-term winner will be the firm that can offer all of those specialties, not just one.
And in the middle of the pandemic, the food delivery apps like DoorDash, began taking the essential steps to become the dominant digital giant in the food sector, particularly, dis-intermediated customer account control. Small businesses gave their customer data willingly to these food delivery apps, saying, “Take our customers: just order from here!” And then these delivery app companies took the payment information. They started tracking the data. They could understand from your zip code whether you are in high end or downscale area. And they started to understand the data. And over time, instead of working with hundreds or even thousands of customers that a small restaurateur work might have, they start to have millions of customers. And so they dis-intermediated customer account control. They were competing for data supremacy. They built the largest network they could. They basically took customers from the small businesses. They were competing on data. They use that information to improve their products, improve their offerings.
Now they are able to go on to do digital monetization through ads, search products, services, memberships and subscriptions. They can think long-term to win in these markets.
And the challenge for a firm like Domino’s from here on is hard. Because what do they do? Do they go head on with these delivery apps and offer more products? That will be tough because the categories are already taken and Domino’s doesn’t have culinary expertise in all those categories.
So if I was advising Domino’s, I’d suggest offering, “Delivered by Domino’s!” and allow small businesses around the country to use Domino’s digital infrastructure and its digital technology to join with Domino’s in creating a separate joint venture startup, in which they could participate and help local businesses succeed and create partnerships with payment organizations and improve that capability along the way.
We’ll see if they have vision the the willpower, and talent, and the courage to persuade their board and their shareholders to think of Domino’s in the long term as a potential digital giant.
Creating A Data-Driven Digital Network
Steve: And so they would need to launch a digital data network—in effect, a food delivery ecosystem?
Ray: Yes, it would be a data driven digital network, Domino’s already has the platform. Now they can license that to other restaurants.
Steve: What does that involve?
Ray: To accomplish this kind of transformation, a firm has to start changing the mindset of the organization, including the following steps:
· It’s about changing the life cycle of the organization and finding a catalyst, a turnaround catalyst; sometimes an owner-operator or more investment comes in.
· They have to attract the right talent.
· It means taking advantage of a new technology to change how the offerings are being delivered.
· It may mean changing markets. Instead of thinking about geographic markets or verticals, a firm might have to think about where its data value chains are and how they play a role and how they want to capture that upstream and downstream data in that value chain
· It may mean invigorating or removing shareholders that don’t understand what a long-term mindset looks like. It may also need some board education,
· It means building partnerships and ecosystems that can compete with the Agile giants who are investing ten times what a firm is doing with capital expenditures. Some companies are in the process of making that shift.
Steve: Are C-suites up to the challenge?
Ray: Even if they are, boards are often not. And that’s where a lot of the challenge is occurring.
Steve: Why is that?
Ray: Boards often don’t want to rock the boat. The average independent board member sits on three or four boards. Their their mission to make sure that shareholders get what they want. But the main challenge isn’t in the independent board directors. It’s really in the 40-50% of companies that have a similar ownership structure, whether it’s investor groups or pension funds or sovereign wealth funds. Those groups have a lot more influence than people realize. It’s a concentration of control.
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