uploads///Same Store Sales Growth

Domino’s Pizza: How Product Innovation Sparked a Turnaround

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Apr. 9 2015, Updated 12:05 p.m. ET

Product innovation

One of the most important ways to improve same-store sales is with product innovation. In the chart below, you can see that up until 2009, Domino’s Pizza (DPZ) had weak same-store sales. That same year, the company launched a new recipe in its core pizza category. The increase in traffic was so positive, the company built a campaign around the turnaround.

Over the years, the company has introduced premium items such as specialty chicken, handmade pan pizza, stuffed cheesy bread, and parmesan bread bites. Master franchisees in Domino’s international markets can also suggest menu item additions to suit tastes in their local markets.

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Boost in same-store sales

The chart above shows the impact the new products had on same-store sales growth, which shot up from 0.5% in 2009 to an impressive 9.9% in 2010. For each following year, Domino’s also saw positive same-store sales growth, although menu innovation wasn’t the only reason.

How Domino’s fares against the competitors

Papa John’s (PZZA) reported higher same-store sales growth than Domino’s between 2011 and 2014. And, in 2014, Domino’s same-stores sales growth was 7.5% while Papa John’s was 8.2%. Pizza Hut under the Yum! Brands (YUM) reported -1% same-store sales growth in 2014.

Other factors influencing same-store sales

The US economy went into recession between December 2007 and June 2009, which had a negative impact on consumer discretionary stocks.

The recession also impacted several ETFs. Most affected were the Consumer Discretionary Select Sector SPDR Fund (XLY) and the iShares U.S. Consumer Services ETF (IYC). XLY holds about 10% worth of restaurant stocks in its portfolio, including McDonald’s (MCD) and Starbucks (SBUX). IYC has about 12% of its portfolio invested in restaurant stocks.

One way a company can hedge the economic risk inherent in the US is to expand internationally. In the next part of this series, we’ll look at how Domino’s has done just that.

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