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THE WALL STREET JOURNAL.
Saturday/Sunday, March 14 - 15, 2015 | A9
****
OPINION
THE WEEKEND INTERVIEW with J. Patrick Doyle | By Stephen Moore
How Pizza Became a Growth Stock
The secret? The Domino’s
CEO cites a mea culpa ad
campaign, digital delivery
and unlikely new markets.
change of menu will require new ones.
That is about $10 million of extraneous costs nationwide for Domino’s.
Thank you, Washington.
Other than that, Mr. Doyle is having a good day when I visit him at the
Domino’s world-wide headquarters in
Ann Arbor, Mich. And a very good
year, with sales up 12% in the past
quarter alone.
The headquarters are a few miles
up the road from where the original
Domino’s Pizza opened in 1960. Mr.
Doyle, who is 51, is tall, stocky, affable and appropriately a Michigan man
through and through, having grown
up in Midland and earned a degree at
the University of Michigan. In his five
years as CEO, annual sales have
climbed to $9 billion from about $2
billion. Some 250,000 workers wear a
Domino’s uniform and sell roughly
one billion pizzas each year. During
the Super Bowl, Domino’s was taking
a dizzying 1,400 orders a minute.
Making pizzas may not be the sexiest business—though it’s a $125 bil-
hour, they now earn $80,000 to
$100,000 by operating a franchise.
Many have become millionaires. “This
is absolutely a story of upward mobility in America.”
If he were economic adviser to the
president, what reforms would he recommend to accelerate growth and hiring? Without hesitation he says: “Simplify the corporate tax. It’s a killer. We
pay 38% at Domino’s.” He’s including
state and local taxes, but that’s a huge
burden, especially given that many
large corporations pay below 10%.
“Just get rid of all the loopholes—and
make it fair with a broad base and
lower rates.” Then he adds, only halfkidding: “No one in Washington ever
woke up and said ‘let’s have a loophole for pizza makers.’ ” Sounds like
he needs a lobbyist.
One of Mr. Doyle’s biggest worries
is that the Domino’s franchise-owner
model—which is also used by thousands of other retail and restaurant
stores—has come under assault from
trial lawyers, unions and the National
Labor Relations Board. These groups
want to treat a Domino’s or Popeyes
franchise store and the parent company as “joint employers.” This
would mean a locally owned store
with a few dozen staff would still
have to comply with, for instance,
the ObamaCare rules that only apply
to firms with more than 50 workers.
Seattle passed a minimum-wage law
last year that treats franchise restaurants as big businesses that must pay
a super-minimum-wage that phases
up to $15 an hour.
“You’ve got 20 million people today
employed in the franchise industry in
the U.S. Part of why small business
owners want to be in a franchise is
because they’re getting support from
each other, and they’re getting support and ideas from a company. Franchise stores have dramatically higher
success rates than people who are just
doing it all on their own,” Mr. Doyle
says. “Why destroy a model that is
almost uniquely American and has
been a tremendous success for 50 or
60 years? This would be horribly detrimental.”
Mr. Doyle is optimistic about the
world economy and how the digital
revolution will continue to lift living
standards for billions in the coming
decade. Even in sub-Saharan Africa
per capita incomes are growing at 5%
annually. “I’m a free trader. I just believe in my core that free markets,
technology, innovation, cheap energy
and globalization will be triumphant
and will make people better off.” They
will also, not coincidentally, make
people order more pizzas on their
smartphones.
Ken Fallin
H
ere’s a question that has
been puzzling Patrick
Doyle, the CEO of Domino’s, for months, as he
puts it: “How do we list
the calorie content of our pizzas on a
menu when we have 34 million different variations of pizza?” The new
menu labeling law, a creation of the
Affordable Care Act, could require his
company to do just that.
It’s a textbook case of a mindless
and arcane regulation, of Washington
bureaucrats imposing on businesses
costs that will have no effect on public health. “We’ve been voluntarily doing menu labeling for over a decade,”
Mr. Doyle says. “We even have an online calorie calculator we call the
‘Calo-Meter’ for every possible pizza
order, and it tells customers what
happens if they substitute, say, sausage for mushrooms, because we
strive to be very nutrition-conscious.”
