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

Good morning, everyone. My name is Andrew Charles. I'm Cowen's Restaurant Analyst. I'm very pleased to be joined by Domino's, CFO, Stuart -- Stu Levy. Today, we're going to be talking a little bit about the business and Stu has about a 20 to 30-minute presentation, after which I'll be conducting a Q&A session. I have Q&A, a few questions prepared, but certainly, feel free to enter any questions you have into the chat, and I'll do my best to help relay them. Stu has served as Domino's CFO since August, and he's been with the company for about 2 years, prior to that serving as the EVP of Supply Chain services. With that, Stu, let me turn it over to you.

Thanks, Andrew. Really appreciate it, and good morning, everyone, or I guess, in the virtual world, good morning, good afternoon and for some good evening, depending on where you're tuning in from. Certainly, would prefer to be in person with you, Andrew, and with everybody else. But obviously, as circumstances dictate, I'm just excited to talk about the brand. I get incredibly excited talking about the story of Domino's and looking forward to chatting with you. Let me just begin by reminding folks, we may make some forward-looking statements that are subject to certain safe harbor protections. This is our legal slide. When I talk about being really excited about telling the Domino's story, it's not necessarily about the legal slide. So let me just -- let me jump in without further ado. It's easy to get super excited about Domino's. We're the #1 brand in global QSR pizza. As many of you know, we recently surpassed $15 billion in global retail sales, which is really the metric for us that shows us that we're growing, that we're remaining healthy. With over 17,000 stores across 90 different markets internationally, predominantly franchise business. All of these are things that I'm sure most of you know. What I'm not sure everybody realizes is the way we think about the business, though, is that we're really running 2 businesses out of the same box. And that was never more apparent than over the last year during COVID. And it's really actually something that's benefited us. It's been core to our business for 60 years, but we essentially run a delivery business and we run a carryout business. And they tend to be different customers. And when the pandemic hit and a lot of restaurant brands and -- actually, a lot of retailers, in general, were trying to pivot to create a delivery business or create a carryout business, we're just operating as we normally did. And that certainly provided a healthy benefit for us during COVID, and we believe it's certainly something that will continue to benefit us moving forward. So for us, we're already the #1 brand. So the question that we get a lot is, well, where do you go from here? And it might sound a little strange, but to us, we go from #1 to the dominant #1. When we look at the market, when you say, well, why dominant? When you look at the market and we'll look at a little bit of data here in a second, if I look at the U.S., just as an example, and truthfully, we could go around the world, and we would see a similar picture. The U.S. total market for QSR pizza on the left, and this is all kind of NPD, independent data, the blue would show us at about a 22% share. And if you look at market share leaders across a lot of industries, 22%, you've got a lot of companies that are much higher than that when they are the leading player. So we look at that and say, there's growth out there. When you break that down further, and this is something that we haven't done for this audience previously was really break down the delivery versus carryout. But you see on the right, obviously, we have a really healthy delivery business. There's still opportunity out there, particularly when you look at the regional change, the independents, that shows all the fragmentation in the business. And then you take that to the right to the carryout area, which is a larger piece of the overall puzzle, larger piece of the overall pie, no pun intended, right? Hugely fragmented, there's a ton of share gain opportunity out there for us, right? It's one of the reasons that we remain singularly focused on pizza, it is our brand. It's our only brand because we know that there's a ton of growth out there. And when we think about growth, it means growing our current business in our current boxes and it means growing stores. And it's a question we get a lot. How much more growth is out there for you? And we've got a lot to be excited about. Even in the U.S., where we are, certainly, the largest portion of our stores in terms of a market, we look at that and we say we still got somewhere in the 1,800 range of additional store capacity in the United States. And then you look international and it just gets even more exciting. When we start talking about our international markets, this is just our top 15 markets, and you've got 5,000 stores. And I'd be remiss if I didn't pause for a second and just call out China and you'll have an opportunity to hear from Aileen in the Dash Brands team