Domino's Pizza, Inc. (DPZ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Domino's Pizza Virtual investor Q&A Event Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference to Chris Brandon, Investor Relations Director. Please go ahead, sir.

Thank you, Joelle, and welcome, everyone, to today's virtual investor Q&A event. This morning will be a 90-minute Q&A session, following some brief intro remarks from Ritch. Questions are open to our sell-side coverage analysts who will be prompted by the operator just like on our regular quarterly earnings call. [Operator Instructions] And for those unable to join live, the full event will be available for replay at biz.dominos.com. As a reminder, our discussion today may include forward-looking statements, and actual results or trends could differ materially from those indicated in these forward-looking statements as a result of various factors. For more information, please refer to the risk factors discussed in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and our other filings with the SEC. Domino's disclaims any obligation to update these forward-looking statements in the future. Thanks again for joining us today, and I will now turn the meeting over to our Chief Executive Officer, Ritch Allison.

Terrific. Thank you, Chris, and thanks to all of you for joining us this morning. We really have 2 objectives for our time together today. First is to supplement our normal earnings calendar with one more opportunity to discuss the business and for you to ask questions. And then second, and really most importantly, is to expose you to some of our key leaders. You hear from me pretty often, but the pandemic has made it impossible to host you here in Ann Arbor. So we wanted to use this virtual event format to give you access to some of our team, so you can hear from some of them directly. So I'll start this morning with some introductions of the folks that you're going to hear from on the call today. We have Stu Levy, our Chief Financial Officer. And now many of you heard from Stu on our Q3 earnings call. Stu joined Domino's in early 2019 to lead our supply chain business, delivering significant improvement in the operational and the financial performance of that division. And in his new role as CFO, we look forward to all of you getting to know him even more in the future. Next, we have Joe Jordan, Executive Vice President over our International business. Now some of you have met with Joe in the past when he was our U.S. Chief Marketing Officer, where Joe just had an incredible run of same-store sales gains in the U.S. For the last 2.5 years, Joe has led much of our International business and we recently expanded his scope to include all of our markets outside the U.S. Now while the rest of us are socially distanced here in our innovation garage in Ann Arbor, Michigan, Joe is joining us today from his home base in the Netherlands. Next is Art D'Elia, Executive Vice President and Chief Marketing Officer. Now, some of you have also met Art, who joined us in early 2018 as our Chief Brand and Innovation Officer, and Art was named our Executive Vice President and CMO in July this year. Art has led a number of successful brand actions and advertising campaigns in his time here at Domino's. And most recently, Art drove our 2020 menu innovations and, just announced last week, our transition to a new advertising agency of record at the beginning of 2021. Kelly Garcia is with us today, our Chief Technology Officer and Executive Vice President. Kelly is the most recent addition to our executive leadership team but Kelly has had a tremendous impact on the business on our technology and on our e-commerce growth since he joined us in 2012. Kelly led our core e-commerce platform team and was also instrumental in developing our lineup of AnyWare ordering platforms. Kelly and his team also developed our GPS platform, Domino's Hotspots and most recently, Carside Delivery. And last but most certainly not least, you all know Russell Weiner, our Chief Operating Officer and President of our U.S. business. In addition to leading our business in the U.S., Russell also oversees our centers of excellence that support our global business. These centers of excellence include operation support, marketing, technology, innovation, analytics and insights, store development and communication. Now before we get to Q&A and you start to hear from these leaders, I thought I'd take just a minute or 2 and just share a few thoughts on the business. I guess it goes without saying that 2020 has certainly been a year like no other. And for our business here at Domino's, this has brought a mix of tailwinds and also some headwinds. I can tell you that I am very proud of the way our team has adapted and innovated this year while always staying true to our core values. And while COVID-19 has brought some unique short-term dynamics to our business, it's also reinforced that what matters most in our business largely remains unchanged. Having a safe and great-tasting product, delivering consistent value for the consumer, terrific service for both our delivery and our carryout businesses, technology leadership in all things that we do, innovation, and that's related to the menu but much broader than the menu, unit economics, which you hear us talk about all the time, and growth through fortressing. And finally, and perhaps most importantly, franchisee alignment, and that franchisee alignment really has allowed us to adapt very quickly to this environment in 2020. So if anything, we believe that COVID has accelerated some of the industry trends that we believe serve to strengthen our position in the marketplace long term. And most notably, the shift to digital as consumers' preferred method of ordering food. That has certainly leapt forward in 2020, and we don't see any signs of that slowing down after COVID. And second, the shift to off-premise consumption, which was occurring pre-COVID, has accelerated during COVID and as we look forward, we expect off-premise around delivery, carryout and drive-through to continue to be our customers' preferred methods of doing business with them. So as we've navigated the business through 2020, we've done so in the same consistent and focused way that we always have, with a near-term obsession on delivering the breadth of best product, value and service for our customers while ensuring that we remain committed to the long game with ongoing investments in our brand, in our people, in our communities, and very importantly, in our franchisees. And while we still don't know what the new normal is going to look like or when we'll ultimately get there, I am extremely confident that no matter what that new normal looks like, Domino's will be well positioned for the long-term success. So with that, let's get to your questions. Operator, I will turn it over to you to start the Q&A.

