Domino's is going to be massive, and restaurant franchisors score a major win

Unfortunately, I wasn’t able to attend this year’s ICR conference in Orlando. But my colleague Rachel Pittman was kind enough to pick up my slack. One thing she came away, per debriefing, was that there appears to be a divide forming across the industry. You either embrace delivery and tech-centered engagement, or you don’t. And if you slot into that latter pool, you’re vehement about your brand’s decision to stick to “the old ways.” One restaurant even told her they’re hardline on taking paper reservations.

I’m all for this. One thing about rapidly shifting consumer preference is that it destroys the middle ground. A more discerning customer demands crystalized brand personalities. In today’s social media-fueled era of loyalty and digital communications, we talk a lot about what brand affinity means for restaurants. But we tend to forget direct messaging. Given the commoditization of products and battle for occasions, inside and outside the restaurant, establishing a specific brand personality is one path to chase guest loyalty—an ideal blurring by the generation.

If you look at millennials, they’re famous for dining out more by menu items than brands. Like, for instance, asking where the next gluten-free meal can be found. Or if they identify with a restaurant for its sustainability and lifestyle traits. In some ways, it’s how Shake Shack surged in the early days—by appealing to customers who felt they didn’t belong in the traditional fast-food box. It’s why the chain spent so much time from the outset working on store design and décor, as well as refining quality directives.

This extends to delivery, too, of course. How many DoorDash users are restaurant brand loyal? The vast majority search for products and remain platform and app-focused in their decision making. Hence the rise of virtual restaurants, or brands trying to reach customers at the product junction. One example being a barbecue chain putting burgers behind a different “concept” yet still delivering them out of their kitchen. Like Famous Dave’s has talked about trying.

And Gen Z? They take it a step further and think of themselves as a brand. So rather than guests flocking to buzzy spots, restaurants are finding it necessary to crowd around Gen Zers trying to create their own trend. I’ve always loved this quote from Rob Poetsch, senior director of public relations at Taco Bell. “We always say this, but we don’t own our brand anymore. They own our brand.” That’s about as accurate as it gets.

What this all means, getting back to Rachel’s observation, is that if you’re going to denounce delivery and off-premises business, you need to be emphatic. Make your experience worth the trade-off and prove why it matters. It has to go beyond just, “we didn’t want to shoulder the fees” from a consumer perspective. Food served as intended. An experience that can’t be delivered. Those are great places to start. On the flip side, as is the case with pretty much every counter-service brand in America, embracing off-premises is the key to getting it right. If you can’t avoid it, might as well invest in systems and people to make it as seamless and consumer-friendly as possible. And you see that across the industry these days. Take a stand and back it up.

Now, on to this week’s top headlines!

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The 'joint-employer’ saga takes another turn

The week began with a win for franchisors everywhere, as the U.S. Department of Labor issued Sunday a final rule to update the controversial “joint employer” regulations. They had not been meaningfully updated in more than 60 years.

This is a massive deal for restaurants for several reasons. The first, and maybe the biggest, is that it should help stem the flood of lawsuits being leveled against companies by employees. Whether or not workers won these decisions in the end, they were still racking up huge costs for brands. Because the rule was a bit muddy, there was plenty of room to take franchisors to court over unfair labor practices. Think about what a big deal that is for somebody like McDonald’s, which has roughly 14,000 domestic restaurants and is 95 percent or so franchised.

The International Franchise Association previously said lawsuits related to joint employer definitions hiked 93 percent after the 2015 Obama administration rule, when the National Labors Relations Board (in Browning-Ferris, 362 NLRB No. 186) held that a franchisor need only exert indirect control or even just reserve the right to control the terms and conditions of employment in order to qualify as a joint employer—even if the control was never actually exercised. This decision, which overturned years of precedent, meant that franchisors could be on the hook for the labor violations of their franchisees, even if they did not exercise control over the alleged unlawful practices.

IFA said the expanded joint employer standard cost the American economy $33.3 billion per year and led to 376,000 fewer job opportunities.

The complaint was pretty clear: An expanded joint employer standard hindered franchise growth, operations, and hiring due to liability and the need for franchisors to become more heavy-handed in day-to-day operations.

You get a small idea then of why Sunday’s decision was such a critical announcement. The new rule clarifies when a worker is employed by more than one company—a distinction essential to franchise companies and firms that outsource services, like cleaning. Taking effect within 60 days, there will now be a four-factor balancing test for determining FLSA joint employer status in situations where an employee performs work for one employer that simultaneously benefits another entity or individual.

They are:

• Hires or fires the employee
• Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree
• Determines the employee’s rate and method of payment
• Maintains the employee’s employment records

Now, under the FLSA, an employee may have, in addition to his or her employer, one or more joint employers—additional individuals or entities that are jointly and severally liable with the employer for the employee’s wages, the DOL said in a release. The FLSA requires covered employers to pay their employees at least the federal minimum wage for every hour worked and overtime for every hour worked over 40 in a workweek.

