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1Q:19 Same Store Sales





Domino's success as the largest US pizza chain (#1 delivery & top 3 carryout with a 36% domestic share among the top 4 players) reflects its tech innovation positioning which is based upon the idea that consumers primarily choose pizza brands by their ordering & delivery options. In essence, Domino’s emphasizes its leading-edge, digital ordering convenience and seamless payments (frictionless & fast delivery) as opposed to "flavor-of-the-month" LTOs. The chain's positioning is also based upon compelling everyday value with deals at the $5.99 & $7.99 price points that have run so long that Domino’s believes they currently contribute to brand equity. Domino's believes that scale enables value and that profit power is better than pricing power and it is notable that Domino's delivery costs are much lower than 3rd party delivery aggregator options with the hope of even lower delivery costs driven by its "fortressing" market fill-in strategy. The brand's impressive 65% digital sale mix benefits from 18 ordering options on its AnyWare platform and its average check is +36% higher than the pizza segment average, reflecting a greater number of add-ons (salads, chicken, stuffed cheesy bread & desserts) and less discounting associated with digital sales. Sales also benefit from the use of effective marketing stunts that reinforce its brand focus and include: “points for pies” which allows customers to receive loyalty reward credits for eating a competitor’s pizza; carryout insurance (replacing pies that are inadvertently dropped, etc.); pot hole paving free for municipalities (smooth ride to protect pizzas in transit); and free “hot spot” delivery to places like public parks, etc. Domino's 20MM member Piece of the Pie Rewards loyalty program effectively drives traffic and its IT and marketing scale represents a key advantage relative to smaller industry players who represent the bulk of Domino's competition and source of market share gains. Notably, Domino's traffic grew +7.4% from 4Q17 to 3Q18. In conclusion, Domino's story remains a real 21st century tale of how an iconic brand is leveraging digital and big data to create an edge in providing convenient access and low prices to American consumers who never grow tired of their pizzas.


Menu & Promotions

Report Highlights
  • RR’s Menu & Promotions analysis provides data for 56 chains (33 QSR and 23 FSR) including: (1) a 5-year history of total menu items (2014 – 2018); (2) promotional mix by quarter; (3) new product intros; (4) average check; (5) sales composition; (6) menu category mix; and (7) monthly new product calendar.
  • After years of menu optimization in order to simplify operations, speed-up service and improve food quality, average menu size was relatively unchanged from last year (-1.4% for QSR and +0.2% for FSR) which suggests the industry has finally found a point of equilibrium as the brands balance providing ample menu variety with keeping menu complexity in check. Innovation is currently focused on customization options, new digital ordering platforms and delivery access.
  • New product introductions declined (-4.6% for QSR and -4.1% for FSR) due to a continued focus on value and efforts to reduce operational complexity. Notably, increases in the QSR value promotional mix was negatively correlated (-55%) to quarterly comps over the last couple of years. This means that a QSR value focus has been detrimental to sales, suggesting deal fatigue. Not surprisingly, increases in the FSR value promotional mix helped drive comp growth (positive correlation of almost +21%). Rather, QSR sales have benefit from premium promotions and new product news. This is the inverse for FSR where value is all that matters after years of steady price increases.
  • Average check growth accelerated for QSR (+3.2%) but moderated for FSR (+1.9%). The Food at Home CPI turned slightly positive (+0.4%) for the first time in 2 years, narrowing the price gap between restaurants and grocery stores.
  • Although delivery still represents a very small sales mix, it is growing rapidly as a result of 3rd party aggregators.


Wendy's “Quality is our Recipe” brand positioning stresses a commitment to fresh, never frozen, North American beef in the form of distinctively square cooked-to-order patties that are juicier, hotter and made with more melted cheese. The brand's “freshness” positioning is reinforced by: daily produce prep; bakery style buns; mayo on its burgers; and use of smaller birds which make its chicken fillets more tender & juicy. Wendy's menu strategy is to: reinforce its hamburger quality leadership; raise consumer expectations with its chicken products; drive unique visits through salads & beverages; innovate with on-trend flavors; and offer a multi-faceted approach to price/value. Menu renovations extend beyond upgrades to more tender and juicy burgers/chicken to improvements across all menu items including salads & fries. While the chain's successful 4 for $4 value platform is driving traffic, the challenge is to move beyond traffic-drivers to mix drivers with its $5+ price point offers that should represent the reward for Wendy's high quality QSR+ halo. Marketing is well balanced between mainstream media (TV) and social media marketing which is anchored by a 5 person team well known for aggressive comebacks (particularly as it relates to securing credit for its use of costly fresh beef) and progress with consumer-facing digital initiatives include the initiation of mobile ordering, mobile offers as well as the roll-out of delivery. Facilities benefit from lower cost fast casual-like remodel options which work better for lower AUV stores and 50% of the system is currently updated. However, despite executing around all these elements for improvement, comps have generally underperformed the segment average even though they have been positive since 2011. Resultantly, store-level EBITDAR margin pressure reflects that AUV growth has not kept pace with higher food and labor costs. In conclusion, while Wendy's is doing a good job of accentuating all the accompanying elements around its fresh beef/premium positioning, the 5th largest player in the QSR sandwich segment is still working on the mechanics of translating this core competency into a higher check sufficient to drive comp outperformance.



McDonald's is gaining traction with an extremely ambitious modernization program with many moving parts. Its repositioning strategy includes: retaining existing customers by bolstering core strength in family occasions & food-led breakfast; regaining lost customers by improving food taste, quality, convenience & value; and converting casual customers to committed by elevating & leveraging the McCafé platform while also improving its food health profile. To this end, its menu positioning continues to transition to fresh & healthy and its food journey has included: adding fresh beef to its Quarter Pounder burgers (an answer to Wendy’s); re-introduction of McCafe espresso products to better position against Dunkin'; intro of Buttermilk Crispy Tenders (an answer to Chick-fil-A); reduced use of antibiotics in its beef supply chains; removal of artificial preservatives in its Chicken McNuggets; and improved health profile for its Happy Meals. The goal is to convert casual traffic into committed customers who can be comfortable that higher frequency at McDonald's can actually support good health. In turn, the brand’s people & facility investments provide it with authority to discuss menu improvements which appeal to families & younger consumers. While comps have outperformed for the last 2 years, traffic declined in 2018 and into 1Q19 (which reflects the chain's upscale repositioning). Going forward traffic should benefit from: an effort to run better restaurants (digesting all the recent changes & reducing executional complexities) with a renewed focus on drive-thru ops; plans to fine-tune value deal promotions; refinements in digital & delivery; and progress with EOTF and reimaging. Also, corporate expects to win back breakfast traffic with a combination of: national value; a return to local breakfast deals in recognition of differing regional preferences; and new food offerings. In any case, the brand continues to struggle with balancing its need to provide value to drive traffic with its desire to move towards higher margin, more upscale products. Just as value is foundational to this brand, so is service speed/convenience and in a well justified sprint to modernize, the system has added operational complexities which have slowed speeds. Declining store-level profits, increased capex requirements and increasing operational complexity has prompted the recent organization of the National Owners Association to represent the concerns of 1,000 franchisees and operators report that cooperation between franchisor & franchisees has improved as a result. In conclusion, there was no easy way to modernize McDonald’s in a timely fashion and now the hard work of digesting & integrating all these changes is underway – hopefully, execution will proceed as fast as the implementation of the pivot.