[Operator Instructions] Our first question comes from Brian Bittner with Oppenheimer.

I'm going to take this opportunity to ask Art a question. Art, you've had a very successful marketing campaign over the last many years. And after 13 years with the same agency, you did just announce that you're going to end your relationship with that marketing agency, and you'll start 2021 with a new marketing partner. Can you just please talk about the reasons for making this switch after all the incredible success you've shared together with this previous partner? And what do you think the biggest changes consumers are going to see in your marketing moving forward? And just also talk about how you are going to construct the marketing strategy in 2021 to help you roll over the incredible strength you've experienced in 2020.

Brian, thanks for the question. Yes, you're right. We've had an incredible run with Crispin Porter and Bogusky over the last 13 years, and they've been a key contributor to our success, including our recent success. I don't think we would have put up the numbers that we did the past 2 quarters without the great work that they did to quickly get messages in front of consumers, to reassure them that they could get their food delivered safely or picked up safely. But as you probably heard us talk about before, we're a WorkInProgress brand. And part of that is continuing to push ourselves to get better. And we think our new agency, WorkInProgress, is going to help us get better. And specifically, you might be aware they're a small, independent agency. And as a result of that, we think they're going to help us get faster. And I think one of the things that we've all learned during this crisis, but certainly was a trend in marketing before the crisis, is that consumer changes are going to happen at an accelerated rate. And we really want to continue to be able to roll out marketing initiatives and campaigns at a more rapid pace and also take advantage of some of the opportunities that we have in the digital space. We're doing a lot in nonlinear video and some of those interactive digital channels where we really have an opportunity to get more messaging in front of consumers quicker than we have in the past. So we think WorkInProgress is going to make us stronger in that space and really allow us to engage consumers. On the second part of your question, on the playbook we're going to run next year. It's going to be the same playbook that we've run for the last decade. This brand has demonstrated the ability to consistently deliver growth now over a decade. And there's been a lot of consumer cycles that have happened over the last 10 years. And it's staying focused on what we refer to as the consumer value equation, which is making sure that we focus on product quality, great service, certainly the digital migration that we were at the forefront of, and value. Value is going to be really important. We know that consumers are facing a lot of turbulence right now, and we think our value proposition is going to continue to be a key competitive advantage for us.

Our next question comes from Eric Gonzalez with KeyBanc Capital Markets.

Now the election's in the past and the new administration is at least attempting to transition to power, can you discuss what a Biden administration means for Domino's Pizza? And which of the new administration policies are you most concerned with? And are there any which may present an outside risk, whether it be taxes, wage rates or new regulations that have potential to impact the business?

I'll try to take that one. We spend a lot more time thinking about what we can control and what we need to do in our own business versus the politics. I'm proud to say this next month in December, we'll celebrate our 60th year as a brand. And those 60 years have spanned quite a few Republican and Democratic administrations over the course of time. Our history as a brand has spanned wide ranges of tax rates, of labor policies, I mean trade policy, I mean you name it. And so we don't really know any more than you do about what policy changes may come in a Biden administration. But what I can tell you is that we're just staying relentlessly focused on serving our customers and on creating a business model and enhancing this business model that drives great returns for our franchisees. And I think if we can continue to do that, then no matter what happens with labor rates or tax rates or other things that we can't predict or control, we'll position ourselves as a brand to win in the marketplace. And I think regardless of what happens there, those brands like Domino's Pizza that have the strength in the balance sheet that we have and the brand presence that we have, the market share that we have, and most importantly, the unit economics and franchisee help that we have, I think we're well positioned to win regardless of what comes our way out of Washington.

Our next question comes from Lauren Silberman with Crédit Suisse.

So Domino's has among the best technology strategies in the industry, which has been a competitive advantage for the company over the years. As we've seen an acceleration in digital adoption across the industry, increasing digital investments from large restaurant peers and loyalty programs that are seemingly becoming table stakes, how are you thinking about maintaining your competitive advantage with technology? What makes the Domino's digital ecosystem such differentiated assets? And what are your priorities over the next couple of years as it comes to digital and technology?

Great. Thanks for the question, Lauren. I'm going to kick that one over to Kelly Garcia. Kelly, you want to take that one?

Yes, absolutely. We have always invested in technology to be where our consumers are going to be. And that was in the past in adoption of new technologies like AnyWare, watches and voice. Now as we see the transition to more digital, we're just going to continue to invest and optimize those channels. But as you look at the environment in COVID and during the pandemic, things like making sure that team members feel safe with adoption of contactless delivery is important, so we'll continue to offer safe options or what we launched this year in Carside Delivery to ensure that there's not only convenience in carrying out from our stores, but also the safety component as well as the launch of GPS so that consumers can see where the driver is in the process of tracking their order all the way to their house and providing efficiency tools for our stores. Across the gamut of that, if there's a technology that our consumer is going to benefit from or that our franchisees are going to benefit from to drive same-store sales, we're going to continue to invest going forward.

Our next question comes from John Glass, Morgan Stanley.

Ritch, you talked about 2020 being a big year for digital adoption. I think that's across all brands in the space, and third party aggregators obviously got some real benefit as well. And I think you've always highlighted the fact that the value proposition at Domino's and the delivery value proposition specifically is just much better. Do you think your consumer understands that well? Or do you think that's an area where you can really leverage that differentiation through media, through advertising? How do you break through and make sure your consumer understands there's a lot of options, but you still are the best and cheapest option from both the speed and price value equation? How do you get that through to the consumer? Or do you think they already understand it?

Great. Yes, great question there, John. Yes. Russell, why don't you take that one?

John, with respect to aggregators, I think there are things that consumers know and things we'll reinforce over time. When we talk to customers, I think there are a couple of things that we see as advantage. One is there's nothing -- especially during COVID, there's nothing between our restaurants and our customers. It's just us. And that's really important and couldn't be even more important during these times. The other thing, and I think Ritch mentioned this on the earnings call, is they can trust us for consistency and price, and we hear that. I'm proud to say we've had the same $5.99 offer since 2010 and the launch of new and inspired. And so the value, that's expected. We don't surprise people. We also don't surprise them in delivery. They open up their check and they see what we charge for delivery. And what we're starting to hear more and more is there are more fees than just delivery fees, and that seems to be surprising people. So if you look under taxes and other fees, there's that little question mark, and you click that, and people are seeing 10%, 11%, 12% over the cost of the delivery fee or even in the case of a free delivery, you see those charges. So I think there's a lot of confidence in the quality of our food that no one stands between us and our customer and just the guarantee of our value.

And you think that the customer appreciates that now? Or do you think you have to reinforce that method? I guess that was my question. Do you think that's an opportunity for you that there's a lack of understanding of those differences?

