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.

{audio:0:01:26} David, how did you see the growth in aggregators in the UK impact the business during your time at Domino’s?

{audio:0:01:47} 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.

{audio:0:02:42} 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.

{audio:0:03:10} 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.

{audio:0:04:15} 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?

{audio:0:04:29} 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.

{audio:0:05:30} 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?

{audio:0:05:44} 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.

{audio:0:06:36} 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.

{audio:0:07:19} 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?

{audio:0:07:56} 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.

{audio:0:08:36} 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.

{audio:0:09:12} 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.

{audio:0:09:43} 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.

{audio:0:09:53} Do you think there are going to be fewer QSR restaurants built?

{audio:0:10:00} 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.

{audio:0:11:06} 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?

{audio:0:11:59} How do you think they can do that, David?

{audio:0:12:01} 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.

{audio:0:12:46} AM: The other thing I would add to that is, because of the business that people have done with the aggregators, you will also see them trying to develop their own white-label platforms, in the sense of, they will be trying to drive the click and collect; they will be trying to drive the white-label delivery. All of which allows you to make more margin. If they can do that and take some of their volume away from the aggregators or stop it growing further and get more digital sales through their own means, even if some of that is powered by the aggregators themselves, I think that might happen as well. I can see there being a push towards that, because of the expense.

{audio:0:13:38} If you remember, as well, if you are a franchisee of any large chain, you are paying a franchise royalty and you are paying some form of marketing levy and, on top of that, you have got to pay the aggregator fees, so there isn’t a lot of pie left. It doesn’t mean to say it is unprofitable or it will never be profitable, but it’s at the margins.

{audio:0:14:07} Just on that point about the franchisee level, at what percentage penetration, from the third parties, does it make it really difficult for the franchisee unit economics to work? As you said, Alasdair, if you’ve got 20%, 30%, 40% of your volume in a franchisee unit going through a third party, surely that’s going to make it very difficult for the franchisee to make money, if you also take into account the royalties they have to pay to you guys?

{audio:0:14:36} AM: Yes; I think it depends on a number of things. It depends on the level of royalties they pay and, ultimately, where their food costs sit. Currently, everyone is being helped because, at the moment, VAT is down at 5% or 6% so, therefore, they can afford to have a mix of 60% to 70% and still be making some cash out of that, which works in times like this, when you need to keep the doors open. But when VAT goes back to 20%, you don’t really want any of your restaurants doing more, I would have thought, than between 40% and 50%, on the current economics. That would be my estimate, but it will vary by margin, pricing and so on.

{audio:0:15:34} Just going back to the market level, David, do you see the customer order frequency changing much, over the next five to six years, in terms of online delivery?

{audio:0:15:56} DW: I think it depends on the choice that’s available. As I said in an answer to an earlier question, there are so many different ways of buying delivered food today; restaurants preparing a kit to deliver to your house is delivered food. I actually think that people respond to the choice that is laid before them and the wider and the better the choice, the more likely they are to shop more frequently.

{audio:0:16:27} I guess what I’m getting at is, from a market level, if we all believe that restaurant delivered food is increasing penetration, how is the mix changing? Who is losing out here? Is it the prepared food at home so, effectively, the grocers are losing out, in that we’re not going to the grocer and purchasing food to cook at home?

{audio:0:16:51} DW: There has been a long-term trend away from grocery, in the developed world, but that all changed with Covid because the restaurants were all closed. If it was 50/50 for dine-out/dine-in, it moved to something like 70/30 or even 80/20. In terms of where it will go back to, I don’t think anybody thinks it will go back to 50/50. But where it does go back to, I don’t know. In the end, the grocers have to find their own solution for this and I think there will be creative solutions. For example, the partnership with Deliveroo, from Morrisons, which is a creative solution that could have legs.

{audio:0:17:48} Alasdair, how are you forecasting that mix changing, as we get back to some normality here in the UK?

{audio:0:17:56} AM: Obviously, there is a bump when everybody is going to go out and that’s going to carry on for a fair bit until normal travel patterns come back in and that might be six to nine months. I really think you need to look at next year before you see the long-term trends.

