Image source @ Visual China
Wen | Shangyin Society, the author | Sandren, the editor | Zhen Lucky
Recently, Domino's China's Das shares once again hit the news of listing, making this pizzeria enter everyone's eyes.
Domino's, however, is undoubtedly embarrassing.
Comparison between Domino's Global and Domino's China:
On the one hand, the world's largest pizza company, well-known overseas, on the other hand, it only began to awaken after many years of unknownity;
On the one hand, in the 18 years since its listing, the stock price has increased more than 40 times, and on the other hand, the first impact IPO failed, and the impact again is also bloody and painful;
On the one hand, Europeans and Americans are obsessed with the type - except for Italy, other markets are fine, and on the other side there are two strong enemies, Pizza Hut and northern China.
What are Domino's advantages and how is it developing in China? Is pizza really a good business in China?
The road of counterattack across the ocean
In 1960, in Michigan, 23-year-old Thomas Mona embarked on his own entrepreneurial path.
At that time, Thomas was still in college, and in order to earn tuition, he and his brother James bought a small local pizzeria. Later, the younger brother withdrew, and Thomas began to go it alone.
Thomas was convinced of the promise of the pizza industry, so he stopped going to school to do business. "That's when I decided to devote my whole body, mind and soul to the pizza industry."
In fact, Thomas did take care in making pizza, tasting all the restaurants in the neighborhood and determined to roll up his peers, "I was determined from the beginning to make the best pizza sauce in the world. He also pinpoints the time it takes to prepare and bake pizza down to the minute and finds ways to improve his operations, increasing his profit margins with each improvement.
But in fact, Domino's was ill-fated in the first twenty years after its birth.
Inside: In 1968, Domino's store was destroyed by fire, almost dying; A year later, due to Thomas' blind expansion, the capital chain was broken, Domino's almost went bankrupt, and Thomas repaid his debts for several years; In 1975, Domino's was mired in a trademark dispute and fought a lawsuit for another five years.
Outside: The "mental blow" from the old Pizza Hut also made Domino's experience the difference between cloud mud.
As a pizza brand born two years before Domino's, Pizza Hut developed quite smoothly in its early days, quickly achieving standardized operations and brand promotion by identifying the positioning of "community restaurant" and "family consumption".
In 1972 alone, when Thomas was still selling pizza to pay off his debts, Pizza Hut stores had opened to 1,000. In the same year, Pizza Hut was listed on the New York Stock Exchange and was the world's top 1 pizza brand at that time.
In the eyes of Pizza Hut at the time, Domino's was not qualified to be a rival.
However, Domino's counterattack soon came.
Thomas found an interesting phenomenon: although he spends 80% of his time and energy entertaining dine-in customers, 80% of the store's turnover comes from takeaway, which is still without any publicity.
Excited to see this growth, Thomas quickly removed most of the seats in the store and shifted the focus of Domino's to takeaway. This turn has directly laid the focus of Domino's development for about 60 years: takeaway.
The problem was that in the American pizza market at the time, takeaway was not a new concept. What do you have to do to get ahead in the business of takeaway, which has no threshold?
Thomas' answer is: fast, only faster.
In 1973, after a long period of market research, Domino's officially put forward the slogan "30 minutes must arrive, otherwise free". The reason why it is 30 minutes is because pizza is a more suitable food to eat hot, and 30 minutes is the "psychological bearing" of most consumers at that time.
To fulfill its "30 minutes" promise, Domino's has been careful about the location of its branches. From the various consumer portraits and takeaway market potential around the store, to the street layout and traffic conditions around the store, Domino's will learn more about it in advance and plan the most time-saving takeaway delivery route for riders afterwards.
Domino's envisions 10 minutes to make pizza and 20 minutes to deliver takeaway. Of these 20 minutes, 8 minutes are the scheduled delivery time, and 7 minutes are reserved for various sudden traffic situations, so there are 5 minutes left to maneuver.
Domino's turned to takeaway and the slogan "30 minutes" proved correct.
By 1978, Domino's had 200 stores under its name. A year ago, Pizza Hut accepted Pepsi's "takeover" and sold it for more than $300 million. Compared to Pizza Hut, Domino's is still weak at this time, but it has been steadily advancing on its own path:
In 1983, Domino's began its global expansion; After that, it soared and accounted for about 90% of the US pizza delivery market; In 2004, it was listed on the New York Stock Exchange...
