This June, Domino's Pizza (NYSE:DPZ) introduced a new computer-generated voice named "Dom" for its mobile phone app that will help customers order pizza. While the app still requires the user to type the delivery address and credit card information, Dom will respond to customers when they place their orders and ask if they want additional toppings or other items. Domino's hopes adding Dom to its voice ordering app will make it convenient to order pizza and add to the pizza maker's sales.
Domino's is getting appy
The app, available on Apple iPhone and Google Android devices, is a part of Domino's strategic effort to use technology to enhance customer engagement. On the May earnings call, CEO J. Patrick Doyle noted that 2 million of the 9 million mobile profiles were added in the last quarter, with digital orders comprising 45% of the company's sales. CFO Michael Lawton said that Domino's first-quarter sales grew 9.1% from the previous quarter and noted that the growth came from increased order counts and tickets, which were helped by its app.
Dom is not Domino's only mobile app news this year. In January, it announced that it had teamed up with Ford to add Domino's app to the Ford SYNC in-car connectivity system. In April, Domino's integrated its Android ordering app into Google Wallet to facilitate payments for Domino's Pizza orders.
While Dom is not yet perfect, Doyle sees that the app will help the pizza maker use its technologies to gain market share from smaller competitors, which don't have the money to make similar investments. The pizza market is fragmented, and the four big pizza makers -- Domino's; Pizza Hut of Yum! Brands (NYSE:YUM); Papa John's International (NASDAQ:PZZA); and Little Caesars -- have 40% of the market. Doyle sees technology as a competitive advantage against smaller pizza makers, adding, "It is clearly an area where we'll be able to leverage our scale."
The competition's "app-bilites" in mobile
Domino's biggest competitors -- Pizza Hut, Papa John's, and Little Caesar's -- are all engaged in their own mobile outreach, where they have had varying degrees of success and challenges.
On Yum! Brands' April quarterly earnings call, CEO David Novak acknowledged that Pizza Hut will need to improve its digital efforts to reach customers. While pointing out that Pizza Hut's same-store sales declined 5% in the quarter, Novak addressed the need to invest in mobile technology in order to connect with customers. He said, "We...intend to do a better job engaging the digital customer, where our competitors are frankly doing a better job driving activation. In fact, we've committed significant additional resources to our digital agenda...".
Papa John's digital sales remain a growing part of its business. On its quarterly May earnings call, Papa John's executives noted that digital orders accounted for over 45% of sales that quarter, with 60% of domestic delivery sales coming through digital channels. However, Papa John's president and COO Anthony Thompson, a driver in Papa John's digital success, was hired this June as the president and CEO of Krispy Kreme Doughnuts . How Papa John will handle its digital marketing efforts in Thompson's absence remains to be seen.
Privately owned Little Caesars has not been touting its mobile apps as much as its competitors, partially because it does not do delivery. Little Caesars uses its app to promote deals, highlight its latest products, and direct customers to the closest Little Caesars location.
Finally, while Domino's and the other three large pizza makers have the resources to invest in mobile technology, that advantage will shrink. Darren Tristano, an analyst with industry tracker Tristano, said that eventually technologies will become affordable for the smaller pizza makers. Tristano concedes that in the short term larger pizza chains can grow their business through national marketing and offering steeper discounts.
Are you talking to me?
Dom is the latest attempt by Domino's to leverage technology in its fight for market share. The voice-activated ordering system with Dom makes it easier to order a Domino's pizza, something other competitors have not achieved.
Furthermore, Domino's competitors are all facing other challenges in digital customer engagement. The most vulnerable competitors are the smaller pizza makers, which currently lack the resources to invest like the larger pizza makers. Citing disappointing domestic same-store sales growth, Pizza Hut acknowledges that it needs to invest more into mobile apps. Papa John's ability to handle the departure of former president and COO Anthony Thompson remains to be seen, even though its digital presence remains a strong part of its overall sales. Finally, Little Caesars' app only promotes sales, products, and locations.
As an investor, keep a close eye on how Dom impacts Domino's digital sales. If Dom makes it easy for customers to order pizza, they will place more orders and increase Domino's sales. And much like Dom, improving sales can get people talking.
Johnny Chen has no position in any stocks mentioned. The Motley Fool recommends Apple, Ford, and Google (C shares). The Motley Fool owns shares of Apple, Ford, Google (C shares), and Papa John's International. 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.
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