{audio:0:18:15} If you look at casual dining – not QSR – you’ve lost about 30% of your capacity in the marketplace and think about how many restaurants have shut. You might have said that there was oversupply and that is probably a fair comment, but you’ve lost a very significant chunk of capacity. I think there is going to be lots of innovation – to David’s point – rushing in to fill that void. Is it going to go back to where it was? I don’t think it will in the short to mid-term but, in the long-term, it might do. I think people’s trend, long-term, will be to more convenience, more delivery. We are a fairly small country so, therefore, inherently we are quite efficient, from a geographical point of view. In our cities, we live in quite dense places which should mean that delivery players are able to make decent levels of returns on that; look at Domino’s who have done it brilliantly over the years.

{audio:0:19:18} I would think, in the mid to long-term, that is achievable. I see long-term growth in that delivery and convenience market and I see casual dining coming back onto the traditional high streets. But there is a huge gulf of capacity that has gone and big shops that have shut which have left people on the high street. We’re going to see that over the next year or so, I think.

{audio:0:19:45} DW: I don’t think we should forget that in-home entertainment has never been better. Every few months there are new ways of being entertained at home, whether it’s Sky, Netflix, Amazon Prime, not to mention BritBox and the traditional channels. That is a factor, undoubtedly, in people wanting to eat at home. I just don’t see it going back to the levels of dining out that it was at before.

{audio:0:20:18} Looking at the unit economics of the third parties, one thing that is clear when you go through the platforms is that actually getting the customers or the consumers to pay for the convenience of delivery is crucial. Right now, we have some distorted market view with lots of vouchering and discounts from the platforms; Just Eat giving free delivery. Alasdair, how do you think volume could change if the platforms weren’t vouchering and customers actually had to pay a full £3 to £4 delivery fee?

{audio:0:20:58} AM: I think the volume would be there but you would see more progressive growth. Let me give you an example. If we look at relative volumes, when Just Eat brought in the free delivery, you saw the volume jump. Customers are clearly motivated by value, there is no doubt about that. If we see one of our competitors doing a heavily discounted promotion, with one of the providers, then we see volume being affected. Customers are still very value conscious but I think it will shake out in time. At the moment, there is a turf war and a share war going on and that is to the consumer’s benefit. But mid to long-term, as that turf war unwinds over the next two, three or four years, then at a certain point in time, they are going to have to go back and make some margins and make some money and that will mean that they will be driving more cost at the consumer level, I feel.

{audio:0:22:07} But I think the consumer will pay for that. They are just not going to go from zero to £10 tomorrow; you’re going to take them there gently. I think they will pay for that.

{audio:0:22:22} Do you expect some level of vouchering when you partner with an aggregator today, just to make sure you get the volume required for a QSR brand?

{audio:0:22:33} AM: Yes and no. I think what we are trying to look for and the way we try and work and the way the larger players work with the aggregators is, we’re looking for some marketing support. That is not necessarily just a straightforward discount. For the sake of discussion, we might give them an exclusive on a new product that is being launched and then support that and drive that. We would use it that way. We try and see it as joint promotions and we’re trying to get the same level of support and they have got a lot of marketing dollars to spend and we need to be able to work with them to do that in a constructive way. We try and utilize their above the line media that works for them and also works for us. We try to do that jointly and do that in ways that they are prepared to invest in as well.

{audio:0:23:30} For me, from a strategic point of view, I’m less interested in the discounting but more interested in the partnerships and how we can build that progressively, over time. One thing that is also quite interesting, that we forget, is that one of the biggest frustrations for consumers is that your delivery took too long or the order was inaccurate and the food was cold. All of those providers have made huge efforts and strides in those areas, particularly someone like Just Eat who came from quite a long way back, from an operational performance point of view. They can be nothing like as good as someone like Domino’s because Domino’s have been doing this much longer, but they’ve made big strides and they are making big investments, so the consumer is getting better value and they are getting the food delivered to them, ultimately, more rapidly and in a better condition than they were, which is quite encouraging.

{audio:0:24:35} Alasdair, through the different platforms, do you see different customer bases and do you see that incremental volume come through when you work with multiple platforms versus exclusively with one?

{audio:0:24:48} AM: I think that’s a very good question. Not here, but in a previous life when I was running Gourmet Burger Kitchen, we were exclusive with Deliveroo and we were quite worried about going non-exclusive because, understandably, one’s rate would go up and we were concerned how incremental that was going to be. What seems to be the case is that there are two different things at play. Ultimately, we as a consumer, tend to have one of those apps on our phones, or maybe one and a half, so it’s half deleted in the background somewhere. You have one app and you go to that. When you introduce a new aggregator or partner, you tend to be seeing a large degree of incrementality. It’s obviously not all incremental; it can’t possibly be.

