It Took Honesty to Save This Pizza Chain

Editor's note: The boldest business decisions sometimes involve admitting failure. In this issue, adapted from the Chaikin PowerFeed daily e-letter, Marc Chaikin explains how one pizza chain's risky advertisement campaign sparked a company turnaround. According to Marc, founder of our corporate affiliate Chaikin Analytics, it's easy to be cynical once your mind is made up... But turnaround stories can be successful – and lead to huge gains for investors.

A pizza chain owning up to bad food sounds like terrible marketing...

In the late 2000s, Domino's Pizza (DPZ) was struggling. Its sales were stuck in a steady decline. And its stock fell from more than $30 per share to around $3 per share.

The company spent decades focusing on convenience. If you needed pizza delivered fast, you called Domino's.

But in terms of taste, it had a terrible reputation.

The Internet was full of comments about how bad Domino's pizza tasted. At one point, a survey by Brand Keys confirmed the criticism. Domino's ranked last among national pizza chains in terms of taste – tying with Chuck E. Cheese.

The company ran focus groups to study the issue. The results were brutal. Folks said that Domino's crust tasted "like cardboard." They compared the sauce with ketchup. And they complained about the "processed cheese."

Management felt it had to start from scratch. The company's chefs spent months creating and testing new recipes.

By late 2009, Domino's had its new and improved pizza. But the company faced another big hurdle...

Domino's still had a huge "perception" problem. And as I'll explain, the company set out to overcome this with an unconventional marketing strategy...

Domino's Risky Marketing Campaign Marked a Huge Turning Point

Taste tests showed that people's opinion of a pizza improved if they thought it wasn't from Domino's.

In other words, folks gave higher scores to Domino's old pizza when it was in a competitor's box. And they gave lower scores to a competitor's pizza if it came from a Domino's box.

Put simply, people already knew Domino's old pizza was bad. And once folks make up their minds about something, it's tough to change their opinion.

So management needed its new ad campaign to be super convincing.

They came up with a bold plan. Plenty of folks thought it was a dumb, risky strategy...

In short, Domino's decided to embrace the criticism with a series of ads.

The first commercial began with images of online complaints – including "Microwave pizza is far superior." It also included clips of people in focus groups criticizing the pizza. One woman said, "Domino's pizza crust to me is like cardboard."

It also showed Domino's executives, chefs, and other employees wincing while watching the videos. The company's then-president Patrick Doyle told viewers, "There comes a time when you know you've gotta make a change."

Domino's next ad revealed its new pizza recipe. It included clips of chefs explaining the long development process... and improved ingredients like real cheese and sauce with spices.

Another commercial included the same people who criticized Domino's pizza in the focus groups. It showed Domino's head chef personally delivering the new pizza to their homes – and watching them taste it. (Of course, they all reacted positively.)

The ads were an instant hit. They gained plenty of attention. And in the end, Domino's bet paid off big...

Within days of the campaign's launch, executives noticed a sales boost. And in the first full year of running the ads, Domino's revenue grew 12%. It was the biggest one-year jump in more than a decade.

In short, the ads worked because they were honest. Domino's admitted that its pizza quality was poor.

The campaign began with an apology. And it finished by showing the company's solution.

That kind of honesty is rare in advertising. And it was the key to Domino's repairing its brand image.

That might not sound like a big deal. But it was a game-changer for the company... kicking off a massive new growth phase.

Domino's sales grew every year from 2010 through 2022. That's 13 straight years of growth – an incredible streak for a restaurant company.

In 2017, Domino's passed Pizza Hut to become the world's biggest pizza chain by sales. The company's market share surged. Put simply, Domino's crushed its competitors in the 2010s.

At the end of 2009, it had roughly 9,000 locations worldwide. In 2020, that number skyrocketed to more than 17,000.

Domino's went on to become one of the best-performing stocks of the decade. It soared more than 3,400% from the end of 2009 to the end of 2019. Take a look...

Today, Domino's is considered one of the biggest turnarounds in corporate history. It's used as a case study at business schools. And it even got its own write-up in the prestigious Harvard Business Review.

Put simply, Domino's risky marketing campaign marked a huge turning point for the company. And its stock went on to soar.

Folks, it's easy to be cynical...

But big businesses can make an honest effort to better serve their customers. Domino's story shows that this approach can be successful... And it can lead to huge returns for investors.

Good investing,

Marc Chaikin

Editor's note: Right now, Marc is warning that October 3 could decide your next decade of investment performance. It all has to do with an abrupt and surprising market shift he sees coming over the next 90 days... And he says a powerful, little-known strategy could help you come out on top – if you move your money now.