That isn’t good enough for the feds.
The Food and Drug Administration is
now insisting that every one of the
chain’s 5,000 stores post menu boards
on the wall with calorie counts. “It’s
crazy and it doesn’t help consumers,”
Mr. Doyle says, because “90% of Domino’s orders arrive by phone or Internet and are for delivery, so fewer than
one of 10 customers will ever see
these signs.” The signs will cost about
$2,000 at every store, and each
lion world-wide market. But while investors obsess over finding the next
Facebook, the share price of Domino’s
has soared from $13 in 2010 to just
over $100 today. It has been among
the top performing stocks in the Fortune 100.
Mr. Doyle has helped take the company global, with stores operating in
80 nations and expansion plans
throughout Asia. In sales, Domino’s is
now the No. 1 restaurant chain in India. Sub-Saharan Africa is also among
the company’s fastest-growing markets, with a billion people and a growing middle class. “We’ve discovered
Africans love pizza,” he says. “They
order them on their mobile phones.”
Things weren’t always flying so
high in Ann Arbor. Mr. Doyle became
CEO after two of the company’s worst
years, and sales were still sliding. One
of his first decisions was to take an
unorthodox approach: “We held a series of focus groups with consumers
and we discovered that people hated
the pizza. So we ran these TV ads featuring Americans complaining about
how bad Domino’s pizza tasted.” Then
Mr. Doyle appeared on screen with an
apology and promise: “We hear you
America. Sometimes you know you’ve
got to make a change. Please give us
another try.”
He adds with a laugh that the one
thing in his career that impressed his
children was when they were in a New
York restaurant and comedian Amy
Poehler spotted him and shouted,
“Hey, you’re the pizza guy.”
In the three months following
those ads, Domino’s had its fastest
rise in sales in company history. “I
think consumers really appreciated
that we were direct and honest with
them,” he explains. That ad campaign
is now considered a textbook crisismanagement story, with its lesson in
honesty as a best commercial policy.
Domino’s is also riding the digital
revolution. “In a lot of ways we’re really a technology company,” Mr. Doyle
says. “We’ve adapted the art of pizzamaking to the digital age. Globally,
we’re already at a run rate of about
$4 billion of digital sales.” He adds
that digital drives sales by making ordering easier and more efficient, and
saves money on bad orders because
customers “take their own orders so
they make fewer mistakes.”
His goal is to have every iPhone in
the world equipped with a Domino’s
app, and the company is working with
Ford Motor Co. on a voice-activated
technology that will let motorists order a large thin-crust pepperoni with
onions while driving home from work.
The atmosphere at company headquarters feels more like Silicon Valley
than a fast-food company. Most employees here are computer programmers and technicians monitoring in
real time what people are ordering,
how long it is taking to fill an order,
and the online complaints and comments that stream in. Their mission is
to streamline the pizza-making process from the time the order arrives
to when the pie is handed off at the
customer’s front door. If the goal is
delivery in 30 minutes or less, every
innovation that shaves 10 or 15 seconds is a major money saver when
you’re selling a billion pies a year. Although the Domino’s menu also includes such things as sandwiches,
pasta and chicken wings, 80% of its
sales are pizzas.
Mr. Doyle is unconditionally bullish
on the U.S. economy. “The big story
since the recession is that American
households and businesses have become lean and efficient and have paid
down debts. Consumers finally have
money and they are starting to spend
it,” he says.
Meanwhile, as the head of one of
the nation’s biggest employers, Mr.
Doyle sees the effects of what he calls
a “tightening of the labor market”
firsthand. “Frankly, right now, it’s getting harder and harder to hire. We
have shortages of truck drivers and
delivery people.”
