Marketing malaise hurts Domino's

By Published on .

Domino's appears to be a victim of its own marketing success.

When Chairman-CEO David Brandon rang the opening bell at the New York Stock Exchange on July 13, the country's No. 2 pizza chain was seen as a potentially tasty initial public offering. But its stock has barely managed to hold near $13, a full dollar below the opening price. Wall Street observers and company executives blame a volatile restaurant industry, a weak IPO market, bad timing and low-carb mania. The chain's unspectacular debut, however, is as much the fault of marketing malaise that resulted in fewer new products, a failure to stay ahead of new menu trends and tepid advertising spending.

Going into 2002, the chain was the darling of the pizza segment and was outperforming most restaurant peers thanks to a marketing renaissance fueled by new Chief Marketing Office Ken Calwell.

Hot new products such as Buffalo Chicken Kickers and Domino's Dots built traffic and gave Domino's an edge in the share battle. The chain repositioned itself based on the insight that consumers decide on impulse what to have for dinner and launched a spot-on proposition from new agency WPP Group's J. Walter Thompson, New York, that told consumers to "Get the door, it's Domino's." At its peak, in the first quarter of 2002, Domino's same-store sales grew 7.6% and the chain was roundly beating share leader Yum Brands' Pizza Hut and scrappy No. 3 Papa John's International in same-store sales.

Then it got complacent. By the second half of 2003, most of Domino's marketing news focused on line extensions for the Dots. Its biggest marketing news for the chain was a Philly-cheese-steak pie and a marketing program that aligned it with Nascar driver Michael Waltrip.

Most of Domino's new products tended to play catch up with rivals rather than lead. It took until early this year for the chain to launch salads in limited markets.

nose dive

Sales gains began decelerating, and quickly. Its streak ended in the third quarter of 2002, when the chain reported -0.5% same-store sales. During 2003, same-store sales remained in negative territory for much of the year except for a short-lived lift in the fourth quarter when Philly cheese-steak pizza helped same-store sales jump 5.1%.

Complicating matters, Pizza Hut came out of its coma, introducing a family positioning and posting same store-sales numbers not seen since the fourth quarter of 2000. In the fourth quarter of 2003 and first quarter the 2004, the chain posted a 6% and a 5% sales year-over-year gain.

"Retail and restaurants have had not an easy row to hoe over the last year and a half or so, and within that landscape you'll find Domino's has performed better than most of its QSR peers," said a Domino's spokeswoman. "Not high highs or low lows, but singles and doubles."

In the July 27 analyst call, Mr. Brandon reiterated that the chain suffered just two or three quarters of negative same-store sales.

Then there is the media inventory crush that has hobbled Domino's marketing calendar. Spending on the brand seesawed between $114 million and $123 million over the past four years, with spending down to $115 million in 2003, according to TNS Media Intelligence/CMR. Pizza Hut spent $171.3 million in measured media in 2003, while Papa John's spent $69.3 million. In recent calls with analysts, Domino's executives said its slower spending was the result of the high-priced upfront and lack of inventory from the elections and the Olympics.

"Costs were higher and the opportunities for advertising were less available," said Domino's spokesman Tim McIntyre.

repeat programs

While he said he didn't agree that chain's marketing momentum slowed in 2003, Mr. McIntyre said Domino's repeated programs that were working. "We stayed with Philly cheese steak [pizza] because it was successful," he said. "We do know that our two primary competitors increased their ad contributions. That being said, same-store sales for the second quarter increased to 2.1% in the face of a lower share of voice."

Domino's may have learned its lesson. Mr. Brandon promised analysts that the chain's marketing pipeline is "full right now of good concepts, both on the product side and the promotion side." He added, "We feel very well-equipped to have the kind of new generation ideas that we're going to need in this category for the next couple of years."

Most Popular
In this article: