Domino's eyes bigger slice of the market
The pizza chain is determined to expand. James Thompson talks to its CEO about the ingredients for success in a digital age
The huge letters that sit proudly above the commissary of the UK's biggest pizza delivery company in Milton Keynes only tell half the story. Domino's Pizza decided against using the word pizza on the roof of the plant because at £10,000 for each three-metre letter, the shorter Domino's name saved it £50,000, although its chief executive, Lance Batchelor, also argues that its brand is so well known that they were not needed.
While investors will appreciate him keeping such a close eye on the pennies, Domino's has not held back on its rapid expansion in the UK and overseas under the leadership of the former chief executive of Tesco Mobile. Since Mr Batchelor took the helm in December 2011, the pizza delivery firm has opened 34 stores in the UK, Republic of Ireland and Germany.
In August the UK-based company has also acquired Domino's Pizza Switzerland, including the master franchise agreement in the country, for £4.67m in cash. Mr Batchelor sees "huge growth potential" there and in neighbouring Germany.
He also wants to drive a "revolution" in how consumers order pizza online and from mobile devices. The seemingly inexorable rise in the group's online sales and his mobile experience at Tesco no doubt convinced Domino's to poach him to become deputy chief executive last year and then promote him into the top job, although he had been on the pizza delivery firm's board since July 2010 as a non-executive.
Another near-certainty is that Domino's scooter riders – who pride themselves on delivering an ordered pizza in just over 23 minutes – and shops are set to become even more ubiquitous. Domino's currently has 748 stores in the UK and Ireland, which are all run by franchisees, but it has plans to grow this number by two-thirds to 1,200 stores by 2021.
Mr Batchelor said: "We still have penetration of fewer than 20 per cent of households around our stores. And this compares with 40 per cent penetration in the US."
For the record, his favourite Domino's pizza is the Jamaican Bombastic, while he also "adores" its twister dough balls.
While Domino's franchisees often face stiff competition locally, the company is helped by the fact that it is far bigger than rivals, such as Pizza Hut and Papa John's, at a national level.
Mr Batchelor says: "Our biggest competitor is our own level of ambition, and what we have to do is to aim high."
Mr Batchelor is clearly ambitious himself, although he has followed a different career path to most chief executives. In particular, few bosses spend eight years in the Royal Navy – largely working on submarines – as he did after signing up as a midshipman in 1982. This was followed by stints at Procter & Gamble, Amazon (at its headquarters in Seattle), Vodafone and Tesco, as well as completing an MBA at Harvard Business School.
While the UK remains the powerhouse of the business, Domino's Pizza also has ambitious plans for Germany since its launch in Europe's biggest economy in late 2010. The group has just 10 stores currently in Germany but has plans for 400. Mr Batchelor says: "It is still very small business. The theoretical upside is enormous but we are not counting our chickens yet."
He added that Domino's launched in Germany with a "blank sheet" of paper and left many of the customer-facing decisions in the hands of local franchisees, although it provides them with services and equipment, such as logistics and IT support, and point-of-sale systems.
In terms of German taste buds, Mr Batchelor says the "German palate is more attuned to the Italian-style of pizza", particularly a thinner crust, and the menu is different in Germany to the UK.
"It would have been extremely arrogant to assume that Germans would eat the same as British people," he says, sitting in its new office on the edge of Milton Keynes. This is located just across the car park from its highly automated 103,000 sq ft commissary, which produces an average of 941,000 dough balls a week.
Domino's is also investing for a future dominated by the internet and mobile devices. Online accounted for 58.4 per cent of UK delivered sales over the quarter to 23 September, with total internet revenues up by 39.3 per cent to £62.8m. But the bigger online story is the "sharp rise" recently in orders from mobile devices, which is driving a radical shift in how Domino's spends its advertising and marketing budget. Domino's has sponsored flagship television programmes, such as Britain's Got Talent, but Mr Batchelor signalled that the days of such campaigns could be drawing to a close. "In a few years' time the majority of our marketing funds will be spent digitally rather than spraying it around," he said.
Online is clearly a passion for him. Mr Batchelor says: "I get extremely excited – as the team will tell you – about what is possible in one-to-one relationships, moving away from the traditional above the line one-to-many brand building." He adds: "Every time we have a digital transaction, that is a chance to build a relationship with the customer – to earn the right to go back to them in the future with more offers, ideas and new products."
Such has been Domino's sales growth over recent years that a robust rise of 3.7 per cent in underlying UK sales over the 13 weeks to 23 September was considered a slowdown by the City, following an 8.1 per cent spike in the previous three months. But the group is "confident" of hitting City targets of increased profits of £46.6m this year, and Mr Batchelor admits to being slightly frustrated by the City's obsession with one quarter's figures.
He says: "We will sell close to £600m worth of pizza in the UK and Ireland this year. A football match, even a Euro 2012 one, and the opening ceremony for the Olympics can help a little, but it is not going to affect the long-term direction of the business. I am slightly baffled as to why someone would change the valuation of Domino's up or down because of a football match or a one-off opening ceremony."
Indeed, investors have had little to complain about at Domino's over recent years, as it has continued to grow its stores, profits and share price, with the latter up 170 per cent over the last four years.
While Every Little Helps, in the words of his former employer, with the £50,000 savings on the letters above its commissary, the growth story at Domino's will be centred on the internet and expanding its store footprint over the coming years. In particular, the online and mobile opportunity is not lost on Mr Batchelor. He says: "We are revolutionising the world of pizza."
Lance Batchelor: his retail heroes
Unsurprisingly for someone who spent eight years in the Royal Navy, Lance Batchelor says sailing remains an "obsession" of his. He cites his other interests as bike-riding, travelling and enjoying "good food and wine".
Mr Batchelor, who is married with four sons, said that working on submarines taught him valuable lessons for his future corporate career. He says: "I learnt a lot there about operating under intense pressure, staying calm and working to deadlines. I also learnt about keeping people motivated when they are tired and fed up, and dealing with all sorts of people in all kinds of situations."
While Mr Batchelor also waxes lyrical about his eight years at Procter & Gamble, which he describes as an "absolutely fabulous training ground", he cites the current and former chief executives of Amazon and Tesco as the two people who had the "greatest influence" on him.
He says: "Jeff Bezos [pictured top] created this extraordinary machine. When I joined Amazon in 2000 they were still losing money and people were still questioning whether this business had a future. And look at it now – it has really become one of the pillars of global retail and is very profitable."
He adds: "One of things that excited me about Amazon was there was always a new way to do things. You did not have to accept the status quo in terms of how you do retail, marketing or talk to a customer. There is always a new way to look at a situation."
On Sir Terry Leahy, below left, former chief executive of Tesco, Mr Batchelor says: "He was relentless in his desire for perfection and his desire to win. One lesson from Terry was early in my Tesco career when I went in to see him expecting to get a bollocking for having screwed something up. I went in, apologised, and told him what I had learnt from the experience. And he sat and listened to me quietly and then asked how the business was going and moved the subject on.
A phrase I heard him [Leahy] use was: 'No one gets fired for making a mistake.' They get fired for repeating the same mistake again and again."
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