I think the more they're using these services, the more they understand. And certainly, there's an opportunity to continue to differentiate ourselves between Domino's delivery and somebody else delivering your food.

Our next question comes from Gregory Francfort with Bank of America.

I'm glad you guys can't see us because the quarantine beard is getting a little out of control. It's crazy. Russell, I had another question for you. Just one of the things I think that's changed recently in the Domino's organizational structure is the consolidation of technology and marketing to have them work more together. And can you maybe talk about why that matters and what that does for you that maybe you couldn't do before?

Yes, sure. I think many of you know me. Ritch and I have worked alongside each other for a long time, have been at Domino's since the end of 2008, where I started as our Chief Marketing Officer. And I think what we started to do then and are continuing to do now is really touch consumers in a holistic way. And with these latest amount -- with these latest moves that Ritch has made, I think the thing that you see in common is all the departments that I work with are ones that directly touch customers. And all that means is our ideas can be more integrated. Our ideas can be more impactful, and we work together a little more and we're more agile. So that's probably the common denominator when you go back and listen to the things listed -- Ritch listed off reporting to me, it's the stuff that directly affects the customer.

And Greg, what this new structure also allows us to do in Russell's organization, not only does he bring that holistic approach to how we address the consumer to the U.S. business, which Russell leads directly, but also those centers of excellence support the international business, which Joe Jordan leads as well. And as our business continues to grow around the world, there's a lot more that's the same than there is that's different, to be honest with you, in terms of how we need to approach the consumer. And Russell and Joe have a terrific working relationship over many years and are really partnering hand-in-hand to bring a lot of this terrific technology and marketing and analytics and insight that we've rolled together for our U.S. business. We're starting to bring more of that to our international partners as well.

Our next question comes from Chris Carril with RBC Capital Markets.

Question for Russell. Now that we're 8 months removed from the beginning of the pandemic, and it feels a lot longer than that, but among the most obvious trends that have accelerated have been the growth of digital ordering and off-premise consumption, both of which Domino's has been ahead of the curve. And Ritch, you touched upon this in your prepared remarks. But are there any less obvious trends or shifts in consumer behavior that have surprised you in the last 8 months? And how do you feel Domino's specifically is positioned relative to these other shifts in behavior that maybe we're not picking up on?

Yes. I mean I can definitely tell you, a year ago this time, I was not thinking of a pandemic, so there's been a lot that surprised me. But I think the one thing that Ritch talked about that's not only been comforting, but is something we've worked on is a business model that really is -- these trends are just exacerbating. So the fact that delivery is increasing significantly, and we're the #1 delivery brand, the fact that people are buying more things because they're at home, right? So they may be getting more food at home. We've had a mix and match offer for years that allows them to bundle things together. And so our ticket is going up naturally. We're not raising prices. Consumers are just naturally bringing things home. So yes, I don't -- like I said, the pandemic itself is certainly nothing that anyone could have predicted. Even from a store count perspective, we're seeing -- trailing 12 months, our store count is about where it's been -- where it was this time last year, even with municipalities' slowdown on permitting, et cetera, et cetera. So yes, I really -- we're surprised. Certainly, where we are in the world right now. But I think our model is just shown that we're headed in -- we've always been headed in the right direction.

Our next question comes from David Tarantino with Baird.

My question, I guess, is similar. I guess, one of the big debates in the investment community about what's happening out there is whether the big strength that Domino's has seen in the business since the start of the pandemic is either a new layer of business or a new layer of customers or a new layer of occasions, however you want to think about it, or just a temporary increase that's related to the pandemic. So I guess, the nature of my question is, as you evaluate the data of what happened over the past couple of quarters, do you think it's a new customer acquisition story and that you have a new layer of business? Or do you think this is just kind of an unusual period where you're seeing in the usual types of trends?

David, thanks for the question. And I'll kick that over to Art because we do, David, we look really in a nuanced way at both of our businesses, the delivery and the carryout businesses. And we look at customer acquisition and customer retention trends within both of those businesses. And Art, maybe you can comment a little bit on there from your perspective on what we've seen over the last 6, 7 months.