tomorrow, our amazing franchise partner in China. And you see that 1,000 number as potential. And that's something they'll talk about in terms of kind of a 5-year time horizon. But if you look longer term, I mean, we fully expect like China is, at some point, it's going to be our second largest market behind the United States. There is so much growth potential out there. And the formula for success across all of them, quite honestly, is pretty similar. And that gives us a ton of confidence in terms of our ability to continue to grow, to continue to gain share and to continue to leverage the successes that we've had in these markets for years to come. Now our way of going and growing comes back to really a tried and true formula for us, which is -- it sounds pretty simple, but it's a focus on really 5 key stakeholder groups. And I'm going to take just a couple of minutes on each of these, but it's -- if we win with our customers, our team members, in our communities, with our franchise partners and obviously, with our shareholders, the audience largely here, everything kind of takes care of itself. And that's the way we've been focusing is a continued focus on these key stakeholders and what it takes to win with these stakeholders and then everything kind of adds up on its own. So as we think about these, and I'm just going to take a couple of minutes on each of them. You start with the customers, and we talk about a lot in our business. But at the end of the day, we've got a formula that worked long before the pandemic. It certainly worked and benefited us during the pandemic. We believe it's going to be the formula that works coming out of the pandemic. It might not be super exciting, but it is tried and true and it works. If you offer a great product, for great value, with great service, you're going to meet a lot of customers' needs. And then if on top of that, you are constantly talking to your customers, learning from them, we've utilized technology as one of those ways to do that, but it helps us drive the innovation that enables us to do business with our customers, the way our customers want to do business with us, right? And we've been at the forefront of innovating around our brand, from driving it to more digital, driving loyalty in our business through the way we do this, doing things like contactless delivery or Carside Delivery, which we were working on before the pandemic hit. But it's all around this one umbrella of great products at great value and great service. You can do all of this technology and innovation. But we still offer a $5.99 mix and match delivery deal and a $7.99 carryout deal, that is value. We saw that prior to the pandemic, certainly during the pandemic, the need for customers to be able to find value was certainly heightened, and we believe that we did a really nice job of providing that value for them where they were seeking it during the pandemic. And that will continue to be our formula moving forward. Like I said, it's not -- it might not be incredibly wild or inspiring in the way people think about it. But it really is the formula for success, and it has been and it continually will be. And when you look at our business, the growth shows it. And we talk about global retail sales because global retail sales is really for us, what matters in our overall enterprise because it takes not just the comps right? And everybody gets so focused on comp store growth, and I'm not trying to minimize comp store growth, but it's not just the growth in an individual box, it's about being able to put more boxes out there. It's about being able to grow your brand by adding units. When you combine both of those, you start to see really healthy overall enterprise growth. And that's what we've shown at close to a 12% CAGR as we've eclipsed the $15 billion mark. And like I said, I'm not trying to minimize the importance of comps. In fact, I'd be crazy to try and minimize the importance of comps when you see the comps that we have, right? In the U.S., we've had 38 consecutive quarters of positive same-store sales. Internationally, 107 consecutive quarters. So it's not that comps aren't important. We just think about comps plus, right? It's plus the overall growth in the system that matters. And it starts with having the right value proposition for our customers. Now when we talk about the value proposition, the other place where the value proposition really matters, is actually with our team members. And we haven't spent a lot of time with this audience talking about our team members, but that doesn't make them any less important. In fact, for us, it really is at the essence of how we get done everything that we get done for our customers, it comes back to our team members. And we certainly saw this during COVID. But for us, we want to make sure that we have a value proposition for our team members that enables them to learn and grow, enables them to have a career path, whether that's with us as a company or a franchise opportunity, which I'll talk about in a moment, right? But we want to make sure that we have the right value proposition for them the same way we want the