If you’re running a company today, you’ve got to be ready for all the black swan events that will keep coming. That’s the opinion of Domino’s ANZ CEO, Merrill Pereyra.
Today’s business landscape requires assiduous attention to detail to maintain a competitive edge.
This approach is particularly relevant to the fast food sector, which can add the obstacles of rising junior wages and card surcharges to the general challenges of increased outgoings and rising cost-of-living pressures.
Pereyra’s answer is to look at the complete business model, analyse unit economics before deciding how much of the increased costs the business can absorb.
Unit economics are key
“You’ve got to look at everything right from supply chain, look at the suppliers and look at what deals you have going with them. You’ve also got to worry about dealing with exchange rates.
“So when you’re working with your business partners/suppliers, if you can lock in a commitment of long-term deals, then you’re able to manage some of that impact on your P&L,” Pereyra advised franchisors.
He is adamant that menu prices should be the last consideration.
“You should look at everything else on your business, look at everything, look at the deals you’re doing with your landlords, look at the deals you’re doing with your suppliers, look at the way you run your business.
“But in my opinion, raising prices is the last thing you should be passing through to the consumer. You may not have a choice at the end of the day, you may have to do it, but in an environment that we are in today and the challenges that we are seeing with things happening in Australia, value is going to be an important thing.”
Pereyra shared his perspective on the challenges of the QSR sector in a Franchise Executives webinar alongside fellow panellist, Concept Eight CEO Grant Lee.
“Control the controllables,” was Lee’s topline advice.
“The best thing to do is have a great culture and react in a disciplined and fast way. The best way to take advantage of a good economy is to have a strong culture, but also the best way in a declining economy or a tough economy,” he said.
Act fast, fail fast
Lee believes the Concept Eight philosophy of “act fast, fail fast” has helped the business retain its strong financial performance.
“Do little things. You can wrap data around everything these days. So do a little thing, check the results, and if it’s good, double down. If it’s bad, cut your losses and if it’s okay, just tweak it,” he suggested.
The group put this into practice recently when prices skyrocketed because of fuel costs.
“The marketing team jumped on our app, communicated to our customers, ‘don’t worry about the price of petrol, get free delivery on the app’. That’s what we mean about acting fast in a disciplined way.”
Lee sees the cost of living as the biggest shift directly affecting all Concept Eight’s brands – from chicken, to burgers, noodles and acai – as loyal customers reduce the frequency of their visits.
One solution has been to increase the range of value meals – something no longer associated with special events but an everyday occurrence.
“We pretty much have value meals daily now across our brands;if we don’t have some sort of deal, sales are impacted,” he said.
The cost pressures challenge franchisee margins, and Concept Eight has worked on reducing the cost of goods and labour. Turning to technology with an automated wok,for example, has enabled one person to cook five meals at a time.
“We are just always looking to shave cost out of our cost of goods,” Lee said.
Convenience, price, and quality
“And in terms of convenience, we believe that you need to be everywhere where your customers want to be served.
“We’re in malls, we’re trialling drive-throughs with three sites now, we’re in strip shopping centres, that was our bread and butter – we’re in petrol stations through our relationship with Ampol and with Aviva or what was Shell, we had a popup at the Grand Prix. We’re in a couple of casinos, we’re in hospitals, we’re in unis, and of course we’re doing home delivery.
“So the convenience aspect for us is try and get as close to the customer and be flexible. And I think those days when a QSR could be focused purely on a single channel as malls, it’s not a strategy that we would pursue,” Lee said.
How is Domino’s navigating the cost of living challenge and the dilemma between convenience and price?
“For us it’s always going to be focusing on value, making sure the customer’s got the best deal,” Pereyra said.
“The big challenge you have today is aggregators and you’ve got to be smart as to how you go about working with the aggregators. In some businesses aggregators can do anywhere from 30 per cent of their sales to 50 per cent of your sales, and you’ve just got to be smart about how you go about navigating those costs on your p and l and yet at the same time making sure your business model is still working,” Pereyra said.
The idea you could choose two of the options of speed, good quality, or a low price, no longer stands, Lee said.
“Consumers want it all. And so we just have to adapt and make sure we’re delivering quality meals quickly at great value. That’s just the way it is.”
