Why innovation can get you a larger slice of the action

7th September, 2017

One of the biggest lessons the team at Dominos Pizza has learned has nothing to do with dough, but how innovation is a driver of profit.

Speaking at last week’s Innovation as Competition conference held by The Economist, Dominos CEO Don Meij said that innovation had, in effect, become a hedge against competition in a commoditised industry.

“Early on, we learned that differentiation was a custodian of profit – if we can give value back to customers in interesting ways and ways of solving customer tensions and friction points, customers would value those and as a result we’d become more competitive and grow profits,” said Meij.

“The barrier of entry to the pizza business itself is actually pretty low – we were spending $300,000 to $400,000 to open a pizza shop, and some could do so for $20,000 and they could take customers away from us.”

So, Meij said, innovation became the main tool it used to protect profits rather than a nice thing to play around with.

Luckily, the availability of data and smarter processes meant that it was able to, in effect; ‘pre-totype’ ideas.

READ: The ROI of ERP systems

“We always had to innovate, but the internet has made it a lot more affordable to do things at a much faster pace,” said Meij.

“The thing about the analogue world is that we lived in opinion land. We’d sit around a room with people who are supposed to have the stomach and the insights and we’d spend a lot of money if we went into testing and research.

“Whereas in the world of data, we can ‘pretotype’ ideas for a fraction of the cost, which means we can test more ideas which means we can become more innovative. We have less failures and less gut-feel.”

Some of the innovations to come out of Dominos include GPS driver tracking, ordering via Facebook Messenger, Pizza Mogul, and even robot and drone delivery trials.

It’s been successful, having grown from an ASX-listing price of $2.10 in 2005 to a high of $76.34 in 2016 (there’s no guarantee it will continue on the same trajectory), and is in a position where increasing profit by 25 percent is read as a disappointment.

Its efforts to automate the delivery of pizza via drone and robot have also drawn criticism for potentially taking away jobs, but, unsurprisingly, Meij has a different take.

Will innovation cost jobs?

There has been a lot of hand-wringing around the role of automation and AI in potential job losses, but Meij said that its push into robot and drone delivery wasn’t about replacing existing workers but rather meeting customer demand.

“The interesting thing about the internet and the delivery of product is that if you have a shopping trolley it has a tonne of product in it, and you’re one person,” said Meij.

“You’re basically going back and forth with that cart.”

Now, the consumer is getting stuff delivered from a wide variety of places instead of putting a bunch of different things in the one cart – which creates a dilemma for businesses which cater to consumer demand.

“Now with the Internet of Retail, with the amount of items that are getting delivered there isn’t enough physical delivery drivers to deliver the amount of Internet deliveries over the next three years,” said Meij.

“We already have a problem in the Netherlands with that. We can’t get enough delivery drivers compared with the number of items being delivered.”

So, it’s pushed into drone delivery.

It’s currently tweaking its drone delivery service in conjunction with its US-based partner, Flirtey, and Meij said it was a shame that the testing needed to be done in NZ instead of Australia.

So…why NZ?

Meij said the NZ government had been a lot more proactive in getting Dominos to test drone flights in the country.

“We started talking about the challenges we wanted to solve with robots and the New Zealand government literally picked up the phone and called us – the government called us,” he said.

READ: The “black hole” in innovation

He said government cooperation with technology partners, allowing them to test and learn in new ways, was vital if those governments wanted tech partners to set up in their country.

“We just have to go where the wheels are greasier and you can get things moving more quickly,” said Meij.

“One of the things I saw in Reno (home base of Flirtey) was just how supportive business, government, universities all collaborate so well together – where startups are able to use big facilities for free to test things.”

Innovation has led Dominos to booking a larger slice of profit, and if government wants a larger slice of innovation then it needs to collaborate.