Domino's CEO Defends Strategy to Limit Marketing Spend in Q1

Domino's

Domino's acknowledged that January sales were slower than usual. This was because they purposely reduced their marketing expenses to focus on more important product launches planned for later in the year.

Domino's is getting ready to launch its loyalty program in phases and offer a new affordable lunch deal to attract more customers and encourage repeat visits.

CEO Andrew Rennie explained that they decided to hold off on marketing expenses earlier in the year for strategic reasons, even though there was a decrease in sales.

"We decided to delay our marketing efforts in January so that we can invest more later in the year. This means that the first half of the year, including Q1 and Q2, will be slower, but we expect a significant increase in the second half," he informed investors during this morning's meeting on March 12.

He emphasized the importance of highlighting Domino's value proposition, especially in the current environment. He stated that the primary reason consumers choose to purchase from any company is based on the value they receive.

Our consumers need value and we’re supplying the value but in a very profitable way.

Andrew Rennie, Domino’s

Domino's is introducing a new £4 lunch deal, a first for the company. This deal includes "cheeky little pizzas" under 600 calories, wraps under 450 calories, as well as fries, cookies, and smaller portions of chicken.

"This is the first time we are offering a £4 price point in the history of our business. It's something we've never done before," mentioned a company representative.

We are focused on providing value to our customers in a profitable way by targeting a new daytime segment, which benefits our franchisees by utilizing our assets more effectively. Rennie emphasized the significance of value, emphasizing that it goes beyond just price.

Loyalty launch

Value is determined by the product, service, and image divided by the price. Ensuring that we offer a high-quality product is paramount to us. We take pride in the fact that we have chosen not to cut corners or compromise on quality by opting for cheaper products to reduce prices. Our focus is on providing the best product available in the market, even if it goes against the current trends in food pricing.

Domino’s is getting ready to introduce its loyalty program, with the first phase already in progress and two more phases scheduled for later this year.

According to Rennie, the company is using data to guide the implementation of the program, allowing them to test and gather insights along the way.

"I want to gather data that helps lead to each stage and determines how we go about each stage. It has been done in a very methodical way," he said.

"We're committed to having a loyalty programme, but we're making sure to do it very clearly and methodically. I've seen loyalty programmes where a lot of money's been thrown at them and it's been very costly. So we're taking a different approach."

He mentioned that he will provide an update in August on the progress of the roll-out and the lessons learned so far.

In addition to boosting growth through innovation and attracting a wider range of customers, Domino's is also aiming for an increase in collection orders with the launch of these new initiatives.

Many people don't realize that collection is a lucrative aspect of our business and caters to a different customer base. It's important to note that these customers are separate from our delivery customers.

Instead of simply throwing money at the collection process, I prefer to gather data that guides us through each stage effectively.

Andrew Rennie, Domino’s

Before taking on the role of UK CEO, Rennie gained experience leading Domino’s in various other countries such as Australia, France, and Germany. He mentioned that in those markets, there was a higher percentage of customers opting for carry-out compared to the current scenario in the UK. Rennie sees a great potential in increasing and speeding up the growth of carry-out orders in the UK.

Currently, around 37% of orders in the UK are for collection, showing an 18% increase compared to four years ago, according to Rennie. He believes that there is still a larger potential for growth in this area. In the US, collection orders make up 55% of total orders, and US CEO Russell Weiner is confident in further increasing this percentage.

Rennie pointed out that the UK is currently 20% behind the US in terms of collection orders. He mentioned that with the new initiatives, especially the lunch offer, they aim to reach the 50% mark and catch up with the US in this aspect.

Growth opportunities

Domino’s revealed it has taken full control of Irish business Shorecal as it looks to increase its store count in the Republic of Ireland and Northern Ireland.

Domino's saw a surge in store openings across the UK and Ireland last year, with 61 new stores welcoming customers in 2023. According to Rennie, this marks the "strongest growth in stores in five years."

Looking ahead, the company is aiming to reach a total of 1,600 stores in the UK and Ireland by the end of 2028, projecting system sales of £2bn. The long-term goal is to hit 2,000 stores by 2033, generating system sales of £2.5bn throughout the UK and Ireland.

Rennie mentioned that Domino’s is currently experiencing growth. While the main focus will always be on the core business, they are open to making investments that will lead to long-term growth. The board and Rennie are both clear on the importance of having clear guidelines for growth and returns.

He also stated that they have a strong capital framework in place and they are constantly looking at potential growth opportunities. Updates on new growth initiatives may be coming soon, possibly even sooner than expected. Overall, there will be more growth initiatives from Domino’s this year.

Domino’s increased group revenue by 11.1% for 2023 for the 53 weeks to 31 December, with underlying profit before tax of £101.7m.

Editor's P/S:

Domino's recent strategic moves, including reducing marketing expenses, introducing a £4 lunch deal, and launching a loyalty program, demonstrate its commitment to long-term growth and customer engagement. The company's focus on value, innovation, and expanding collection orders aligns with consumer trends and the need to optimize operations. Domino's strong revenue performance in 2023 and its ambitious store growth targets suggest a positive outlook for the future.

While the company's decision to delay marketing efforts may have impacted January sales, its focus on product launches and customer-centric initiatives should drive growth later in the year. The loyalty program, in particular, has the potential to build customer relationships, increase repeat visits, and provide valuable data to enhance marketing efforts. By leveraging its data-driven approach, Domino's can tailor its loyalty program and other initiatives to meet the specific needs of its customers.