How Domino’s Won the Pandemic
The pizza franchise figured out cloud kitchens before they were cool
While food delivery apps like Grubhub, DoorDash, and Uber Eats have been a lifeline to the restaurant industry as shelter-in-place orders have kept people indoors, the fact is that they remain expensive options for consumers and restaurants, 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 aren’t a ton of things throughout the food delivery value chain that restaurants can innovate on without significant technological advances.
That’s why some ambitious entrepreneurs (like ex-Uber CEO Travis Kalanick) are getting into “cloud kitchens” to cut the biggest expense traditional restaurants deal with: real estate costs. If a kitchen makes its money by delivering food to those who order it over an app, there’s no point in paying for premium real estate — or extra staff to take care of customers who visit.
While cloud kitchens may seem like a new trend, the concept isn’t really that new. In fact, Domino’s Pizza has been reaping the benefits of cloud kitchens for years.
Think about the similarities between cloud kitchens and Domino’s:
- Stores have small/no dining space and are optimized for delivery
- Location of 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
And while Domino’s is certainly benefiting from the rise of delivery (especially during 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.
In 2009, Domino’s made a number of decisions to align their strategy to their business model.
First, they completely overhauled their product. The food went from tasting like…