{audio:0:25:45} The other thing I would say is, in certain parts of the country, certain players are more embedded as a brand than in other areas. It’s not quite as straightforwardly done as you think. If we look at the western side of Scotland, Just Eat play quite well whereas, on the eastern side and up in Aberdeen, Deliveroo play quite well. More obviously, in Central London, zones one and two, Uber are very dominant. It’s quite interesting understanding those elements at play.

{audio:0:26:28} Are you still getting incremental volume beyond Uber if, for example, you add Just Eat in London, zones one and two, because there is a difference in customer bases?

{audio:0:26:40} AM: Yes; it would be fair to say that you do, in my experience. It’s up to us to work out what the cannibalization will be but it is incremental. Obviously, if you were exclusive with one of the providers, you are going to pay significantly less in commission fees. In my experience – and I might not be right all of the time – the incrementality outweighs the benefit of the exclusivity.

{audio:0:27:12} What is your incentive then? Surely it makes sense to be on all the platforms to maximize that incremental volume?

{audio:0:27:22} AM: Yes, it does but, again, it’s not quite as straightforward as that. Only in the last year or so has there been much more national coverage. Ultimately, Just Eat wasn’t national until it got the McDonald’s contract and then they had to run around and go everywhere. Until very recently, you didn’t have that national coverage and certain aggregators weren’t going to here or there. But now, most of them go to most places.

{audio:0:27:57} The other thing is, going back to your marketing support, you’re going to get a lot more support if you are exclusive. If you are casual diner, such as someone like Dishoom, I believe they are exclusive with Deliveroo and they do huge volumes. Everyone knows that they have to go there for that. In certain situations, you can see it’s going to be better having one player because if Dishoom can go to a dark kitchen in Central London, for example, then Deliveroo can build an addition around that level of volume and with some confidence. I think there are two sides to it. I think it depends on the size of your business, your brand and, really, what you are trying to do with delivery.

{audio:0:28:58} David, what did you learn from trialing Just Eat during your time at Domino’s?

{audio:0:29:05} DW: The biggest reason we wanted to try Just Eat was because we were fearful that we were missing out on customers. There are some customers – and Alasdair touched on this – who have a Just Eat app downloaded onto their phone, they don’t have a Domino’s app and, therefore, Just Eat had the ability to recruit customers that we didn’t have. That was the genesis of the trial.

{audio:0:29:34} In the event, what we found was that, actually, the numbers were very, very low. Because we had a very effective mobile site as well as an app, many customers might see Domino’s on Just Eat and then just go onto our site to see what deals we had. What we discovered was that the level of deal we could offer on the Domino’s site was more interesting to customers than the simple deals that Just Eat were offering and that kept the numbers down.

{audio:0:30:11} In the end, we decided that we weren’t getting anything out of it because the number of customers was so low. Customers were either going through the Domino’s site directly or having a relationship with our app anyway.

{audio:0:30:29} How good were the deals on your own app versus those on a third-party platform?

{audio:0:30:35} DW: The third-party platform didn’t have the capability of doing things such as free sides or free ice cream or free Coke, or two for Tuesday, just one day. Over 85% of Domino’s sales are on some form of deal or other and the platforms just didn’t have that engineered capability. That will be a battleground going forwards. As things like CRM and the application of artificial intelligence to tailor deals for customers become more relevant – which is inevitable over the next two or three years – the platforms are going to have to raise their game to be able to tailor the offers to meet the needs of that customer, to chase a higher level of conversion.

{audio:0:31:34} Do you think that is unique to Domino’s, David, where that brand has been delivering direct to consumer for 30 years? Clearly, they can offer great deals on their own app which everyone knows about. Do you think other restaurants have an opportunity there?

{audio:0:31:51} DW: McDonald’s, BK, KFC all do good offers, as well.

{audio:0:32:01} But they don’t deliver? They have to pay the delivery fee to Uber, which means the offer that they can potentially give the customer would be less attractive than those that Domino’s could give?