Such real-world experience makes
Domino’s a barometer of sorts. “My
take is that the official statistics are
underestimating the strength of the
labor market. Look, it has been a long,
slow recovery. We’re now six years
into it and we’ve finally reached the
‘We’ve discovered Africans
love pizza,’ Patrick Doyle
says. ‘They order them
on their mobile phones.’
point where there seems to be more
demand for labor than there is trained
supply.” For job seekers “that is great
news, right?”
As for those who fret that only the
rich are getting richer and upward
mobility isn’t possible, Mr. Doyle says
they should pay more attention to
what happens at Domino’s. “Over 90%
of our 900 franchisees started as an
hourly worker in the store,” he says.
“Most of them started as delivery
drivers at minimum wage. They work
their way up. They become a manager.
Then they come in, they apply to buy
a store.” So from earning $7 or $8 an
Mr. Moore is a senior fellow at the
Heritage Foundation.
Corporate Giveaways Are Not a Good Deal for North Carolina
Fifty-five of the articles addressed the
impact of targeted tax incentives, and
the results are not encouraging. More
than 70% of studies found that incentives either did not substantially contribute to economic performance or
produced mixed results.
The McCrory administration has
pledged nearly $300 million to companies that promise to create 15,356 jobs
by 2026. If the past is predictive, those
promises will fall short. The left-of-center policy group the North Carolina
Justice Center reported last month that
from 2002-13 the state canceled 60% of
grants “after recipient firms failed to
honor their promises, with even higher
rates of failed projects in the rural and
most economically distressed areas.”
By Melvyn Krauss
D
Corbis
The state lured Chiquita
Brands headquarters to
Charlotte with $20 million.
After a buyout last fall, the
new owners plan to move.
In 2011, $20 million of state money
helped lure Chiquita Brands headquarters from Cincinnati to Charlotte. But
after a buyout completed last fall, Chiquita’s new owners plan to close the
headquarters, and community leaders
are now working to recover as much
money as possible.
There are other steps lawmakers can
take that are much more likely to boost
the economy: Ensure the delivery of
high-quality services such as schools
and roads while lowering costs, flattening taxes and repealing unnecessary
regulations.
North Carolina has moved in this
direction since the GOP took control of
the state legislature in 2011. Reform-
ers replaced a three-tiered personal
income tax with a 5.75% flat tax. They
cut the corporate income tax over two
years to 5% from 6.9%. The legislature
passed a law that will soon legalize
hydraulic fracturing for oil and gas,
and it enacted a sunset provision that
requires periodic review of existing
regulations.
The state economy will reap the benefits of these changes for years to come.
The results are already promising: North
Carolina has added roughly 200,000 net
new jobs over the past two years, according to federal data. That translates
into a growth rate of 5%, much better
than averages for the Southeast (3.4%)
and the nation as a whole (3.9%). In December 2012, the month before Mr. McCrory took office, North Carolina’s unemployment rate was 8.9%, a full
percentage point higher than the national average. By December 2014 it had
dropped to 5.5%, one-tenth of a point
below the national average.
Corporate incentives have a lousy record of boosting economic growth. Instead of getting distracted by the
clamor, Mr. McCrory and state leaders
should focus on making North Carolina
the best place in the country to do
business—and the jobs will follow.
Mr. Kokai is director of communications at the John Locke Foundation, a
free-market public policy think tank
based in Raleigh.
QE Could Spur Reform in the Eurozone
oubts about European quantitative easing persist despite its
early successes in the markets,
particularly in devaluing the euro in
foreign exchanges. Skepticism centers
on the so-called free-rider problem—
that the more heavy lifting European
Central Bank President Mario Draghi
does, the less European politicians will
do to promote essential structural reforms. Even Mr. Draghi agrees that
monetary policy by itself cannot produce sustainable growth.
But if the free-rider argument were
correct, you would expect the severe
economic pressure of the past several
years on the eurozone periphery countries—Portugal, Italy, Greece and
Spain—from deflation and stagnation
to have generated structural reforms.
That has not happened. The pressure
Composite
R
to play that game, period.’ ”
That claim deserves a closer look.