right value proposition for our customers. During COVID, our team members leaned in like you couldn't believe and really made sure that in a world where you can't run a pizza store virtually, right? That they were able to serve our communities and serve our customers. And when they leaned in, we leaned in right behind them. We invested heavily in things like enhanced sick pay and additional wages and benefits, frontline team member bonuses, right? All about making sure that we were rewarding them, acknowledging them. And like I said, providing the right value proposition. And I think as we move forward, understanding the importance of that value proposition, that long-term career path, that opportunity for our team members, particularly at the front line, I think some -- you'll see some of those investments that we've made and our team members continue as we move forward post pandemic and well into the future to ensure that we have that right value proposition to really reward the people that are making it happen every single day for us. Now as I go through the stakeholders, you can't talk about team members without talking about our communities. In fact, you can't really talk about team members and communities without talking about franchisees, which spoiler alert is coming next. But as we think about our communities, we -- it's been critical for us to be good stewards in our communities. That's forever. That goes back to kind of the very ethos of who we are as a brand. Now certainly during COVID, we saw this at its height. I mean we saw our Feed the Need program, donating 10 million slices out in the community, investments being made for organizations supporting black communities. But it goes beyond what was happening over the course of 2020. When we think about work that we're doing in and around recycling and communicating the recyclability of pizza boxes or work that we do with our suppliers to ensure that we're taking care of the environment and taking care of animal welfare, this all goes kind of to the core of who we are. A lot of folks are probably familiar with the work that we've done with St. Jude going back to 2004. And probably saw recently, we just announced the largest commitment that anyone's ever made to St. Jude, a $100 million commitment to St. Jude for all the wonderful, wonderful work that they do and really, when you talk about our franchisees and how they're wired, they are wired to serve. We -- they support things like our partners foundation, which is there to help our team members in times of need. When things happen in the communities, they are out there following a hurricane, following a natural disaster either helping by feeding the community or helping to rebuild the community, helping with first responders. It is fundamentally at the core of their being, is serving the communities that they operate in. We think of ourselves as a network of small businesses of a bunch of local mom-and-pop businesses that happen to operate under 1 big brand. And our franchisees take that responsibility really seriously. So let me shift gears and talk about them for a bit because when we talk about the success of our brand and we get asked all the time, what's your secret? What has led to your success? What are the things that -- what's your competitive advantage that nobody can touch. And in all honesty, we can talk about our technology. We can talk about our cheeseburger pizza, which is phenomenal, by the way. But the thing that nobody can touch in our mind is our franchisee, our franchisee base. Now internationally, we've got this phenomenal network. We're 100% master franchise with very large, very sophisticated organizations. Our 5 top master franchisees are publicly traded in their own right. A 6 Dash Brands. You'll hear from tomorrow. It's hard not to be impressed with Aileen and team there. And domestically, it's really unique. Domestically, it's a network that is 60 years in the making. And that's what makes it such a competitive advantage, right? Every franchisee has worked for the brand, 95% plus started in an hourly role. So you're talking about someone who started off delivering pizzas or making pizzas in the store. And I don't know about you, but I don't know too many delivery drivers that start off as a delivery driver, thinking that they're about to embark on a business that's going to generate $1 million a year. But our average franchisee operates 7 stores and generates $1 million a year in EBITDA, and they started as an hourly employee years and years and years ago. And that creates a level of affiliation, a passion, a dedication, a commitment to the brand that we just don't think you can replicate with a third-party investor that's coming in and looking to make a -- to generate a return. That is the piece that was built over 60 years that becomes virtually impossible to replicate, certainly impossible to replicate overnight. That's our secret sauce, so to speak, our secret pizza sauce, if you will. It's our franchisee network. And the reason it works is because our focus is on their profitability, right? We realize that while as a franchise business, we