While food delivery apps like the Dominos have been a lifeline to the restaurant industry as a shelter in place orders have kept people indoors, the fact is that they remain expensive options for restaurants and consumers, while also being largely unprofitable for the delivery businesses themselves.
Food delivery has high fixed costs. The courier requires a minimum wage. The ingredients can only be so cheap. There just are not a ton of things throughout the food delivery value chain that restaurants can innovate without significant technological advances.
That is why some ambitious entrepreneurs are getting into the cloud kitchen to cut the highest biggest expense traditional restaurants deal with the real estate costs. If a kitchen makes its money by delivering food to those who order it over an app, there is no point in paying for premium real estate – or extra staff to take care of the customers who visit.
While cloud kitchens may seem like a new trend, the concept is not really that new. In fact, Domino’s Pizza has been reaping the benefits of cloud kitchens for years:
- Stores have small or no dining space and are optimized for delivery.
- The location of the real estate is focused on the best routes, not the best foot traffic.
- Food product travels well and can feed a lot of people cheaply.
An while the Domino’s is certainly benefiting from the rise of delivery, especially during the Covid-19, one of the main reasons they did so well over the past decade has been the alignment of their business and their business model too.
In 2009, Domoni’s made a number of decisions to align its strategy in their business model.
Firstly, they completely overhauled their product. The food went from tasting cardboard to tasting like, well, real pizza. And they even ran an ad campaign owing up to their previously bland product and describing how they had improved it. It also helped that the product category was extremely well suited to delivery because it is cheap: A single Pizza can feed a family of four.
Then, they invested in technology. They were the first to both offer mobile ordering and to build a Pizza Tracker on their website, a concept that delivery startups have since copied. This not only helped them with ordering and logistics (stores and drivers utilize software as well) but also helped them build a strong digital brand in which they interact directly with consumers.
Domino’s is the platonic ideal of future cloud kitchens. The company’s foresight to optimize for delivery, place stores in low-cost and route-optimized retail locations, and build a digital brand and app that really works is now paying off.
This brand advantage is especially important during quarantine, where the customer journey almost always begins online.
Finally, Domino’s stores are optimized for delivery and takeout, not in-store eating. In contrast, competitors have followed more traditional models: Pizza Hut has a dine-in focused model, and mom and pop pizza shops don’t have the technology or delivery infrastructure.
While all of these decisions prepared Domino’s for the cloud kitchen era, one of the biggest drivers of investor returns was their franchise business model. It can’t be understated how closely their strategic decisions played into becoming one of the most successful franchises in history.
Domino’s launches custom contactless delivery during coronavirus crisis
Domino’s Pizza revealed new contactless delivery policies on Monday to customers and investors as part of its detailed Covid-19 crisis plan. As an industry leader in the delivery and off-premise sales, Domino’s is in a unique position to take advantage of the restaurant industry struggles at the time of the Covid-19 pandemic as more people rely heavily on takeout and delivery for meals.
Although many restaurant brands and third-party delivery are now offering or requiring contactless delivery, Domino’s takes it one step further by offering custom drop-off points. Customers can indicate where they would prefer their order to be left by a pizza delivery person: whether that’s by the front door, at a reception desk, or on a bench. Domino’s also clarified that it will continue to deliver to shelters, hospitals, and other healthcare facilities.
“Many of our international stores have been successfully executing contactless delivery safely in the face of this viral threat, and we have learned a lot from their experience,” Domino’s CEO Ritch Allison said in a letter to customers.
With the new safe delivery methods, customers have the option of selecting contactless delivery when they order online, leaving instructions for where they’d want the order to be placed, and selecting pre-payment and pre-tipping options to minimize hand-to-hand contact. Once a customer’s order has arrived, she will be notified, and the pizza delivery person will place the pizza on a “safe and clean surface” and stand back “a safe distance” until the order is picked up.
In addition to contactless delivery, Domino’s also announced that it would be expanding paid leave for full and part-time hourly employees at corporate stores and that any employees under quarantine would be paid. The company has also stated that it has enhanced its cleaning and hygiene practices.
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