By 2022, it will have more than 19,000 stores in more than 90 countries and regions around the world, second only to Pizza Hut.
In this way, Domino's has grown into a behemoth that can compete with Pizza Hut. Although Pizza Hut also has its own delivery team, it is small compared to Domino's. Especially after seeing Damelot's professionalism in the takeaway business and the high cost of riders, it is even more prohibitive for Pizza Hut, which focuses on dine-in. Pizza Hut can't do a foolish thing that attacks the other's strengths with one's own shortness.
However, the influx of imitators still exhausted Domino's physically and mentally. As we mentioned before, food delivery is originally a business with no threshold.
How can we continue to build on Domino's' advantage in the pizza market?
Thomas' successor, David Brandon, gave his answer: introduce technology while identifying core strengths.
When he took over Domino's in 1999, David recalls that many stores "looked tired and had poor locations."
Under David's leadership, Domino's has once again identified its core strengths. Industry insiders have succinctly discussed this, "Domino's has long known that its core competitiveness does not lie in the taste of pizza itself, because the pizza industry itself cannot establish any barriers, and the cost of copying is zero." It must pursue 'large proportions and high efficiency', either selling more than similar competitors or delivering faster than other fast food. ”
If you want to sell more, you need to improve the taste and enrich the variety; If you want to send faster, it is necessary to introduce technology on the basis of manpower.
In 2007, while his peers were still taking orders on the phone, Domino's had launched a web and mobile ordering service. As one Domino's executive put it, "Domino's doesn't create demand, it just creates experiences and keeps consumers accepting them." Using the combination of technology and digital, Domino's is comfortable with convenience, satisfaction and subsequent data evaluation. ”
This emphasis on technology was also implemented by David's successor, Patrick.
For example, in 2012, drones were all the rage, and Domino's took the lead in trying drone food delivery in the UK;
In 2014, Domino's launched two apps, "Pizza Hero" and "Pizza Follow-up". The former supports consumers' online customization of pizza in 3D, while the latter displays the real-time delivery progress of pizza;
By 2016, Domino's had developed the first generation of automatic pizza trucks and launched the App's one-click ordering function.
Domino's is not so much a pizza company as a technology company that happens to be in the pizza business.
After all, Domino's employs half of its employees in technology, and IT is the largest department here. As Patrick quipped, "Domino's is a pizza company, a transportation company, a technology company." ”
All in all, under the leadership of three generations of leaders of Thomas, David and Patrick, Domino's eventually became famous all over the world and became the top existence on a par with Pizza Hut until it came to China.
A long silence after entering the Chinese market
In 1997, Domino's entered China and opened its first store in Beijing as a franchise.
However, Domino's not only had no reputation in the first ten years after entering the Chinese market, but also expanded very slowly and had a very poor sense of existence. And Pizza Hut mixed up.
The familiar feeling seems to be back.
However, China in the 90s was making great strides to the world. The influx of new things from overseas made the Chinese people at that time curious, including pizza.
Due to the lack of material life in the early years and the attribute bonus of "foreign gadgets", pizza, which belongs to the popular cuisine overseas, has been transformed into a synonym for "high-end" and "foreign" after entering China. According to some witnesses, if you eat pizza with your hands instead of knives and forks, you will be laughed at by people around you or labeled as unqualified.
Now it seems that this is naturally nonsense. Because from the moment Pizza Hut entered China, it followed its old path in the United States, but it focused more on "household consumption" in its positioning. In other words, Pizza Hut has never deliberately created a high-end persona for itself.
It's just that the huge difference in living standards between China and the United States at that time, coupled with Pizza Hut's already beautiful interior and exterior decoration, shocked many Chinese people, and then gave Pizza Hut many consumer attributes that did not match its real identity. In this nascent blue ocean, he has won a lot of development dividends for himself.
This is the "bitter" that came after Domino's.
Domino's entered China only 7 years later than Pizza Hut, but these 7 years were enough for Pizza Hut to take advantage of its first-mover advantage and engrave the idea of "pizza = Pizza Hut" in the hearts of Chinese consumers at that time. By the time Domino's arrived belatedly, the Chinese pizza market it was facing had become an "exclusive stage" for Pizza Hut.