might make our money on the top line. If they don't make money on their bottom line, it's not going to matter. They need to make -- they need to be profitable, generate increasing profits so that they continue to grow with us. When they grow, we grow, right? And these are obviously projected estimates for 2020. We don't have everything finalized yet. We've obviously had a decent tailwind through the pandemic and obviously, we would expect that to benefit our franchisees. We would think -- we expect to be somewhere in the $15,000 or more increase over 2019 in terms of individual store economics. And obviously, these are incredibly attractive economics. Store profitability matters. It certainly matters to our franchisees. It matters to us because it matters to our franchisees. And when they're making money like this, they're looking to grow, right? And the box economics matter, they certainly matter, but you also need a strategy, you need a proven strategy with an ROI that says, okay, if I want to take this and do this somewhere else, how do I do it? And that's one of the things we've been really successful with over the last couple of years, and we've talked about previously, which is our fortressing strategy. And our fortressing strategy really is about getting close to our customers. So that we can provide, I mentioned before, great products, great value, great service. How do you provide great service? You get to them as quickly as you can. How do you do that? You get closer to them, right? So we get closer to our customers, we provide better service. We do that at a lower cost. It also enables our delivery drivers to make more deliveries. When they make more deliveries, they make more tips, they make more tips, they make more money, they're happier, they're supporting the brand, right? It drives all of that growth. And when you think about the most fragmented piece of the market that I talked about earlier, which is the carryout market, getting closer to the customer enhances your ability to do carryout. Customers aren't going to go to carryout 30 minutes away. So while we watch a lot of businesses out there trying to figure out how to expand their delivery area to capture more customers, we're doing the opposite. We're saying we want to provide the best value proposition for our customers and the way to do that is to actually get closer. And we have a proven model that suggests when you do this the right way, you will continue to grow, and you will continue to grow profitably. And when we do all of that right, if there's one piece of data that the majority of the audience here I'm sure has seen before or knows in the back of their mind, it's the value that we generate for our shareholders, right? When we do what we do well with our customers, with our team members, in our communities and with our franchisees, these are the results you get, right? You generate phenomenal returns for your shareholders. Whether you look at it from an EPS perspective or you look at it from just a returning value to our shareholders' perspective, it's been an attractive place to invest, right? Because we're focused on doing the right things and winning with each of our key stakeholders, one of those stakeholders being our shareholders. So as we look forward and we think about 2021, I did want to bring -- provide a little bit of guidance on a couple of different areas as we head into 2021, as we've also done historically. We're excited about the growth in this business. I've mentioned that there's a lot for us to be excited about. We will continue to invest in this business because we believe the growth is there. We would anticipate investing in our G&A somewhere in the range of $415 million to $425 million and about $100 million in CapEx again in 2021. And then externally, obviously, just giving you our perspective on what we see a little bit more outside our control. We are anticipating a positive FX benefit in the $4 million to $8 million range. And then the food basket, food basket, we're expecting an increase that's a bit higher than what we've seen in previous years in kind of that 2.5% to 3.5% range. And obviously, this is an area I'm quite familiar with, having led our supply chain business. And I've commented on previously, the food basket has been very volatile this year from historic lows to historic highs and back again. We expect to see a recovery in those commodity markets. It's going to drive pricing up, but we do expect it to be a bit choppy. I would expect a pretty significant uptick in our basket in Q2, for example, where we're lapping some record lows in some of our big commodity areas. And then the opposite to be true in Q3. But net-net, by the end of the year, we're anticipating kind of in that 2.5% to 3.5% range. So with that, I know we've got some time with Andrew. I just wanted to -- before we shift over to Q&A, just let folks know obviously, you can reach out to me. You can reach out to Chris, who many of you know. We're certainly here to answer your questions and help provide support to the extent that we can. So don't hesitate to reach out. We'd be happy to chat with anybody.