Yes. No, happy to. I mean -- so one, I don't think high-growth is a new phenomenon for Domino's. Like I remarked on earlier, we've seen periods of high-growth throughout the last decade. So yes, this pandemic is unique. And yes, there's been some tailwinds, in particular, in our delivery business that we've benefited from. But this has been a business that I think has delivered consistent growth now for a long period of time. And one of the things that we saw pre pandemic was a lot of growth in our carryout business. Now that business hasn't experienced the same tailwinds as we have in our delivery business because more customers are staying at home. But that business has a tremendous amount of upside still in the future. And same with our delivery business. We have benefited from some of those COVID tailwinds in acquiring more customers. And that's allowed us to reach some new customers, in some cases, some lapsed customers that hadn't purchased from us in the previous several years. And Russell just touched on this as well. In addition to the acquisition, because a lot of customers are looking to have leftovers, they're buying sides and desserts from us that they haven't in the past, which gives them an opportunity to explore parts of our menu that I also think will be a benefit going forward for us because we have some great products in there. So I continue to be really excited about the new customers that we've been able to acquire through a delivery business. But also as things open back up post pandemic, the continued upside in our carryout business.

David, we always -- we can always step back and think about the fact that tonight, we're still only going to serve about 1 out of every 5 pizzas that gets consumed in the U.S. tonight. So we've got so much share gain upside coming out of this pandemic. And as Art said, we -- over time, we've built such a terrific data and analytics capability that all of these new customer acquisitions we're getting, we have an opportunity to really understand and get to know those customers and think about how we can market to them in the future.

Our next question comes from Jeffrey Bernstein with Barclays.

Great. A question just on the broader franchisee mindset. I mean clearly, 2020 has been a strong year for Domino's. But I'm just curious when you engage with franchisees, both in the U.S. and abroad, any change to their mindset on the business? Just wondering, sentiment on topics like the potential to change the unit growth trajectory with the most recent delays and closures you've talked about or their view in terms of the need of continued new product news or outside near-term cost pressures. And I know you talked broadly about franchisee alignment, but just trying to get a better insight into what the past 6, 9 months have meant to the franchisees and how maybe the sentiment has changed around any of those fronts as it relates to messaging you're hearing from them on the outlook going forward?

Great. I'll make just a couple of very brief comments. And then Joe, I'll ask you maybe to speak a bit about our international master franchise partners, and then Russell, our U.S. franchisees. Jeff, it's been -- honestly, I've just been blown away at the level of engagement and commitment and sharing of ideas and best practices that we've seen across our franchise partners in the U.S. and internationally as we've navigated our way through this pandemic. And if anything, our communication with the franchisees and our relationships with them has only been elevated during this process. And one of the things when we talk about it as a management team, that we hope to take away once COVID-19 is -- once we have a vaccine and we have therapeutics is that level of engagement, we want to maintain even at that higher level going forward because it's allowed us to move so quickly during the pandemic. And as we look going forward, Art talked about the need to be nimble and to move fast. I think it will position us even better with our franchise partners to do that in the future. So with that, just kind of as an overarching comment. Joe, why don't I turn it to you and talk a little bit about it's been a pretty eventful time in some of our international markets as they've tried to work through this pandemic.

Thanks, Ritch. Yes, it has been a very varied experience for our international masters. Some of them are public. You've seen the results, and we've had some who have had tailwinds, some have had significant headwinds. But the one thing that's been consistent is, I'd say we're closer, as Ritch mentioned, to these franchisees now than we were at the start of the pandemic. And as I think of our large masters without fail, they're more optimistic about the future and the strength of the brand and the business model that Domino's brings, digital, delivery. Carryout is a very big opportunity in many of our international markets that hasn't been tapped into as much as it has in the U.S. So I think the collaboration is better. We talked about all the different functional areas where we've developed our expertise in the U.S. A lot of our larger masters around the world have done the same. I think of DPE, I think of DPG. We're now getting closer, Kelly in particular, around technology and the need for us to work together and solve the very similar problems we have in 90-plus countries around the world. So I think the relationship is tighter, and I believe the optimism and the leaning in is there in our master franchisees.

