A piece of the pie Featured

7:00pm EDT November 25, 2009

David Brandon has a bit of a dilemma.

When the economy is bad, people spend less. When they spend less, they don’t eat out or order their dinners in as often.

When your company is built on a foundation of delivering ready-made food to the doorsteps of your customers, it’s a problem that hits you right where it hurts.

And that’s exactly what Brandon, Domino’s Pizza Inc. chairman and CEO, has been facing as the economy has slumped over the past year or so.

“We are very much a business focused on the dinner day part,” Brandon says. “Our peak consumption periods are right around the dinner hour. So, our category — and not just Domino’s, but everyone who participates in the pizza category — has been under a fair amount of traffic pressure over the past couple of years, as a result of the fact that people are cutting back their spending.”

One of Brandon’s solutions was to get creative. With dinnertime sales lagging as more and more families opted for home cooking instead of ordering out, Brandon and his leadership team made the decision to carve a presence with the lunchtime crowd.

Domino’s rolled out a line of baked sandwiches, which use some of the same ingredients as the company’s pizza products and can be prepared in pizza ovens. Throwing all of its clout behind the idea, Domino’s — a company that had $1.43 billion in 2008 revenue —quickly became the largest sandwich delivery company in the United States.

“The idea of expanding our menu to participate in the lunch day part and expand the menu with other items that are consistent with what our brand stands for while still offering more variety, for us, seemed to be a very good strategy to combat the fact that our core category is under some pressure,” Brandon says.

Creativity is great, particularly when you can find new ways to leverage the tools already at your disposal. But the ability to weather the nation’s economic slump is also rooted in common sense and adhering to solid business practices. Brandon has been able to do both, and Domino’s had maintained its standing as one of the pillars of the pizza industry.

Stay close to your customers

The baked sandwich idea was a slice of marketing creativity that came from a couple of basic business principles that Brandon has used to help pilot Domino’s over the past couple of years: know what your brand stands for and know what your customers expect. Once you figure out what field you’re playing on, then you can figure out new ways to keep customers coming back.

Brandon was able to increase his company’s presence among the lunchtime crowd because the company’s baked sandwiches are closely related to pizza, the product that customers have come to associate with the Domino’s name.

Years before, prior to Brandon’s involvement, Domino’s tried to enter the cold sandwich market. The venture wasn’t successful. The equipment and ingredients necessary to produce cold sandwiches is considerably different from what is needed to make pizza, meaning that outfitting Domino’s stores for cold sandwich production took a considerable capital investment at the store level.

On top of that, customers weren’t really looking to Domino’s for cold sandwiches. They didn’t associate Domino’s with cold food.

“Operationally, it was just a completely different set of muscles, a completely different model for us to incorporate into our mainstream business of taking hot food out of an oven, putting it in a [heat-retention] bag and delivering it to customers,” Brandon says.

Armed with that bit of company history, Brandon has made it a point to stay close to his company’s customers, even when the economy is surging and the competition for customers isn’t as fierce.

You should never assume what your customers want or how your customers perceive your company. Gut feelings are bad when it comes to reading customers. Research and data are the way to stay abreast of what your customers want and need.

“We really don’t make bets in terms of our own gut feelings or instincts,” Brandon says. “We always start out with consumer panel testing and do a lot of focus groups. If we feel like the response we’re getting is a positive one, we’ll ultimately go and do a market test, an environment where we’ll isolate two or three markets in the country and roll the product out so we can stress test it operationally. We’ll test our marketing, test our packaging, test our name positioning, our advertising, and make sure it all works the way we hope it would.

“If we get a good read from that test market experience, there is a good chance we’ll roll it out nationally and, in some cases, internationally.”

Because pizza delivery companies take phone and Internet orders, they have a built-in way to keep track of customers and their buying habits. But regardless of what industry you’re in, customer purchase data is worth tracking. If you take orders over the phone or Internet, the details of the calls are worth saving. Over time, you’ll gain an accurate picture of your strengths and weaknesses as a business.

“We have a very rich data warehouse that affords us the ability to access who our customers are today, who they were yesterday, where our new customers are coming from,” Brandon says. “Having that kind of data gives us the ability to go back and do research with those customers to find out important things, which can help you make good business decisions.”

Having a great product is the foundation for developing a repeat customer base. But in trying economic times, customer service becomes just as critical. You should never neglect customer service, but now is really the time to give your customers added incentive to do business with you and keep coming back.