The John Locke Foundatison released a
report in April summarizing the results
of more than 680 peer-reviewed journal
articles that studied how state and local policy affects economic growth.
has been there but the reforms haven’t. Why should taking the pressure
off stymie reforms when putting the
pressure on hasn’t encouraged them?
Pressure is only part of the story.
Structural reform is costly in the short
run. Countries under severe economic
pressure may be unable to afford
structural reforms even if they understand their longer-term benefits.
It’s like people who believe they
can’t afford to go to college. They
know that they will likely suffer in the
long run because of a lack of a college
education, but they don’t have the
money.
Now, however, by fighting deflation
and anemic growth, the ECB’s quantitative easing makes reform more affordable. This happens in two major
ways. The first is by devaluing the
euro. Before a single bond was bought
by the ECB, the dollar value of the
euro dropped to $1.08 from $1.40.
That’s a big move—and it came in anticipation of the program and not because Mr. Draghi is a good salesman,
which he is.
The second way is that QE should
lower interest rates on periphery debt,
reducing the interest rate costs of financing the peripheries’ budget deficits. The most direct way this happens
is by ECB purchases of periphery
bonds. But there are other indirect
channels by which QE can affect periphery interest rates.
By signaling investors that the ECB
is serious about fighting deflation and
stagnation, QE should reverse the “safe
haven” flow of funds into Germany.
This should raise interest rates in Germany and reduce them in the peripheries. Interest rates in the periphery also
could benefit from German banks trying to escape negative interest rates
P2JW073000-4-A00900-1--------XA
Raleigh, N.C.
epublican Gov. Pat McCrory is
making the case for one of the
few policies that unite progressives and tea partiers in anger: corporate tax incentives.
For years, North Carolina, like many
states, has had a system under which
the governor can dangle targeted tax breaks
and cash grants in
front of companies
considering relocating
to the state. The current pot of money
CROSS
for these corCOUNTRY available
porate incentives, $30
By Mitch
million authorized in
Kokai
mid-2013, is about to
run dry. Mr. McCrory is
urging state legislators to authorize
more funding, and to that end the state
House passed the N.C. Competes Act
88-29 on March 5. The bill is now up
for debate in the Senate.
The most controversial section of
the bill would increase the amount
available for the governor to award this
year by $15 million. If that sum sounds
relatively modest by government standards, consider two points.
First, each new grant can last up to
12 years, meaning the extra $15 million
could increase the program’s payout by
$180 million. Second, North Carolina
has already issued more than 200
grants since 2002 that will deprive
state coffers of an estimated $157 million in the next two budget years alone.
The legislature’s fiscal researchers say
total outstanding liabilities for corporate incentives approach $1 billion.
If the Senate doesn’t act, the governor would no longer be able to offer
grants effective Jan. 1, 2016. The bill
that cleared the House would extend
the program for four years. That is a
long-term commitment—and a lot of
money.
Proponents argue that other states
are playing the corporate incentives
game, and businesses have become accustomed to trading tax cuts for jobs.
“There is no question that incentives
are the first box that is checked by anyone looking at North Carolina,” the
state’s commerce secretary, John Skvarla, testified. Lawmakers, even ones
lukewarm to the proposal, seem to have
bought into this message. “A lot of us
don’t care for incentives,” one of the
bill’s primary sponsors, Rep. Susan
Martin, said during committee debate.
But, she added, “we’re not in a position
where we can just say, ‘We’re not going
and possible insolvency in a conventional scramble for higher yield.
Affordability by itself may still not
be enough to spur structural reform.
Periphery politicians must have powerful incentives to overwhelm the conventional free-rider disincentives. The
basket case that is Greece, the ultimate
reform laggard, should be incentive
enough.
No country wants to be in Greece’s
shoes. Its unemployment tops the eurozone at 25% and the Greek economy
is falling apart as it bargains for a better deal from creditors. If the Greeks
leave the eurozone, they will go
through hell. If they stay, they also will
go through hell. What other periphery
country would want that?
Mr. Krauss is a senior fellow emeritus at Stanford University’s Hoover Institution.
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