In addition, in the year Domino's entered China, Pizza Hut was merged into Yum Restaurant Group. With the "banknote ability" and influence of the new owner, Pizza Hut can share the supply chain with KFC, and greatly enhance its hard power in the process of expanding stores.
In terms of product and marketing, the innovation has further opened up its own popularity, and then occupied more consumers' minds. For example, in 1998, Pizza Hut proposed the concept of "Western-style casual dining", which caused a lot of repercussions among the young group at that time; In 2001, it launched a takeaway business, and the independent brand derived from it, Pizza Home Express, also provides consumers with a service of delivery within 30 minutes, which is in direct opposition to Domino's;
What's even more impressive is that it is consistent with KFC's playing style, and Pizza Hut has invited many traffic stars to endorse and co-brand with big IPs over the years.
In contrast, Domino's China's marketing is extremely Buddhist, with little splash.
What's more troublesome is that because the value proposition of "30 minutes to arrive" affects its rapid expansion, the faster it is delivered, the more intensive store support is needed.
So Domino's stores must be done in one location and then the next. It is also necessary to ensure that there are enough orders in this area and strong regional operations, which also affects its store opening speed.
As for Domino's proud takeaway business, because the concept of "takeaway" was slightly ahead of the Chinese people at that time, the public generally did not have the awareness of ordering takeaway. Coupled with Pizza Hut's pizza pearls in front, it eclipses the "simple" Domino's pizza.
In short, under the combined influence of many factors, Domino's, which entered China early, fell into a long silence.
Change began in 2010.
Belated attention with "bloodshed" expansion
In 2010, Dashi acquired Pizzavest China Ltd., becoming Domino's' new master franchisee in China, with the right to open stores in Beijing, Shanghai, Tianjin, Jiangsu and Zhejiang. At the beginning of its establishment, Dashi Co., Ltd. was determined to build itself into the No.1 in the pizza industry in China.
Domino's China's real expansion came in 2017 after Wang Yi became executive director and CEO of Domino's China.
Prior to joining Dash, Wang Yi has a very impressive resume, having worked for McDonald's as the Shanghai regional general manager, the central China regional vice president and general manager, and the vice president of franchising, and has rich management and operation experience in the catering field.
With the addition of more local executives represented by Wang Yi, the senior management of Dashi has gradually completed the localization transformation. These bigwigs, who are more familiar with China's catering market, have led Dashi to start a new journey:
In June 2017, Dashi renewed its master franchise agreement with Domino's International, a subsidiary of Domino's, for a period of 10 years, expanding the franchise scope from the original five provinces to the entire territory of China.
In 2018, it entered Shenzhen and Guangzhou and opened up the situation in the South China market;
……
As of June 30, 2022, Dashi has a total of 508 stores in 12 cities across the country.
Looking at the Chinese pizza market, Domino's, the third millennium, feels very optimistic about himself.
Source: Zheshang Securities Research Institute
Although Pizza Hut has been crushed by Pizza Hut in the four dimensions of popularity, total revenue, market share and number of restaurants, and even the paper results of delivery revenue and delivery market share are far inferior to Pizza Hut, Domino's China is very confident: after failing to impact the IPO in March this year, it submitted a prospectus to the Hong Kong Stock Exchange again on October 14, and the second impact IPO, the result is not yet known.
In Domino's China's view, it continues and implements Domino's core strength: food delivery. As the only company in the Chinese pizza market to make a "30-minute delivery" promise to consumers, the food delivery business has always been the focus of Dashi shares' profits. For example, in 2021, its 73% of orders/revenue accounted for much higher than the industry-wide 49%. The 91% on-time rate and the average delivery time of 23 minutes per order have earned it a lot of reputation.
How to consolidate your core advantages in the field of food delivery?
Domino's China, like its own family, puts a lot of effort into the rider side. By the end of 2021, the number of its riders had reached 5,375, accounting for 43.8% of the total number of employees.
Unlike most platforms that package their food delivery business to Meituan, Ele.me and other platforms, Domino's China also has a cooperative relationship with food delivery platforms, but it employs its own full-time riders and pays them monthly salaries!
