A Slice of Heaven: New Pizza Brings Domino's Huge Sales Gains

Maybe the secret is in the sauce after all. Just a few months after the much-hyped release of its new pizza recipe, Domino's (DPZ) reported a startling 14.3% increase in domestic same-store sales. America's second-largest pizza chain was quick to credit its "New and Inspired pizza" for helping it to buck a downward trend that's hitting the rest of the industry, which has seen an estimated 3% decline in pizza deliveries. Competitor Papa John's (PZZA), for example, saw domestic same-store sales drop 0.4% during the same period.

President and CEO J. Patrick Doyle said Domino's' "remarkably better pizza," and the important role of "our honesty in how we told customers about it" were the two main catalysts for the impressive sales jump. The honesty he refers to came in the form of a risky marketing campaign launched in December in which Domino's acknowledged the pizza's negative brand perception and openly accepted criticism from test groups that described the pizza as having a "cardboard crust" and as a "boring, artificial imitation of what pizza can be."

All of the humility and breast-beating was merely a prelude to the unveiling of its improved pizza. Of course, the company was quick to extol the virtues of its new recipe, pointing out that its pies now beat Papa John's(long considered one of the best-tasting pizzas in the category)in independent taste tests. In a recent report, a JP Morgan analyst said the campaign appears to have worked, noting that the company's improvement "is a function of executing a well-advertised and interesting launch of the Domino's core pizza."

Even DailyFinance was swayed by the ads: shortly after Domino's unveiled its new recipe, our New York staff decided to conduct an informal test of the new pies. Living in America's pizza capital, the reviewers were a little tough on the famous chain; some noted that the thin crust pizza seemed little improved from the old version and the "New Robust Tomato Sauce" failed to deliver on its bold name. But, in the end, we almost universally agreed that the new hand-tossed crust was very good, the sauce was significantly improved, and the overall finished product was a tasty, reliable pizza.

The ultimate question will be if Domino's can transform this impressive bump into long-term, sustainable growth. Discussing the company's outstanding quarter, Doyle admitted that it is unsustainable: "If we did this every quarter for seven years, we'd be bigger than U.S gross domestic product." Much of the upturn is likely based on curiosity about the new recipe. Now that customers know what they're getting, it will be interesting to see if the company can continue to report such exciting sales numbers.