Technology: The Driving Force behind Domino’s Pizza

Domino’s Pizza (DPZ) continues its investment in the technology space with a recent launch of its pizza delivery tracker available on Apple Watch. This joins the company’s existing online tracker, a voice ordering facility called Dom, the ability to order pizza using a pizza emoji, and via Twitter. About 50% of the orders in the US come through the digital channel. These expenses are part of the G&A (general and administrative) expenses.

During the 2Q15 earnings call, Domino’s management stated that 25% comes from mobile and another 25% comes from online orders. Company management stated that it will continue to make these long-term investments as needed. However, digital channel sales seem to be stuck at the 50% level. This will be an important metric to watch during coming quarters, as a way to assess the success of the company’s tech investments.

Domino’s Pizza collects a fee of ~$0.17 per order from its franchise for these technology-driven initiatives. During 2Q15, the company increased this fee to $0.21, which would bring in about $1 million in revenue, or ~$190,000 incrementally. This fee went into effect in March and was included in the 2Q15 financial results.

Domino’s is also testing a new loyalty program. If this turns out as strong as Starbucks’ (SBUX) loyalty program, Domino’s should be able to bring in additional customers and boost its same-store sales growth. Papa John’s (PZZA) also has a loyalty program in which customers earn one point every $5 spent. These points can be redeemed when ordering.

Currently SBUX forms 3% of the Consumer Discretionary Select Sector ETF (XLY). XLY also holds about 1.5% of Pizza Hut’s parent Yum! Brands (YUM).

In the next part, we will wrap up this series with other key highlights and a company outlook.