Great. Stu, that was terrific. Thank you for the presentation. Maybe I'll just pick up where you left off just on some of the financials. So just on the G&A, Street, I think was looking for about $415 million and totally get, obviously, that you guys are investing to help sustain your success that you saw in 2020. Can you talk a little bit more about the priorities, perhaps what's new within the guidance this year? Between new initiatives that you guys are focused on or new technology investments or investments in data analytics, et cetera?

Yes. I mean, I'm not sure that there's necessarily anything universally new. I mean, I think we try and be -- we try to remain balanced in our G&A investments. And you've got to obviously prioritize those investments, so they're not all coming at the same time. We continue to make technology investments, both at the front end of the business as well as in some of our core platforms that just over time, need to be upgraded and replaced. But it's not like there's not like any big whizbang boom out there, that's something that's universally new for us in 2021.

Very good. And on the CapEx side, about $100 million, can you just remind us, this year, I think you guys opened up a few supply chain facilities. Are there more coming on lot in 2021? Just trying to get a sense for that CapEx. It's about the same as you did last year, but is there some different components of it that may be less on supply chain, more on technology, something to that effect?

Yes. I mean, there's always going to be a little bit of a mix. Certainly, over the past year, we successfully during the middle of a pandemic, opened 2 supply chain centers and added a thin crust production line, which was really incredible when you think about everything that was going on and the challenges to try and build anything. And again, for us, it's balancing that level of capital investment across the various priorities. A big piece of that for us is fortressing our corporate stores, right? So we're going to continue to make investments in building stores out, and that obviously takes capital. So it's a bit of -- you kind of shift your priorities around a little bit based on we have a laundry list of things we would love to go invest in, right? So you're trying to find the right balance of what can you get done, what does it cost. And what do you prioritize relative to that.

Got you. And then maybe moving on. I mean, I was very pleased to see the store level EBITDA, $158,000 per store, I mean, record and obviously, a massive step-up from what you saw in 2019. How sticky do you view the store level EBITDA, recognizing that the 2021 sales environment is going to be fluid? Are there productivity measures in place to help franchisees maintain some of that EBITDA growth they saw last year, perhaps outside of COVID-19 related costs that will be eliminated?

I mean there's always a balance here. I mean we certainly look every year to invest in ways that we can drive some of -- drive operational improvements in the store and drive profitability at the store level. Obviously, we've had pretty considerable volumes in our stores this year. And there is a top end, right? Part of what the signaling is when we see EBITDA growth at the rate that it is, is there's probably some significant opportunity to fortress, to build more stores. It's actually you can look at it on the one hand and say, "Gosh, how do we maintain this and grow it and grow it and grow it". We look at it from the other side and say, there's more growth out here. There's more store growth out here. And what ends up happening is by fortressing, not only are you getting closer to your customers, but you're bringing your volumes to a point where you can operate more efficiently out of each of those boxes. So it's a hard equation to just say, how do you keep that number where it is because in some cases, we actually want to go convert that to additional store growth and then grow off of that new base.

Yes. And then just maybe one other on that. COVID-related expenses, such as PPE, onetime later bonuses, et cetera, that perhaps weighed on that $158,000, such that the underlying cash flow is perhaps even greater than that?

Well, I mean, there's certainly -- there's a bit of a difference within our team USA stores versus a franchise store, obviously, in terms of some of those costs associated and what's incurred by us versus a franchisee. Yes. I mean I think there's certainly been investments made at the store level as a result of COVID. As I mentioned related to our team members, I think everybody's looking at frontline employees and what the value proposition is. We see that across not just our industry but other major retailers making investments in the front line. And I suspect some of those are going to stay.

Yes. Makes sense. I guess just my last question, just on the financials. Based on your model, it seems like there's potential for a leverage event at the end of 2021 is you'll be getting closer to the low end of the targeted 3x to 6x range. How are you thinking about leverages and share repurchases in this environment?

Yes. It's a good question, and it's -- it's a question I get a lot as a new CFO. Everybody is assuming that I somehow have some radically different philosophy in our capital structure. And I don't. Sorry to spoil that for some folks. But we've had a very, very successful approach to our capital structure. In terms of our leverage ratios, in terms of the mix of where we invest in the business and where we return to shareholders and how we return to shareholders, nothing's changed. Nothing's changed on that. We don't necessarily think about an opportunity to lever up on a leverage ratio so much as we look at the overall mix of how much debt we have out there, where we are relative to the par call windows and what we need for the business and what we want to do and need to do with our shareholders. So that takes precedent over, hey, we're at 3x, and we want to be at 6x. So for us, it's much more of a balanced strategy. And I don't think anything there is going to change, whether it's -- as it relates to how we think about going out into the markets for a capital raise or how we think about a share repurchase or dividends or anything really.