This is done to avoid "cross-contamination" that may occur during the delivery of riders, and to obtain various aspects of consumer and road traffic information, and then to refer to the future location of new stores/relocation of old stores and the optimization of delivery routes.
Based on this, Domino's China has also put a lot of effort into the location and design of its stores.
In terms of store location, its operation is no different from that of this home, in addition to the various elegances mentioned earlier, it also needs to consider the factors of the central kitchen. As a key link between suppliers and stores, when DASHI purchases raw materials from suppliers, they are transported to the nearest central kitchen for unified processing and distributed according to the needs of each store in the jurisdiction.
Domino's stores are typically located within a 350-kilometer radius of a central kitchen. Domino's China has three such central kitchens so far: North China Central Kitchen in Sanhe, Hebei Province, East China Central Kitchen in Shanghai, and South China Central Kitchen in Dongguan, Guangdong.
In terms of store design, Dashi also refers to the design of the family, on the basis of maintaining a small store area (usually 124 square meters, usually 28 seats in the store), about 1/2 of the store space is converted into a kitchen, and a special area for riders and customers who want to take out food is opened.
When it comes to delivery, each store will assign matching order tasks to different riders according to the company's self-developed customer data platform and intelligent order scheduling system, and plan the best delivery route for riders through its own App.
During this period, in order to reduce the traffic risk of riders, the store will conduct traffic safety training for new riders. When the business is busy, some in-store staff will be transferred as appropriate to take charge of part of the delivery work.
Through the organic cooperation of the above links, Domino's China has established a complete industrial chain system from supply to distribution, and has achieved a year-on-year decrease in the proportion of raw material costs with scale effects.
Coupled with the epidemic, consumer demand for takeaway has surged, which has brought more business opportunities to Dashi shares, which focus on food delivery business. According to Frost & Sullivan data, from 2019 to 2021, the revenue of Dashi shares increased from 840 million yuan to 1.611 billion yuan, with a compound annual growth rate (CAGR) of about 38.78%.
If you don't look at the net loss, the above business results are really good.
It's a pity that there are no ifs.
From 2019 to 2021, the net loss of Dashi shares was 168.2 million yuan, 199.8 million yuan and 143.3 million yuan respectively, although the loss narrowed in 2021, but the not good business data still aroused doubts from the outside world.
In response, in its prospectus released in October this year, the reasons for the loss were: the cost of new stores and staff after the accelerated expansion of stores, and the additional capital costs paid by riders to ensure "30 minutes of delivery".
As stated by Dashi Shares, since 2019, the proportion of employee costs in Dashi Shares has always remained at a high level of more than 40%, and rider costs account for the majority. What's more, that number continues to grow as the year progresses.
However, Dashi shares are quite comfortable with this. Out of continued optimism about China's pizza market and absolute confidence in its own strength, Dashi is determined to accelerate its expansion after being mentally prepared to still lose money in the next three to five years.
According to Domino's China's recently announced plan, it will open 120 new stores this year and 180 stores next year. Further, it still targets the main concentration of Chinese pizza consumers, namely first-tier (46%), new first-tier (39%) and second-tier cities (14%).
In other words, Dashi shares are playing the card of increasing existing market penetration and gradually expanding into emerging markets, which is also the path Pizza Hut chose after the sinking has not been smooth in recent years.
In the future, can DASHI withstand the pressure of "bloodshed" expansion to achieve the expected commercial results? We're going to put a question mark. As Taleb mentions in Antifragility,
"The restaurant industry is the toughest industry in the world precisely because every restaurant is fragile. The reason is because the competition density of the restaurant industry is increasing, and restaurants close and go bankrupt every minute. ”
The same applies to the pizza industry. Domino's Pizza is globally resilient, but it is vulnerable in individual markets, such as China, a big country of Chinese restaurants that loves big pie and lacks "pizza heritage".
Entering China may not be a good idea
Based on the food classification criteria, China's catering market can be divided into three categories: Chinese, Western and other dishes, which account for 78.3%, 15.8% and 5.9% of the total market respectively.