{audio:0:32:13} DW: It’s a more radical price list revaluation. But customers love a deal. In the old days, when people used to order by phone, the first question the customer asked was, what have you got on deal this week? Customers love a deal so having the right deals is important. As I say, we haven’t begun to see what artificial intelligence can do with CRM and loyalty, to get that conversion rate up in the next five to 10 years as technology, inevitably, improves exponentially.

{audio:0:32:56} Alasdair, how do you look at offering customers good deals to come to the BK app as opposed to a third-party platform?

{audio:0:33:07} AM: Everyone is going to do it in slightly different ways. All of our offers, all of our deals, are now done through the app; they’re not going to be done in any other way, because we’re all trying to drive people onto and into our database. The capability is now coming towards the aggregators but, to your point, we can’t offer the aggressive value that we can on our app. If, in time, we were able to convert some customers or we just build a bigger base of customers, they might use us for click and collect and be able to get some of those offers. But actually, that will require more personal effort than sitting at home and getting it delivered. There is a cost and a trade-off that the individual will have to make on that.

{audio:0:34:06} I have some sympathy with the aggregators over that. At the end of the day, delivering food is a low-value item; there is a very significant proportion of cost in delivering a £20 item. It works both ways. We’re working very hard on our app and when we launch products through that, it will drive people onto it. That’s what we’re going to be doing and our CRM will be done through ourselves. But I don’t think that, if we launch product through an aggregator, that it will necessarily stop us having something like a Whopper Wednesday; we could do that. That is being done, can be done, does drive retention and does drive volume for us. You’ve just got to be more selective.

{audio:0:35:04} I see more use of the app. I think there’s going to be a bit of an arm’s race. The QSR chains are, naturally, ahead because of their scale and volumes but there is going to be a lot more done digitally.

{audio:0:35:24} When we talk about customers converting from third-party to your own app, if we play this forward five or 10 steps, if we all have our favorite restaurants and all of the brands are looking to convert their customers from the apps, does that mean that we will just have a couple of favorite restaurant apps and we don’t use the delivery platforms anymore? Alasdair, where do you think that leaves the platforms?

{audio:0:35:50} AM: I think the technology will be such that you will just type into your browser something like ‘BK delivers’ and you will either go straight through to the aggregator or straight through to us. There will be less need for that because I think it will just jump across that quite quickly. I think what we are all trying to do is to develop a meaningful relationship with our customers but, nevertheless, that’s what Deliveroo, Just Eat and Uber Eats are also trying to do; they’re trying to deliver value to those consumers. We’re all trying to do it and we’re all having success or not, as the case may be. Targeted CRM does work and it does drive frequency, whether that’s us doing it or whether that’s one of the aggregators doing it.

{audio:0:36:43} We’ve seen companies like Shake Shack or Chipotle in the US who are, effectively, increasing their prices on the aggregators, to convert customers to their own app for cheaper order values. How do you think that could impact the volume?

{audio:0:37:06} AM: I used to be a bit of a price bandit; I used to like taking price. But as I’ve got older or spent more years in the business, I’m more driven by volume than price. That’s not needless volume, I hasten to add. One has to be careful about taking too much price on the platforms. A lot of people on platforms charge more money than they do in their own restaurants and I can understand why they do that. But I think there is a level that you won’t be able to go beyond; there will be a clear point of elasticity on it.

{audio:0:37:50} I can see that we’re all going to be trying to incentivize people to come across on our own apps but, equally, you’ve got to have a good working relationship. I think we’re slightly having the discussion the wrong way round. It’s not about them and us, with the aggregators; it’s about the fact that we are all together and it is a partnership. If we go out there and become too aggressive and too in your face, then the next time we come to have a negotiation around fees, it could be going the other way. You have to manage it in a fairly mature fashion and they are your partners and we are working together. By and large, we have great relations and most companies will have good relationships with their aggregators too.

{audio:0:38:36} DW: I think the other point is the one that Alasdair made earlier about the VAT cut. My suspicion is that Shake Shack and Chipotle haven’t had the benefit of the VAT cut and, therefore, their economics are under pressure.

{audio:0:38:52} AM: For all those of you not in the UK, the VAT cut has been a huge shot in the arm for the industry, in helping keep it alive.

{audio:0:39:03} How do you think that could change the volume mix when that comes back?