Yes. And just kind of on that last point, just on the share repurchase. What do you need to see to resume share repurchases? And could it just be a Board conversation that the Board goes comfortable and ready to resume that? Or would you need to put out a formal press release and make some formal comment that to investors that you're ready to repurchase shares again?

I mean, to my knowledge, we never publicly said anything about our approach to share repurchases. I think during the early stages of the pandemic, most organizations out there were -- ourselves included, were trying to preserve cash because there was a lot of unknown. So your best use of cash was to hang on to it in case you needed it. And I think as we start to get back to a -- assemblance of whatever normal starts to look like, but better visibility and better understanding of how the future starts to play out, we get back to operating the way we have historically.

Yes. Got you. Great. I'm going to turn over to the domestic business. Obviously, a lot to be excited about there. If I think about it, that 2020 was obviously just a banner year and a various real backdrop. And the message that was provided from November's investor meeting was that Domino's is well positioned to win because the industry's pre COVID-19 focus was on digital ordering. In off premise, that's obviously been accelerated by the pandemic. But inevitably, the good thing with vaccines, obviously, is that we're going to see spring fever hit hard in 2021 at some point. So I guess I'm curious, how do you plan to stay top of mind in reopening backdrop when consumers want to get out of the house and get that social contact that they've been craving?

Yes. It's a good question. I think it's also really important. We sometimes, myself included look at the environment through one lens. And it's often this lens of we live in an urban environment, you're in New York or you're in Chicago or -- and you're thinking about a world where you've got a ton of restaurants and you really just want to get back out there and enter restaurants. And look, this is coming from somebody who will be the first in line when they reopen here in Michigan to go sit in a restaurant. But there are a lot of other folks out there that are going to be a bit, we believe, a bit more cautious in getting back out there. And also not necessarily in an environment where they're purchasing now was replacing dining in versus replacing eating, cooking at home and pantry loading, right? I mean, if we were a brand that was solely in an urban environment, we'd probably be a little bit more concerned. But when you look at our mix of stores, across urban, suburban, exurban, more rural environments, you get a much broader swath of customers. And I don't know that we're necessarily the occasion that is competing against the dine-in occasion. And again, we've got both the delivery customer, but we also have that carryout customer. And I think that for us, we feel pretty comfortable that we provide good value. And yes, customers are going to go out and dine-in restaurants. I'm going to go out and dine-in restaurants. I'm also going to order pizza.

Yes. Very good. And then I agree that you said that the comps are obviously important, but not the NLB all considering the opportunity that you have for store growth next year, helped by the surge in EBITDA that franchisees have seen. But I guess we get the question a lot, so I wanted to pass it off to you that when we put it all together, how would you describe the team's confidence in driving positive U.S. same-store sales in 2021, given just the difficulty of compare space when you start lapping 2Q?

Yes. I mean, we haven't provided any guidance one way or the other on comps at this point. So I'm not going to talk specifically to any comp number. But again, I think when we look at the formula for our business, and you start before COVID. And I know I'm going to sound like a broken record here. But we have been so incredibly focused on creating great products that we can offer with great value and great service. If we can do those 3 things right, everything else is going to take care of itself for us, right? It worked. It drove positive comps before we had COVID. You could certainly get some tailwind early on during the pandemic just by being. But I think, ultimately, over time, and the pandemic has been running for quite a while, if you weren't doing it with good products at good value, it wasn't going to last forever. So I think for us, we continue to follow that formula, and that formula has been successful for us in the past, and there's no reason for us to believe that it won't be successful driving -- really driving global retail sales, which is, like I said, at the end of the day, how you get profitable, comfortable, healthy, balanced growth.

That's helpful. Thanks. We've heard a lot of restaurants, both at this conference and outside of this conference talk about the digital mix of sales that they started at a lower base before the pandemic and obviously surged during the pandemic. And on the other side of this, will kind of shake out somewhere in between. I mean Domino's already was blessed with a 70% plus -- 70%, 70% plus digital sales mix before the pandemic. But if I look pre pandemic, your order counts that were 55% delivery and 45% carryout. Do you expect the business to return to these levels on the other side of COVID-19? Or do you expect the business to have a higher delivery mix of orders after the pandemic runs its course?