“Every customer is precious,” Brandon says. “You have to earn every one, and every one is a new test of whether you’re going to perform to the expectations of your customers. Your marketing has to be very strong, and in this environment, in this economy, it really has to communicate the value benefits of your proposition. Consumers are looking for a deal, they’re looking for value — meaning a combination of quality, service and price that is attractive.

“This is not a time to feel like you can go out and extract higher prices from customers or cheapen your service or product. This is a time to value that customer relationship like never before. You have to work harder and be more diligent, because everything you earn is going to be earned the hard way. It’s not going to come because the industry is thriving and a rising tide lifts all boats. Success is going to come because you did enough that customers chose you over your competitors.”

Build leaders

If you’re going to lead, particularly in a down economy, you can’t do it alone. You need a wide array of ideas and perspectives on the challenges you face each day. Brandon highly values a leader’s ability to build a great leadership team and counts it as his primary leadership attribute.

Brandon prides himself on identifying and grooming new leaders at Domino’s, and then putting those leaders in positions where they can help steer the company with their talent, creativity and skills.

“It’s not that they help me lead; it’s that we all lead,” he says. “It’s a big ship. We have

at any given time up to 175,000 people working across nearly 9,000 stores. To think that any one person can be the leader is crazy. What I do better than anything else is surround myself with good leaders, people with whom I have trust and alignment, and then provide them with the resources and direction they need to go out and lead their respective divisions and areas of the business.

“It’s a team sport. You have to be good at selecting, retaining and appropriately incentivizing terrific talent.”

Whenever possible, you should try to develop leaders within your ranks. But there are times when it might be more advantageous to bring in a new executive or manager with an outside perspective. Ultimately, you need a balance of both internal and external influences to construct a well-rounded leadership team.

“Long-standing members of your company have probably helped you build your culture, and that is always a great advantage if you have a number of candidates who are capable of moving into open positions,” Brandon says. “But I also believe that from time to time, you do need to bring in new perspectives and new talent, people who come from a different place and bring a fresh set of eyes into the organization. People like that bring fresh ideas and are willing to challenge what is happening.”

Brandon says creating that balance is more of an art than a science. You have to know what type of leader is needed in each position.

“There are certain positions in an organization that lend themselves better to bringing in someone from the outside,” he says. “Internal candidates are better suited for a position where you need a deep knowledge of the culture and operating aspects of the business. Sometimes employees will react better to an internally promoted leader who has built credibility in the organization. So it is more judgment on your part than anything formula based.”

Stay ready

Bad economic times will come. It’s inevitable, so you should make plans and prepare before your profit-and-loss statements are setting off alarms.

Many businesses fall into a comfortable groove when times are good. They don’t want to upset a good thing, so the company focus stays on maintaining the status quo. The trouble is, once you can no longer maintain that status quo, problems can quickly snowball into something much bigger.

Brandon says that risk needs to be managed closely in difficult times. If you’re throwing Hail Mary passes to try and dig your company out of financial trouble, you’ve got it backward.

“The best time to be taking risks and making big changes in your organization is when conditions are good,” he says. “What I’ve always advocated is that when business conditions are good, that is the best time to be tough, make changes and take risks to ensure that your business is as effective and efficient as possible.”

Brandon has spurred rounds of consolidation and head count reduction at Domino’s, even when the company’s financial data said it wasn’t necessary. Those steps have helped Domino’s stay financially strong through the economy’s slump.

“I’ve had people internally who have looked at me and said, ‘Dave, things are going so well, why do we need to do this?’” Brandon says. “My response is that, one day, we’ll be glad we did this. One of the big reasons that Domino’s has weathered the storm as well as we have is we were more prepared than some other companies. We haven’t had to do huge layoffs and huge changes in benefit plans or shut down facilities.”

The key to staying lean in good times boils down to one word: discipline. Take the same mentality to your business finances as you do to your personal finances.

“The mistake that businesses are making is really no different from the mistake that a lot of families make,” Brandon says. “Times are good, so it’s easy to spend more and run up your credit cards. You become less disciplined when times are good.

“That’s why I believe, whether it’s managing your personal affairs or leading an organization, you should never get lulled into a feeling that because times are good, they’re always going to be that way. You have to discipline yourself for the down cycle and gear your spending and decision-making around the idea that it’s going to come. When it does, you’ll be fine because you’ve prepared for it.”

How to reach: Domino’s Pizza Inc., (734) 930-3030 or www.dominos.com