And Russell, maybe a few thoughts about our U.S. franchise [indiscernible].

Yes, I'd like to say we couldn't be on the call without thanking our U.S. franchisees. They are truly on our front line, feeding our customers. I think the -- what you've seen during COVID, what I've seen, and I'm really proud of, is what's been working at Domino's over the last 10 years that I've been here? Well, 12 years, actually. Is increase -- it's just gotten stronger. So for example, one of the things that in our relationship with our franchisees is trust, right? There's lots of unknowns in the world today. I think our franchisees know that we make disciplined decisions based on the data. So in a world where there's so much unknown when we can bring them facts and talk about why we're doing what we're doing, that trust really goes a long way. The second thing is customer retention. Art talked a lot about all the customers that are coming on right now. We know the biggest driver of retention is service. What's happened during the pandemic is almost a fast forwarding of the adoption of all of this technology that's going to improve service. So we've got Carside Delivery, GPS, Pie Pass, all of these new service -- newish services that we've launched, the adoption has just been fast forwarded during COVID. And then lastly, I think because of that, we've seen them being just as aggressive as us. They're supportive of marketing and the adoption of all this new technology; they're still bullish on store openings. And so yes, I think it's just -- it's dialed up what already was an extraordinarily strong relationship.

Our next question comes from Brett Levy with MKM Partners.

I appreciate you guys taking the time to share all of this. I hope you're all doing well. Just kind of going back to some of the questions, just asking a different way. You've obviously been very front-footed on technology and strategy. And more recently, you've stepped up your menu innovation. But as you're going up against challenging comparisons, how are you really thinking about marketing, what you need to do on the menu, what you really need to do to grow and maintain the stickiness of your loyalty. Do you think that there is a need to be more incenting or we're really double down on the value component as you go into 2021?

Thanks, Brett. Art, I'll let you take that one.

Yes. So as I mentioned before, when we think about marketing, we're going to activate what we refer to as the full consumer value equation and try to engage consumers on a number of fronts. On your specific question about product innovation, we had a 3-year gap in between launching new products. We launched bread twists back in 2017 and then our new chicken wings this past July. And one of the reasons for that is, you've heard us talk probably in the past about, we're not big believers in the limited time offer game because those limited time offers typically are not very incremental and add a lot of complexity to our stores. So we want to really make sure that we're adding menu innovation that's going to be incremental and sustainable to the business. So I don't think you'll see another 3-year gap in between us launching new products, but we're going to continue to really rigorously test those product concepts to make sure that they are going to be incremental and sustainable and additive to the business. So the philosophy that we're going to take on many innovation will be very consistent with what you've seen over the last decade. On your question regarding stickiness, clearly, loyalty has been a key lever for us in driving retention. And I know we typically get a lot of questions about membership and growing membership is something important. It's something we continue to do, but the team also focuses a lot on engagement. Consumers earning and redeeming points, which is a key way that we drive frequency with those customers. And we have one of the largest loyalty programs in the industry, which allows us to engage a very large audience of members and drive that frequency with those customers. And that's something that we continue to focus a lot on. The other thing I'd note as well is continuing to drive digital adoption, but also migrating consumers to our different digital platforms, in particular, our app. Our app is our stickiest platform, and we work really hard to continue to migrate consumers to our app, where we have a lot of remarketing tools and ways to drive frequency with them. So we're pulling a lot of levers to continue to drive frequency with customers and retain them.

And so just to go on a point that Art said about the app, here in -- since the first quarter, while you haven't seen us run any of our boost weeks, as we call them, our 50% off weeks or things like that, we have run some very targeted promotions to get folks to download the app because we know that is a great vehicle to create stickiness for our customers over time.

Our next question comes from Andrew Charles with Cowen & Company.