{audio:0:39:09} AM: I think, when the VAT comes back, to David’s earlier point, there will be price inflation and that won’t just be on the platforms. Does that drive volume away? It must drive volume away. Unless you are selling Gucci handbags, you don’t drive more volume by putting your prices up. Introduce me to the person that does and we’ll hire them.

{audio:0:39:50} If it does drive people away, it will be a short-term thing because if you believe that the trend is to convenience and more delivery – and I do believe that – in whichever way, shape or form that is, both food kits and pure delivery as well, then yes, there are going to be bumps on the road but the trajectory is there. This is going to be a long-term part of our life and will just become more sophisticated and, genuinely, I think we are at the very beginning of it.

{audio:0:40:25} Alasdair, just playing this forward again, in terms of how you look at the mix between your own app and third-party apps, do you really see the aggregators as a customer acquisition tool, in a way, in the long run?

{audio:0:40:41} On one level, yes; let me give you an example. At Burger King, we are not as well represented inside the M25 as McDonald’s and KFC are. What does delivery do? It’s a very clear way of allowing us to drive more penetration with the set of consumers that we are not currently reaching. On that level, you are absolutely right. It works for us, like that, very well. It really introduces people into Burger King and all the things that we do. Over time, if those people see and eat there – not just at Burger King, but other places as well – the next time they walk past or the tenth time they walk past, they might come in. So yes, I do think we are reaching a different pool of consumers. I think the trend is moving away from ready meals at a grocery and more towards delivery, in a different shape or form, from restaurants, at home. That is the way I see it rolling forward.

{audio:0:42:00} Just looking at the unit economics of an order from the QSR’s point of view, on average, how do you look at the incremental margin when you’re shipping an order, from a third-party platform, from your store, versus running it from your own app, with white-label delivery?

{audio:0:42:21} AM: I won’t talk about numbers but there’s going to be a very clear difference. But the reality is, if you look at people who have their own white-label, it’s not something that the aggregators should be frightened of; they should be encouraging that, I believe, to a certain extent. When people have their own app, 80% to 90% of the volume is actually going through the aggregators and only a small proportion would go through your own app, because it goes back to, how many things do I want to get hold of. Unless I’m that superfan, most volume will still go through the aggregators. I think the aggregators will want to see it as making the pool bigger. That’s the way they should see it.

{audio:0:43:18} But do you not think these big QSR brands, over five to seven years, can drive 20% to 30% of online delivery volume through their own platforms, given they have such strong brands?

{audio:0:43:32} AM: Potentially, but that would be the top end of it. Having run Pizza Hut and Pizza Hut delivery, I still find it very unlikely, with our unit labor costs, that we are going to go into our own delivery. I think you have still got that service lag, so that figure would be at the top end. I think what you might have is you are going to have more digital sales so you might get 30% of that through click and collect, through queue busting, through all these different ways and you might well get that, as a body, but a part of that will be delivery.

{audio:0:44:20} Is that also because you think the consumers value the selection and the convenience of the third-party app?

{audio:0:44:28} AM: Completely. You are living in a household with different family members and you have different things and it’s just easier. It would be interesting to hear David’s point of view because of the long history of the relationship that Domino’s have with their customers.

{audio:0:44:58} David, what would you say? With these big QSR restaurants, do you think they could start to really convert or have a mix of 20% to 30% of the online volume going direct to app versus via Just Eat or Uber?

{audio:0:45:15} DW: I think the first thing they’ve got to do is crack the economics. Just Eat was a business that, in the early days, made its money by accepting orders. Most of the deliveries were done by the restaurants themselves. It has transformed over the last 18 months where they’ve seen the margin drop but they’ve seen spectacular sales growth. I think they’ve still got work to do to crack delivery economics. Domino’s has been doing delivery economics for 60 years, since it started.

{audio:0:45:58} DW: I can’t tell you; it’s secret.

{audio:0:46:03} DW: Volume helps and the passion through the organization, to get it delivered on time. When I joined Domino’s, I was amazed at the absolute passion and pride that there is in the service and delivery ethos of the brand.

{audio:0:46:22} What could break the economics for Domino’s? If we see more pressure on the top-line growth, with more selection for customers, could this hurt Domino’s?