As Mike Webster recently pointed out in a post, though, this isn’t a final rule exactly. “The DOL is not the Supreme Court. It is a political agency. These rules can and will be changed the next time a Democratic president is elected. Further, the states have different rules and this divergence means more and not less certainty. California is already moving towards adopting the ABC test for independent contractors. What is needed is a made for franchising rule on joint liability which both the states and the federal government can sign on to. Legal clarity and not uncertainty helps businesses grow.”

So, while Sunday’s change was worth celebrating, this saga is far from over.

TGI Fridays attempts a comeback, and recession is on Darden’s mind

Fridays CEO Ray Blanchette took to the ICR floor to lay out the company’s turnaround efforts. Traffic dropped 6.8 percent at franchised restaurants and 4.5 percent at corporate units in the last 12 months. The way back: Restore the brand’s bar heritage.

This kind of goes back to what I referenced earlier. You’re going to see more and more restaurants take this route, especially those legacy, casual-dining players. A return to the core instead of an expansion to meet new customers. The “all-things-to-all-people” strategy that was so popular a few years back? It’s all but dead. Everyone from Chili’s to Applebee’s to Bob Evans has embraced simplified menus and more direct marketing in recent years. And mostly, it’s all about what got you to the dance in the first place. Not how can I secure an invite to a party I never should have never been invited to.

This was a problem facing restaurant leaders across the landscape when millennials started maturing. Brands looked at demographic megatrends and came away with this urgent thought: We’ve got to reinvent ourselves to fit the needs and desires of millennials who have grown up in a different generation, with different experiences.

“And that’s not altogether wrong,” Bob Evans CMO Bob Holtcamp told me previously. “but I think what happened is that in their quest to try to connect with millennials, it sent them down a path of we’ve got to change everything that we’ve been.”

Blanchette said this Monday about Fridays: “I think what we’ve done is spent time looking inward and looking for a fundamental truth about our business that we can talk about to reinvigorate our guest. For Fridays that’s fairly easy—if you ask people for a Fridays story it’s always a bar story.”

Expect to see that reflected across the business in the coming months following the chain’s $380 million sale.

On the recession note, Darden CEO Gene Lee spoke to the possibility during the Olive Garden parent’s presentation. And when Lee shares, every restaurateur should grab a notepad. “In this recession, closures will be greater this time than they were last time, but there will always be good ideas and well-positioned brands that will be able to add units,” he said Monday.

Lee added that human resources are the hardest to come by in the industry and its biggest challenge at the moment. Thus, Darden is focused on attracting, retaining, and engaging strong staff ahead of an economic slowdown. In addition to streamlining operations to make room for rising labor costs, Lee said more will be expected out of employees earning higher wages.

“We will retain people and they have to be better trained—if we’re going to pay some of our back-of-house people what we’re paying them, we’re going to ask them to do more. We haven’t gotten a lot of pushback on that,” Lee said.

Fewer employees, higher wages, more tasks. That’s going to be an inescapable reality.

Domino’s paves the runway

Domino’s presentation at ICR hit on some notable points. Notably, keep an eye on the company’s fortressing strategy as it looks to weather delivery pressure from aggregators. Basically, the company is clustering markets so it can improve delivery times, serve a larger carryout audience, and improve wage rates for drivers by shrinking delivery zones.

Here were some fun numbers to pop from the day: Domino’s delivers 3.5 pizzas out of every 10 in the U.S. The chain, which has generated 103 consecutive quarters of international same-store sales growth and 34 straight domestic, plans to take a greater slice of the $85 billion global pizza industry in coming years, with the goal of building 25,000 stores and reaching $25 billion in retail sales by 2025. Eventually, the brand believes it could run 8,000 stores domestically.

As of September 8, there were 5,985 stateside units (16,528 total including international).

From 2012 through 2018, Domino’s appreciated net growth of 6,172 restaurants across its system. It has added net 1,174 units in the trailing four quarters 234 total U.S.

The runway remains vast. In its top 15 markets alone, Domino’s sees potential for an additional 5,600-plus locations. The company laid out a two- to three-year outlook of 6–8 percent global net unit expansion.

Domino’s has grown its U.S. digital sales from zero to more than 65 percent in roughly a decade.

I also thought the evolution of Domino’s share was rather intriguing.

Total quick-service pizza market share

• Regional chains independents: 52 percent
• Other major pizza chains: 30 percent
• Domino’s: 18 percent

Domino’s delivery dollar share

• 2011: 21.9 percent
• 2012: 22 percent
• 2013: 23 percent
• 2014: 24.4 percent
• 2015: 26.7 percent
• 2016: 27.2 percent
• 2017: 29.3 percent
• 2018: 31.3 percent

Saying Domino’s is a force is obviously an understatement. But it will be really interesting to bookmark these figures and see where we stand a decade from now.

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