As a subgenre of Western food, pizza has officially entered China for nearly 30 years. From 2016 to 2019, the size of China's pizza market increased from 22.8 billion yuan to 33.5 billion yuan, with a compound annual growth rate of 13.7%, stabilizing 11.7% of Western food and 8.5% of Chinese food.
With the improvement of China's urbanization level, consumer disposable income, and consumer acceptance of Pisa, the industry and abroad are generally optimistic about the future of the pizza industry in China.
At the same time, the arrival of the epidemic has played a role in boosting the penetration rate of takeaway in China's catering industry from 6.5% in 2016 to 20.7% in 2021.
Everything makes Dashi shares, which focus on "pizza + takeaway", more confident when finalizing the "bleeding" expansion.
However, does the "positive" in the data indicate the inevitable prosperity of the real market?
Not necessarily.
A key issue is habit.
For example, in China in 2021, there were only 10.9 pizzerias per million people, and the data of first-tier and new first-tier cities was slightly better, rising to 24. Compared with 28.1 in Japan and 28.3 in South Korea during the same period, most Chinese consumers still have not developed the habit of eating pizza after being "educated" by pizza for more than 30 years.
In stark contrast, there is the ubiquitous "pie".
As a traditional Chinese food, the history of cake can be traced back to the Yangshao culture period. Since then, after thousands of years of inheritance, cakes have long been integrated with the eating habits of Chinese, and have developed rich varieties with the customs and customs of different regions.
Whether it is baked cakes in old Beijing, pancakes and fruits in Tianjin, donkey meat roast in Hebei, egg dough cakes in Henan, or naan cakes in Xinjiang, meat buns in Shaanxi, Taigu cakes in Shanxi, pancakes in Shandong, or sauce fragrant cakes in Hubei, flower cakes in Yunnan, chicken cakes in Guangdong, finger cakes in Taiwan, etc., China's vast food map is dotted with a variety of cakes. Pizza, which has appeared as an imported product and is popular overseas, is also a kind of "pie" after all.
Although in the current Chinese catering market, the abundance of cakes makes it difficult to form a synergy, but compared with pizza, which is an "overseas cake", cake is undoubtedly "Chinese pizza" and more acceptable to Chinese consumers.
For example, the small category of pancakes has reached 17.292 billion yuan in 2016, and is approaching the future with an annual growth rate of more than 20%. Compared with pizza, which has a market size of only 22.8 billion yuan in the same year, it is very telling.
Just one Tongguan meat bun has driven more than 100,000 jobs in the local county, and the output value of the industrial chain is about 6 billion. The peak number of direct sales and franchised stores of Shanghai Grain Quanqi Finger Cake is nearly 10,000, and this kind of snack that can be seen everywhere on the street can hold everything, which is very suitable for the Chinese stomach.
For example, mooncakes with strong seasonality are very combative, starting from sales exceeding the 20 billion yuan mark in 2020, and their sales have increased to 24.38 billion yuan this year. Although in terms of sales, mooncakes are still slightly inferior to the pizza that sold 30.5 billion yuan in the same year.
These are the epitome of China's "pie" culture, proving a problem: pizza, the future of the Chinese catering market may not be promising.
In many people's impressions, pizza is not a big pie spread meat, the cake is thick and hard, as we all know, pizza is relatively high in calories, eat more and appear greasy, therefore, pizza is not a daily just need food. Among China's many pie, pizza drowns easily.
The mastery of northern Chinese aunts in making pasta and flatbread is no longer questioned, so people who have been educated since childhood will feel that this is not enough, and a certain Henan post-90s Li Moumou was very disdainful in an interview: A cake is sold so expensive, who will buy it?
The decline of Pizza Hut in the Chinese pizza market is confirmed from the side. According to statistics from relevant agencies, since 2017, Pizza Hut has maintained a "weird balance" of opening stores and closing stores. Taking directly operated stores as an example, in 2017, Pizza Hut still had 2,166 directly operated stores. By 2020, that number had dropped to around 2,150.
Although Pizza Hut has long become the enlightenment of Western food, it also has the advantages accumulated over a long period of time. But now when it comes to "Pizza Hut", everyone's feeling is that I haven't eaten for a long time... According to the latest financial report of Yum China, the parent company of Pizza Hut, the total revenue of Pizza Hut in the second quarter of 2022 was US$450 million, down 17% year-on-year; Operating profit was $11 million, down 71% year-over-year.