{audio:0:46:32} DW: Pizza is the biggest category of delivered food because pizza delivers really well; it travels well. Burgers and fries are a great product in the restaurant but they don’t travel as well to the home, whereas pizza does. It’s got a great average ticket, it’s protein light, so it’s got so many things going for it, as a delivered food, and it’s got the physics of temperature retention when the crust is engineered in the way that it is. That fundamental position is not going to change.

{audio:0:47:19} I’ve just got a last couple of questions and then I’m going to open it up for listeners to ask some questions. I want to look forward, five to seven years. Alasdair, in terms of QSRs versus casual dining restaurants, how do you see them balancing third-party platforms and their own channels?

{audio:0:47:47} AM: Firstly, I think the pace of change has been so rapid over the last two or three years, with the growth of the aggregators, the growth of the volume in delivery, driven by Covid as well, it would be interesting to see. There is clearly a rush to digitization. If you look at retail, the service experience of online retails is, perhaps, much better than it is in our world and there is a lot to learn from that so I think more will be done at that end; we will all be trying to drive our online experience.

{audio:0:48:21} We will definitely be trying to capture more sales, digitally, whether that’s driving speed, driving spend or whatever that might be. We will be doing more digital sales, trying to improve the offer and I think the general trend of delivery will continue. You’ve clearly seen an anomaly over the last year or so but it’s not going to go back. If someone’s sales were at 10% for delivery and they’ve gone to 40%, they’re not going back to 10%; they’re going to go back to 25% or 30%. That is a racing certainty.

{audio:0:49:10} I think we’re going to change the way that restaurants look and we’re going to change our menus. David’s point about pizza being perfect for delivered food is right, so we need to work harder and better, as competitors to pizza, on food that does deliver in a better way. I think you are going to see all of that sort of innovation come in and it will become increasingly sophisticated, but we’ve got a long way to go. We’re in the foothills and what we all do is pretty unsophisticated. That’s not a criticism of anyone, other than ourselves as an industry.

{audio:0:49:48} Just as a quick follow up on that, how are you really focusing more on your own digital channels, mainly at the click and collect side, which seems to be higher margin and relatively easier to fulfil, from your fixed asset base, rather than actually trying to drive traffic to your own app and then white-label delivery?

{audio:0:50:14} AM: Ultimately, at the moment, because restaurants are not open as we’d like them to be, the volume and sales of delivery versus the volume of click and collect, is wildly different, so no, that is not the case. I think we will still try and drive sales and drive consumers into the brand through delivery. Not always, but often, they are different and new to the brand and we look at the percentage of new customers on a week-on-week basis and it’s an important metric for us. Over time, we’re going to be pushing across all these digital ways but yes, when we get to a critical mass, we’re going to be spending more marketing dollars on click and collect; we’re going to be spending more marketing dollars through our white-label, as well. Are we going to walk away from the aggregators? Absolutely not because, ultimately, they are bringing in the volume and they are going to carry on doing that for the foreseeable future. We need them and they need us.

{audio:0:51:17} David, just on the collection point at Domino’s, how do you see Domino’s changing the mix of delivery and collection?

{audio:0:51:25} DW: The collection business at Domino’s has suffered dramatically. I think it’s something like 60% of the level it was in 2019. The latest statements from the company are all talking about turbo-charging collection and once we get back to more normal arrangements in the high street, I think there will be a big push for Domino’s to push collection hard.

{audio:0:51:54} DW: At the end of the day, it’s value, offers, service and range. There are lots of things that Domino’s can do to improve its collection business. You look at Domino’s around the world and the UK is by far the most successful delivery business but there are lots of lessons to be learned around collection, by looking at other Domino’s businesses in other countries.

{audio:0:52:19} Why are we so good at delivery in the UK versus collection?

{audio:0:52:23} DW: It’s just the way the business has evolved. There was a real priority, in the nineties and the early years of this century, around being the best at delivery.

{audio:0:52:37} You will increase the selection and improve the pricing for collection, rather than delivery?

Online Food Delivery: A Restaurant's Perspective

Former Domino's UK CEO & Current Burger King UK CEO

inpractise.com/articles/online-food-delivery:-a-restaurant's-perspective

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Executive Bio

David Wild & Alisdair Murdoch

Former Domino's UK CEO & Current Burger King UK CEO

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Online Food Delivery: A Restaurant's Perspective(April 27, 2021)

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