Great. And great to see you guys in this Brady Bunch format. A question for Ritch. Since we last spoke, there's been some notable M&A activity in the industry. And Ritch, just given your vantage point, the CEO, Board member and your background of private equity, I was curious on your thoughts for if you think the industry is ripe for M&A activity in 2021. And maybe the extension of that as well is that given Domino's digital advantage that is theoretically scalable to another brand, as well as the brand's expertise in operations, restaurant growth, data analytics, global and marketing, is Domino's open-minded to adding another brand to its portfolio?

Andrew, thanks for the question. There certainly has been a good bit of M&A activity in the industry. And some of it at some multiples that are pretty high popping at times as well. But when I think about -- when I think about Domino's, we've -- even as the market leader in the pizza category, we still have so much runway for growth in our business. If you look relative to some of the other categories, whether that's burgers or coffee or other, pizza is still really fragmented. And I look at our opportunity to continue to gain share in our core business as really the place where we want to focus going forward. And so if we were sitting here with a 50% plus share of the global pizza market, I might think very differently about that, but we've still got, as I said earlier, we'll serve about 1 out of every 5 pizzas in the U.S. tonight, and we'll serve about 1 out of every 6 or 7 outside the U.S. And I like the fact that our brand, our people and our franchisees wake up every morning focused on 1 thing, and that is Domino's Pizza and continuing to drive this business. So while there is a lot going on out there around us, and certainly, we have some substantial capabilities inside of our business that could potentially be leveraged, I just -- I look at it, and I just like the focus that we've got as a brand and a system. And I see so much runway and opportunity for profitable growth, delivering pizza and providing carryout experience to our customers that I don't want to divert that focus right now.

Our next question from Todd Brooks with CL King & Associates.

Quick question on fortressing. Just wondering, updated thoughts on the fortressing strategy, given the likely competitive closures in existing markets as a result of the pandemic and the possibility that new units within a given market that wouldn't necessarily be a fortress unit may open up for franchisees, and they may decide to use their capital to maybe spread the reach in the market versus fortress to market?

Great. Thanks for the question. This one, I'll also kind of divide up into 2 parts. Russell, maybe take a bit and talk about how we're thinking about this in the U.S. and then Joe, maybe some highlights across some key international markets, which are also very aggressively fortressing. So Russell, can we hit the U.S. first?

Sure. Well, as you know, we've got 2 businesses. We've got a delivery business and a carryout business. And the great thing about is fortressing helps each, right? So from a delivery perspective, we talked about earlier how service is what makes people come back. When we fortress and we're closer to our customer, we deliver to their homes more quickly. When we deliver more safely, but quickly to their house, they come back for more. So certainly, helps our -- fortress helps the delivery business. From a carryout perspective, every time we open up a store, the well majority of the carryout orders are incremental. And so that's kind of a fresh business, even to a store that may be split as delivery territory. So fortressing is critical to growing the business, and our franchisees see it and they believe it. And they know, just like I said before, everything we do is kind of data driven. We put a lot of data analytics into these, figuring out where the right places for these stores to open are. And after years of doing it and then being able to look in the rearview mirror and saying, "Wow, this works," can certainly see why they'd still be bullish.

Yes. And before we go over to Joe, I'll just add one thing. We're putting our money where our mouth is on this, on fortressing as well. We operate corporate stores in 7 markets around the U.S. And virtually, every new corporate store we build is a fortress opportunity because we pretty well got those geographies covered. But we believe in it so much that we're quite happy to put our own capital against it. And as Russell's development team brings those opportunities to me and to Stu for approval, I mean we say yes, every one of those that pencils from a return perspective, we are building. And I can tell you, I'd love to build more and more of them in the future because it is a great return on investment, whether it's for us or for our franchisees. So Joe, maybe a few thoughts around some of our international markets, who, in a lot of ways, kind of led the way on fortressing, if we think back over the last kind of 5 to 10 years.