According to Euromonitor's GBN (Global Brand Name) list, in terms of the terminal sales of chain restaurants, Pizza Hut's market share decreased year by year from 2016 to 2019.
Source: Huachuang Securities
In addition, the recognition of Pizza Hut is also declining. In the "2020 China Pizza Bad Review Big Data Analysis and Research Report" released by NCBD, the average negative rating of Pizza Hut is as high as 8.4%, which is much higher than the second-ranked Supreme Pizza (4.8%).
According to Chinese food industry analyst Zhu Danpeng, the decline of Pizza Hut undoubtedly sends important information to the outside world:
"At present, Pizza Hut is still the main category of pizza, but this category is not as popular in the Chinese catering market as it was when it first entered China, and Chinese consumers' love for pizza has gradually declined."
To put it simply, Chinese consumers who have eaten, seen and felt have realized the disenchantment of Pisa, and the freshness, foreign flavor, and ancillary social value of imported products have faded.
For Domino's, this may be nothing, after all, it has never thought of taking any high-end route, and the "loss of power" of the old uncle is also happy to see. However, the competition on the same track from local pizza brands, especially Zunbao Pizza, still gave Dashi shares a headache.
As the second oldest in the Chinese pizza market, Zumbao Pizza has been sandwiched between Pizza Hut and Domino's for many years.
Zumbao Pizza is rooted in the local area and based on the community to play a low-price card, with a per capita price of about 35.2 yuan, lower than Domino's 56 yuan and Pizza Hut's 76.2 yuan, and often deliberately avoiding competitors in the process of development, Zumbao Pizza is ultimately better than Dashi shares.
Source: NCBD
Because of this, Domino's estimates for the Chinese pizza market are somewhat optimistic. And this optimism can also be seen in 2015, when Domino's entered the Italian market.
In the eyes of Domino's executives at that time, Italians already loved pizza, which was very suitable for the expansion of pizza business. Once Domino's Pizza is localized, coupled with Domino's tried-and-true "30 minutes" mode, conquering the Italian pizza market is not a hand-in-hand?
Unfortunately, Domino's miscalculated the situation. In Italy, a country of gastronomy known as the "country of pizza", the locals have a fascination with the "purity" of Bisa.
Most of them think American pizza is "heretical" and "I'm surprised they even allow it to be called pizza". This may coincide with the Chinese aunt, where wild cakes have the aroma of cakes.
The general disapproval of locals, coupled with the epidemic, the opening of many local pizzeria takeaway business, Domino's that has been struggling in Italy for many years finally failed, and officially withdrew from the Italian market in August this year.
While this failed overseas expansion is not yet universal, the fragility of Domino's core strengths is still a reminder to Domino's.
Benchmarking the Chinese market, the rise of local food delivery forces represented by Meituan and Ele.me will undoubtedly further impact Domino's core advantages.
For most Chinese consumers, ordering takeout through apps such as Meituan and Ele.me is as natural as breathing. As for the so-called 30-minute "psychological endurance pole", consumers really don't care so much.
One of the few things to be commended for Domino's is the care it takes for its own riders.
Unlike local companies such as Meituan, which have been frequently exposed to infringement of riders' rights, Domino's is the conscience of the industry when it comes to treating riders.
On the one hand, it will sign labor contracts with its own riders in accordance with the law. Different from Meituan's pay-per-use salary model, once you become a full-time rider of Domino's, you can receive a monthly salary, which has more protection than the former;
On the other hand, even if it is an outsourced rider, Domino's has the right to verify whether the third-party delivery service provider protects the basic rights and interests of the rider in accordance with the law, while signing a contract with the third-party delivery service provider in accordance with the law. If a third-party delivery service provider is found to be in violation, the partnership with the other party will be canceled.
Frankly, the motivation behind this is not necessarily noble. As we mentioned before, in order to ensure the brand promise and core advantages of "30 minutes", Dashi shares must invest a lot of effort in riders, and protecting their basic rights and interests is naturally the basic of the basics.
But everything is afraid of peers, Domino's operation is precious and humane.
Only when this "abnormal" phenomenon becomes "normal" is not too late to talk about becoming a great enterprise.