Domino's Pizza: 5,000+ Store Opportunity in China | In Practise

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Domino's Pizza: 5,000+ Store Opportunity in China

Former Vice President at Domino's

Why is this interview interesting?

  • History of Domino’s in China
  • Chinese consumer perception trends for pizza delivery and dine-in
  • Why Domino’s will never let an aggregator deliver directly to a customer
  • The power of fortressing stores in the Domino’s system and short-term issues with franchisees
  • How Domino’s works with aggregators in China
  • Why India has the best store unit economics globally
  • Secret to Domino’s competitive advantage and why it can be replicated in China

Executive Bio

Steven Pizziol

Former Vice President at Domino's

Steven has nearly 13 years of experience at Domino’s where he was responsible for scaling the brand across Asia-Pacific encompassing over 4,000 stores and over 25% of the total Domino’s system. Steven worked with the master franchises for India, Australia, China, to grow the number of units from 1,000 when he joined in 2007 to over 4,000 in 2019. Steven previously spent 17 years at Blockbuster where he was responsible for managing over 1,500 franchise stores across the US and Latin America. Read more

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Interview Transcript

Steve, can you share a short introduction to your career at Domino’s, please?

I spent almost 13 years at Domino’s. I was recruited to head up the Asia-Pacific region, based in Hong Kong. That was in 2007. When I moved out to Hong Kong, there was a decent-sized business already operating in the region. There were about 700 stores. We were in about 10 countries. Our system revenues, at the time, were around $700 million. Over the next 12 to 13 years, while I was managing that region, I was really focused on accelerating growth from the decent foundation that we had. I grew the region from the 700 stores, up to around 4,000 stores and to approximately $2.5 to $2.6 billion in revenue. It was an amazing acceleration of growth. In the process, we entered six or seven new countries and established the Domino’s footprint for the very first time. These countries included Indonesia, Vietnam, Cambodia, Thailand, Sri Lanka, Singapore; markets that had never ever seen a Domino’s store before, with a consumer that had not experienced Domino’s pizza in their home country, although they may have experienced it in other parts of the world. That was a really exciting piece of the growth story; opening these new markets and taking the Domino’s brand to new consumers, as well as really consolidating growth in some of the established markets.

For example, a market like Malaysia, where we already had presence, with only a small footprint of about 27 stores, we grew that to well over 250. Japan, where we had about 180 stores, so a very decent sized business, we grew that to more than 700 stores. It was really an incredible period of growth for the brand and it was, actually, one of the fastest growing regions, for Domino’s, on the planet. Just tremendous growth.

Can you share a brief history of Domino’s in China?

China was a very important project of mine. There were 10 stores when I arrived. They were in Beijing. The brand didn’t really know what it wanted to be, to put it bluntly. We had stores that had a very big dining area and we were selling fried chicken in our Domino’s stores. There was a delivery component, but the delivery and takeaway component wasn’t the primary focus of the brand. It was more of a dine-in experience; more of a fast-casual. It really wasn’t the core of what the brand was about, so we struggled.

These stores in Beijing weren’t the very first stores. Domino’s had opened stores in Shenzhen, back in the 90s. With the partner that we had there, they ran into difficulties, closed all those stores and then a new partner came on board and moved the operation to Beijing. It was very interesting in that it probably wasn’t the best city to begin operations in. We probably should have opened in Shanghai. The focus for me, immediately, back then, was to establish a presence in Shanghai. We also went through a master franchisee change and brought in a new partner. We tweaked the model to have it be more focused on what is our traditional model, which is primarily focused on delivery and carry out. We got rid of the fries and the fried chicken and really narrowed down the menu.

Over a period of time, we began to see momentum come into the business. Today, we have more than 300 units which, for China, is not a lot of stores, if you compare it to some of the other big QSRs, but there is a strong foundation to really accelerate growth into the future.

Why was Domino’s serving fried chicken and had dine-in, in the first place?

I think some of that had to do with the fact that Domino’s primary competitor was Pizza Hut. Pizza Hut, in China, really was more of a casual dining experience and, initially, was really the introduction to the Western dining experience. They had big, fancy restaurants, quite different from the red roof that we call them here in the US and other parts of the world. They offered all kinds of things on the menu. Pizza Hut really introduced pizza to the Chinese consumer. We felt, in order to compete with them, we needed to broaden the menu. Fried chicken is a real staple in China. As you may know, KFC really been the number one success story in QSR. It is, by far, the largest QSR chain in China, with around 7,000 stores. Fried chicken is a staple part of the Chinese consumer’s diet. They love fried chicken.

At the time, Domino’s felt that it had to have fried chicken and they had to have real fried chicken, fried in real deep fryers, so that they could compete on more of a level playing field, with the likes of KFC and Pizza Hut.

Do you still think that is the case today?

No. I think what has made Domino’s successful in China is the focus on what is the core aspects of the brand; making really great pizza and making a good quality product at a value price and delivering that product, consistently, to a defined delivery area around the store. What has also made is successful is that it has grown. With China, it is my belief that brands tend to gain more credibility when the Chinese consumer sees that brand more often. Now, with a 300-store footprint, penetrated quite well in Shanghai, as well as several other cities, consumers are getting used to seeing Domino’s and they are trying Domino’s. Also, many years have passed where the pizza category continued to grow and Chinese consumers have got used to eating more pizza and so this has been a great opportunity that Domino’s China has seized and now they are reaping the benefit of that.

You mentioned how Domino’s had a partner in China, had some troubles, maybe financially, in the Asian crisis and then you had a new partner. What is the current corporate structure and relationship with the master franchisee in China, today?

There is a master franchisee called Dash and they have the rights to all of China. Previously, the master franchisee only had rights to Beijing and Shanghai. Several years ago, with this new partner, the brand awarded the rights to all of China. That was very important because that has allowed that master franchisee to attract talent, to attract investment, because investors and talent know that there is a large-scale opportunity. It had been difficult to hire the kind of talent that we needed, when we only 50, 60, 80 stores and only with the rights to Beijing and Shanghai. Although they are big markets, bundling all of China under one master franchise has made it a lot more attractive for employees, for talent and for investors. As I said, there is a very strong foundation now and, in fact, Domino’s Pizza Inc, the franchisor, earlier on this year, made an equity investment into that master franchisee, to help it accelerate growth into the future, knowing that China is such a great opportunity, going forward, for the brand.

What is the rationale for the equity investment?

I think there are a couple of things. It provides equity and it also has Domino’s Pizza Inc being more involved at the board level, providing more support because they have an equity interest in the brand and also to enjoy the potential upside that is associated with the accelerated growth that is going to occur in the coming years and, perhaps, a possible listing. Primarily, I think, what better partner to have, if you are a franchisee, than the franchisor? It’s really a win-win situation for everyone. But primarily, it’s to guarantee that growth is accelerated.

What are the major differences in the Chinese market versus other Asian countries you worked in?

China is just a monster; it’s a big market. The opportunity, the scalability is just mind-blowing. Some of the cities in China are the largest cities in the world, by far. Some of the challenges that Domino’s has as a brand, in China, are that pizza is still a relatively new food for the Chinese. As we see new generations, I think they are becoming more comfortable with pizza. Dairy has never been a staple of the Chinese diet; I think that’s changing.

Is it changing?

Yes; I think it’s starting to change. There are more than 2,000 Pizza Huts; there are 300 Domino’s stores. We’ve got McDonald’s.

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Domino's Pizza: 5,000+ Store Opportunity in China

November 11, 2020

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