Inside Domino’s innovation strategy

ANN ARBOR, MICH. — Call it a summertime secret.

Domino’s Pizza, Inc. has plans to introduce its first new product in three years later this summer. While the company is holding back details of what the new product will be, Richard E. Allison, president and chief executive officer of the Ann Arbor-based pizza chain, provided some insight into Domino’s innovation blueprint during a presentation at the Oppenheimer Consumer Growth and E-Commerce Conference on June 17.

“Relative to the rest of the industry, we do very few new product introductions, and one of the drivers of that is that we don’t do limited-time offers like a lot of the rest of the industry does,” Mr. Allison said. “We just don’t see that as a sustainable and efficient way to grow our business over time. So anything that we put on the menu, we’ve got to believe that it has lasting power, and we don’t launch anything that we don’t expect to remain there.”

New product launches at Domino’s go through a number of filters before ever hitting the test phase. Mr. Allison said the filters fit into three overarching criteria.

First, any new menu item has to fit into the context of the Domino’s brand around “oven-baked pizza, oven-baked goodness.”

“Despite the products we have launched over time, 7 out of every 8 orders still go out with at least one pizza,” Mr. Allison said. “So a lot of what we launch — have launched over time — is really complementary to that pizza experience. So staying within that Domino’s brand and pizza halo is important.”

Second, the new menu item needs to contribute incremental profitability at the store level. Mr. Allison said Domino’s tests dozens of items each year, but if the company feels the item is going to cannibalize the sale of pizza or other items on the menu and not deliver incremental profitability, then it’s not going to launch.

“We don’t care what the item mix would be as a percentage of sales,” he said. “All that matters is dollar sales and dollar profit increases for the franchisee.”

The final overarching criteria has to do with operations.  If the new menu item can’t be introduced without adding significant operational complexity into stores then it won’t be introduced. Mr. Allison said the efficiency of Domino’s production model and delivery model is too important to the success of the company to risk disrupting with significant operational changes.

“Those are really the three broad buckets of criteria that we force every item through,” he said. “And we do have some things that we’re excited about for 2020 and some news that will come out later this summer. I can tell you it’s been a lot of hard work by the team to keep these product launches on track in a COVID-19 environment. But thankfully, all the test kitchen and the product formulation work had been done before we got into the pandemic. Still challenges in working through with suppliers to get capacity and everything established, but we’re tracking very nicely for an introduction coming up later this summer.”