David Wild & Alisdair Murdoch
Former Domino's UK CEO & Current Burger King UK CEO
David has over 40 years running retail businesses and is the former CEO of Domino’s Pizza Group, the UK master franchise operator of the Domino’s brand. He joined Domino’s in 2013 before becoming CEO in 2014 and rolling out over 400 new units. Domino’s has over 1,150 units in the UK and is one of the most profitable operations in the Domino's system. David started his career with 18 years at Tesco in the UK and running the Central European operation for six years in the late 1990’s. He then ran Walmart Germany and spent a year in the US before returning to the UK to run Halfords, a £1bn retailer in the UK. David left Domino’s and retired in 2020. Alisdair is one of the most experienced restaurant executives in the UK. He is the Current CEO of Burger King, the UK master franchise of the brand owned by Restaurant Brands International. Alisdair spent seven years as CEO of GBK, Gourmet Burger Kitchen, a leading casual dining chain in the UK, and was previously the CEO of Pizza Express, Pizza Hut UK after starting his career in Operational roles at KFC UK.Read moreView Profile Page
Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.
David, how did you see the growth in aggregators in the UK impact the business during your time at Domino’s?
David Wild: I joined the Domino’s board in November 2013, which was the same year that Deliveroo first went live and about six months before Just Eat did their IPO. I remember my first board meeting and the board was quite concerned that, with Just Eat coming into the market, they would bring technology to independent pizza operators, which would mean that Domino’s lost its advantage. There was a degree of concern that Just Eat were going to give us a headache. In practice, what actually happened was quite the opposite. 2014, 2015 and 2016 were actually great years for Domino’s, in the UK.
What was happening was that Just Eat were spending a lot of money on advertising and, as a result of that, they were growing the market for home-delivered food that was ordered online and that was a sector that Domino’s played really well in. We rose with the market. We may have lost a bit of market share to Just Eat but, actually, the market was so buoyant that our sales were buoyant as well.
We also learnt a lot. We learnt about things that we needed to improve, such as quality food photography. By having a direct competitor with a fresh approach, we could see that we could do that. We could see that we needed to have screen size optimization, because we could see that our conversion rate on the mobile site was nothing like the conversion rate on the app. We also learnt about the need for GPS and the need for driver scheduling systems. We spend a long time talking about the gig economy and what that meant if you had contracted drivers rather than employed drivers. But we were actually very confident because we could see that Domino’s was a strong brand and, because of the market growth that was taking place, we benefited from that and we had three great years of good sales.
Just on that point, David, about the difference between contractors and employees, is there a certain order volume that you need for it to really make sense hiring drivers, full time?
DW: It is something that Domino’s just does. Even small stores will hire drivers. They are not always full time; they are typically recruited on zero hours contracts. But they will be on the payroll of the franchisee. That way, Domino’s gives great service. All through the early years, Domino’s was getting great marks from customers for the service that was being provided, partly because there were drivers standing around in the store, waiting to do the delivery. At the time, I used to say, there was more competition for drivers than there was competition for customers.Actually, at Domino’s, because the market was growing so rapidly, it actually had more of an impact on our ability to recruit drivers than it did on our ability to recruit customers.
How do you see Domino’s position in the UK, today, given that the third-party platforms are so much bigger and there is huge selection?
DW: I wouldn’t say Domino’s is less competitive, necessarily. But I think it’s definitely a much noisier market. It has to be viewed in the context of the transformation that has taken place over Covid. Customers are now looking at having all sorts of things delivered and we’ve seen that anybody who does online, with delivery, has generally had a good pandemic. There is a much greater level of consumer trend towards home-delivered food. We are also seeing that expand with things such as meal kits being delivered to the home; we’ve got dark kitchens coming into the marketplace. We’ve even got examples where you can order a can of Coke for £10 from the supermarket, and have it delivered by Deliveroo.
There is a lot more going on but what that does mean, particularly given the fact that the three big players are all in public ownership – Just Eat Takeaway, Deliveroo and Uber Eats – there is a lot of noise and a lot of consumer advertising; more than we have ever seen in the sector. I think, ultimately, it will be a challenge to make sure that the share of voice is relevant in this very noisy marketplace. These businesses have got investors who are pressing them to grow rapidly, so they are spending hard to achieve that growth.
Let’s just say we all believe in online food delivery growth and it grows 20%, per year, for the next five or six years. Alasdair, how do you think this will change the restaurant estate in the UK?
Alasdair Murdoch: There is going to be a fundamental change. Just as David was saying, we’ve seen huge volumes going through all of our restaurant businesses during Covid. Interestingly, with the partial relief from lockdown that has happened over the last week, with non-essential retail opening up on the 12th April, you would have thought we would have seen a big drop back in that online delivery and although we clearly saw a fall back, it was not that much or not that significant. What we saw was a growth of a different customer set; people out on the high street, coming back into restaurants.
Firstly, delivery is going to be markedly different for non-traditional players, like ourselves at Burger King, but what we’re actually going to see is, what are we going to do differently? Are we going to design our restaurants differently? Yes, we are. How are we going to do that? You and I as customers, we are not mad on seeing all the delivery drivers coming in and out, whilst we are trying to have a different experience, so how do we manage that? Do we have separate doors, separate windows? You are beginning to see that sort of thing, as well as separate lanes for delivery drivers.
Additionally, the British high street has been very challenging from a rental point of view, driven significantly by rates on the main high streets. What I think you will see, in time, is smaller footprint restaurants because a higher proportion of their business will be done through delivery or click and collect or some kind of digital transaction, than has been done historically. Covid has driven that at least five or six years forward.
Yes, I think design will be different; yes, I think you are going to see different assets. But do I think it’s the death of these high street restaurants? No, I don’t.
Do you think there are going to be fewer QSR restaurants built?
AM: I don’t necessarily think that will be the case either. I think you are going to move into different needs. Not necessarily dark kitchens, which a lot of people talk about, because it’s quite difficult for people to make money in dark kitchens. You’re not seeing any of the major chains go into that too much. You have seen a few people try and then come back out of it and there must be a reason for that. I think what you might see is a proliferation of the older, smaller units, that all the QSR brands were pushing out 30 years ago; I think you might see a return to that square footage. A bit like you have KFC who have 1,000 square foot units, you might see more of those. I don’t think you will see less; I think you will see the asset type change. You are going to be driven by convenience. You’re going to be out of town, in drive throughs, but the market will get saturated fairly quickly. But there is also an awful lot of white space on the high streets and I think the asset type will change to take advantage of that and mirror what consumers want.
DW: I think one of the other effects of Covid is that, in the early days of Deliveroo, restaurants were providing food for Deliveroo at marginal cost, but they were happy to do that. With Covid, now that’s not possible; they don’t want to lose money on providing delivered food. I think you will see some sort of rationalization that restaurants won’t carry on providing food at marginal cost and the platforms have got to find a way of doing it economically. You’re starting to see some of that in the reaction to the Deliveroo IPO. Can they make money when there is full cost recovery involved?
How do you think they can do that, David?
DW: They have to get more efficient. Dark kitchens could be a solution. Alasdair is right; the big brands are not going into dark kitchens with the pace that some of the smaller guys are doing. But Deliveroo will have to be thinking of creative ways in which they can manage delivery. The big benefit of dark kitchens is that you’ve got a central hub, so you don’t have to go to the restaurant to collect the food; it’s there. From an economic point of view, it’s more attractive to a business like Deliveroo. There are people that would say that Deliveroo have got a strategic advantage because they are so far ahead in dark kitchens.