Absolutely. The dynamics hold in terms of 2 businesses and carryout and delivery and the more we fortress an area, the better service we're giving and the more carryout customers we can hit. Where it does vary a little bit is that we have more white space in some of our international markets. There are still places. There's still many cities in China, for instance, where we don't compete yet. So it's a balance of continuing to fortress in, say, a place like Beijing or Shanghai, where we have pretty could penetration and beginning to understand what new cities we should be going to. But as we go to those cities -- or another great example is India. We're in 288 cities, and we continue to add more and more cities every year. As we go into those new territories, going into it with a fortressing mindset, knowing that don't build 1 store in -- at Main and First or the equivalent thereof, build it with a mindset towards you're going to have 5, 10, 20 stores in that town and put them in the right spots. So it is a bit more of a balance, but it's that same end goal in markets around the world.

Our next question comes from Dennis [Audio Gap]

Great. Just wanted to stick with the international maybe and ask about that business and kind of get an update on some of the markets that maybe weren't seeing the same level of operating strength as the U.S. or as other countries in recent quarters. And recognizing that given all the countries we're in, different countries have different challenges. But if you could give us a little bit of a sense of kind of where you're at now in some of those key markets that we've talked about in recent quarters as you've been working with the franchisees on different things, whether it was the value proposition or otherwise. Just curious if we could get an update there on some of those bigger, bigger markets of focus and how that's been going.

Sure. [ Greg ], Joe. So I'll start with the market that I just mentioned that was the heaviest impacted in the world, really, for us, which is India, our largest market outside the U.S. in store count and had significant closures over the last 2 quarters. They just released updated financials today and after being down by more than 1/2 at certain points, in October, they were running at 96% of year ago, which is on same-store sales. So a pretty remarkable turnaround. And I do have to give huge credit to Pratik and the rest of the Jubilant team for leaning in, doing the right thing, closing when it was the right thing to do and opening up as soon as they possibly could to serve their customers and get their employees back to work. So really happy to see that. That was a business that -- at some of our markets, Spain's another good example, where we had really sizable dine-in businesses compared to the U.S. We've seen a shift and a focus towards delivery and carryout. So both delivery -- I mentioned India's back to 96%; carryout's up about 50% over a year ago. Delivery's up about 6%. So they're growing those businesses and as they -- as you all know, they closed about 105 stores but they also plan to open 100 stores in this fiscal year with more of that delivery and takeaway mindset. So that's on -- probably on the side of the biggest headwinds. A great example from maybe tailwinds, both from a market perspective but self-created, would be a market like Japan. So just remarkable results there in that the most recently released results that I'm sure you've all seen from DPE, up 18% in same-store sales, significantly higher as they've grown their store count. And that was a matter of the team in that market, Don and Josh, getting, as you asked, the value right. We were a bit higher priced in that market, and they now have everyday delivery and takeaway offers that are there for their customers to give them great value without having to second-guess, going back to some of the comments Russell made earlier about aggregators, and that's resulted in that sustained great result that we've seen. So those are 2 kind of bookends of the experience. In general, India's recovery is somewhat indicative of what we've seen across the markets that have been hardest hit. We've seen a second wave here in Europe and there are some new restrictions, but our masters are using some of the lessons learned in the first wave and in some cases second wave to keep the stores open and to not see as much of a hit to our business as you saw in our Q3 results.

And just to add briefly to Joe's comment, we were really fortunate, I think, to enter into 2020 with some very strong and well-capitalized master franchisees. So while some -- as Joe called out Jubilant, they had to deal with a very significant headwind on their business in India. It's such a great business that has performed over so many years and such committed partners at Jubilant that they had the wherewithal to work through this. And we've really leaned in along beside them and the rest of our international partners. A true partnership to get through what has been a trying time in some of these key geographies.

Our next question comes from James Rutherford with Stephens, Inc.

Mine is fairly specific and it's around labor and automation. It looks like wage inflation is going to be a constant headwind, perhaps even incrementally so in coming years. Additionally, your stores are running much higher volumes today. So my questions is whether you all are looking to add automation to the makeline that can widen the value around your business. And if automation specifically from the road map, perhaps you could comment more broadly about future digital innovation priorities on the operation side of your business.