If you've ordered pizza recently, you've probably noticed that placing orders by phone has become terribly old fashioned. That's because Yum! Brand's (NYSE:YUM) Pizza Hut and Domino's Pizza (NYSE:DPZ), the two largest American pizza chains, are now engaged in a technological arms race consisting of enhanced apps, social-media orders, and dedicated pizza-ordering gadgets. Let's take a look at how both companies are trying to use new technologies to their advantage, and whether or not these efforts are bringing in new customers.
Domino's Pizza has the first-mover's advantage in high-tech ordering technologies. Over the past year, it launched a flurry of "AnyWare" ordering solutions which let customers order pizzas via text messages, tweets, smart TVs, smartwatches, connected cars, and gaming consoles. At the end of the year, it launched a physical button for ordering pizzas in the U.K. In April, it expanded that idea with "zero click" orders, which initiate a 10-second countdown. Once the mobile app is opened, it automatically places the user's favorite order if it isn't cancelled.
To use these services, customers save a delivery address, payment information, and favorite order to Domino's website or app. This idea of "frictionless" ordering, which reduces the steps to complete an order, closely resembles Amazon's strategy with Dash buttons, DRS-enabled appliances, and reorders with its Echo family of smart speakers. Just as Amazon has been testing out drones for automated deliveries, Domino's also tested out delivery robots in Australia earlier this year.
Pizza Hut, on the other hand, didn't launch as many frictionless ordering solutions as Domino's. In the past, Pizza Hut mainly focused on updating its mobile app, which offers dine in, takeout, and delivery options, as well as the ability to reorder past meals. It also upgraded some of its stores with eye-tracking tablets which offer suggestions based on how long you look at each pizza. This presumably "reads" your mind to speed along orders.
However, Pizza Hut recently gained on Domino's with a Twitter and Facebook chatbot -- developed by cloud services company Conversable -- which enabled customers to place orders through either social media platform. Like Domino's AnyWare solutions, Pizza Hut customers must save their favorite orders to a Pizza Hut account before orders can be placed. These solutions complement Yum Brand's introduction of the TacoBot, created with enterprise messaging start-up Slack, which takes similar orders for Taco Bell customers.
How much do these initiatives matter?
Some investors might dismiss these moves as gimmicks, but Domino's claims that digital revenues accounted for over 50% of its U.S. sales and 45% of its international sales last year. During a conference call in February, CEO Patrick Doyle noted that some overseas markets were generating 70% of their sales from digital platforms, and that technology had become part of the company's "brand fabric and identity."
Pizza Hut announced that 46% of its U.S. delivery and takeout sales came from digital platforms last quarter, and that figure hit 50% on Super Bowl Sunday with 500,000 digital orders. Yum! CEO Greg Creed stated during the conference call that "with digital orders come higher levels of loyalty and higher average spend," so it was increasing investments accordingly. Creed noted that Pizza Hut was migrating toward a single point-of-sale system in the U.S. by the end of 2017, which would allow it to "be more nimble" as it launches new digital initiatives.
Yum! didn't disclose how much digital revenue came from major overseas markets during that call, but Yum China CEO Micky Pant highlighted the opportunities in China, which has "twice the number" of phones as the entire U.S. population.
So which pizza maker is winning the tech battle?
Domino's is currently growing at a much faster rate than Pizza Hut. Domino's respectively posted 6.4% and 7.9% same-store sales growth in its domestic and international markets last quarter. Pizza Hut's worldwide same-store sales (excluding China) were flat, and its China division (which generates most of its sales from KFC and Pizza Hut) also posted flat growth.
Domino's probably can't attribute that entire lead to its digital initiatives, but its AnyWare campaigns, apps, and gadgets (which double as free publicity) are likely helping. Pizza Hut still doesn't have a seamless ordering ecosystem like Domino's, but that could all change once it launches a unified POS system. After that happens, I suspect that Pizza Hut will launch many new ordering methods to catch up to Domino's.
Leo Sun owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com, Facebook, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.