In the late 2000s, Domino's Pizza (DPZ) was struggling. Its sales were stuck in a steady decline. And its stock fell from more than $30 per share to around $3 per share.
It Took Honesty to Save This Pizza Chain
By Marc Chaikin, founder, Chaikin Analytics
A pizza chain owning up to bad food sounded like a terrible marketing idea...
In the late 2000s, Domino's Pizza (DPZ) was struggling. Its sales were stuck in a steady decline. And its stock fell from more than $30 per share to around $3 per share.
The company spent decades focusing on convenience. If you needed pizza delivered fast, you called Domino's.
But in terms of taste, it had a terrible reputation.
The Internet was full of comments about how bad Domino's pizza tasted. At one point, a survey by Brand Keys confirmed the criticism. Domino's ranked last among national pizza chains in terms of taste – tying with Chuck E. Cheese.
The company ran focus groups to study the issue. The results were brutal. Folks said that Domino's crust tasted "like cardboard." They compared the sauce with ketchup. And they complained about the "processed cheese."
Management felt it had to start from scratch. The company's chefs spent months creating and testing new pizza recipes.
By late 2009, Domino's had its new and improved pizza. But the company faced another big hurdle...
Domino's still had a huge "perception" problem. And as I'll explain, the company tried to overcome this with an unconventional marketing strategy...
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Domino's Risky Marketing Campaign Marked a Huge Turning Point
You see, taste tests showed that people's opinion of a pizza improved if they thought it wasn't from Domino's.
In other words, folks gave higher scores to Domino's old pizza when it was in a competitor's box. And they gave lower scores to a competitor's pizza if it came from a Domino's box.
Put simply, people already knew that the company's old pizza was bad. And once folks make up their minds about something, it's tough to get them to change their opinion.
Management knew the new ad campaign would need to be super-convincing.
They came up with a bold plan. Plenty of folks thought it was a dumb, risky strategy...
In short, Domino's decided to embrace the criticism with a series of ads.
The first commercial began with images of online complaints – including "Microwave pizza is far superior." It included clips of people in focus groups criticizing the pizza. One woman said, "Domino's pizza crust to me is like cardboard."
It also showed Domino's executives, chefs, and other employees wincing while watching the videos. The company's then-president Patrick Doyle told viewers, "There comes a time when you know you've gotta make a change."
Domino's next ad revealed its new pizza recipe. It included clips of chefs explaining the long development process – and improved ingredients like real cheese and sauce with spices in it.
Another commercial included the same people who criticized Domino's pizza in the focus groups. It showed Domino's head chef personally delivering the new pizza to their homes – and watching them taste it. (Of course, they all reacted positively.)
The ads were an instant hit. They gained plenty of attention. And in the end, Domino's bet paid off big...
Within days of the campaign's launch, executives noticed a sales boost. And in 2010 – the first full year of running the ads – Domino's revenue grew 12%. It was the biggest one-year jump in more than a decade.
In short, the ads worked because they were honest. Domino's admitted that its pizza quality was poor.
The campaign began with an apology. And it finished by showing the company's solution.
That kind of honesty is rare in advertising. And it was the key to Domino's repairing its brand image.
That might not sound like a big deal. But it was a game changer for the company. It kicked off a massive new growth phase.
Domino's sales grew every year from 2010 through 2022. That's 13 straight years of growth – an incredible streak for a restaurant company.
In 2017, Domino's passed Pizza Hut to become the world's biggest pizza chain by sales.
Put simply, Domino's crushed its competitors in the 2010s. The company's market share surged.
At the end of 2009, it had roughly 9,000 locations worldwide. In 2020, that number skyrocketed to more than 17,000.
Domino's went on to become one of the best-performing stocks of the decade. It soared more than 3,400% from the end of 2009 to the end of 2019. Take a look at the stock's surge higher...
Today, Domino's is considered one of the biggest turnarounds in corporate history. It's used as a case study at business schools. And it even got its own write-up in the prestigious Harvard Business Review.
Put simply, Domino's risky marketing campaign marked a huge turning point for the company. And its stock went on to soar.
Folks, it's easy to be cynical...
But the reality is that big businesses can make an honest effort to better serve their customers. The story with Domino's shows that this approach can be successful. And this can lead to huge returns for investors.
Good investing,
Marc Chaikin Editor's note: Right now, Marc has his eye on a big development in the markets...
As he says, what's happening before October 3 could decide your next decade of investment performance. According to Marc, it all has to do with the start of the fourth quarter – and an abrupt and surprising market shift he sees coming over the next 90 days.
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are Bullish. Major indexes are all bullish.
* * * *
Sector Tracker
Sector movement over the last 5 days
Energy
+3.92%
Utilities
+2.19%
Real Estate
+0.07%
Information Technology
-0.03%
Industrials
-0.35%
Consumer Discretionary
-0.7%
Financial
-0.72%
Communication
-1.04%
Health Care
-1.3%
Consumer Staples
-1.79%
Materials
-2.19%
* * * *
Industry Focus
Software & Services
63
68
4
Over the past 6 months, the Software & Services subsector (XSW) has outperformed the S&P 500 by +1.08%. Its Power Bar ratio, which measures future potential, is Very Strong, with more Bullish than Bearish stocks. It is currently ranked #3 of 21 subsectors and has moved down 1 slot over the past week.
Top Stocks
ACIW
ACI Worldwide, Inc.
APP
AppLovin Corporation
ADBE
Adobe Inc.
* * * *
Top Movers
Gainers
EA
+14.87%
PCAR
+5.16%
CDW
+4.71%
LW
+4.52%
TTWO
+4.49%
Losers
COST
-2.9%
ORCL
-2.7%
EBAY
-2.12%
FICO
-1.91%
DXCM
-1.76%
* * * *
Earnings Report
Earnings Surprises
No significant Earnings Surprises in the Russell 3000.
* * * *
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