I mean we haven't provided any updates on the mix one way or the other in terms of any movement in that mix. But I'd say, for us, truthfully, it doesn't really matter. We are -- we're profitable on both sides, right? We want to drive profitable growth. We can drive that in the carryout business. We can drive it in the delivery business. We can drive it in both ways. And what we found over time is our carryout customers are different than our delivery customers. There's not as much overlap as a lot of people believe there is. And so we believe that you're going to -- you talk about kind of a spring fever and a reopening, if you will. We're going to see a bit more of that out of a carryout customer that has stayed home a little bit more through the pandemic. So for us, it's less about the mix. We just want to drive profitable growth, and there's a lot of places for us to get it.

Very good. Let's talk about menu innovation, just following the revamp of both chicken wings and the introduction of 2 specialty pies this year. The team has been very vocal about how it's not going to be another 3 years between menu innovation like we saw from 2017 through 2020, but are we correct to think that 1 new menu item per year sounds about the right cadence?

For us -- first, let me talk a little bit about the menu. We have stated, we don't think it's going to be 3 years. And our CEO, Ritch Allison, has really pushed us to think critically about the menu and think about innovation around our food and kind of refocused us a bit. But it's also important to understand. We don't play the LTO game. For us to put something on the menu, it has to have staying power. And that means it's got to pass some pretty rigorous consumer testing. It's got to generate significant profitability for our franchisees. And it has to be something that we think is going to warrant being on the menu permanently. So we're not trying to hit a certain cadence. And truthfully, if we were, I wouldn't want to tell all our competitors what it was. But we're trying to find improvements to the menu overall that allow us to create more profitable or increasingly profitable items that we can add to the menu and keep on there permanently. So I don't think it's going to be 3 years. I'd be shocked if it was 3 years, but we're not necessarily trying to hit every year, 2 time a year, 3 time a year -- like we're not trying to fit some cadence.

Got it. Okay. And then just looking at some of the emerging food trends and also just given your background in running supply chain, does the supply chain have the ability to procure and distribute some of the emerging things we're seeing out there, like a cauliflower crust, for instance, and the other thing I want to ask about too is on plant-based proteins. Last -- I think it was last year or the year before, maybe actually it was 2 years ago, DP in Australia, they were able to do a proprietary plant-based protein. Would adding those 2 be precluded based on Domino's supply chain capabilities?

I don't think our supply chain would preclude anything. We've got an incredible network of supply partners that are -- they're innovating on their own. They're innovating with us. We're adding new suppliers every year in different -- with different products and different things that we can test with them. For us, it actually all starts with the customer. I don't think there would be any -- our ability to figure out how to make things happen is incredible at this brand. Whether it was how you figure out how to deliver a contactless delivery, how you manage to procure masks by the millions when nobody has them or how you figure out how to get a supplier that you can't fathom how they could supply our entire network. We tend to figure it out. And there are a lot of suppliers out there that would be more than happy to invest to grow with us. So for us, it actually isn't about the supply chain. It comes back to the customer. And it comes back to making sure that we have a product that we can do profitably with our franchisees that meets our customer needs, our customer demands in a way that makes sense to be permanently on our menu. Whether that's cauliflower, plant-based protein, a new chicken wing or a chicken taco pizza.

Got you. Great. Shifting gears a little bit. Domino's advertising budget is on a national basis, determined by a 6% contribution of franchisee sales and the 11.7% same-store sales growth you see in the first 9 months of the year, theoretically wasn't budgeted. Even the business to carry an ad fund surplus. What do you believe to be the most effective use of the surplus, given you're already on air 52 weeks per year?

Yes. I mean we're on air 52 weeks a year, but you can always do more to increase the share of voice, right? So whether that is driving new customer acquisition, whether it's driving increasing transactions, right? Because again, it comes back to driving transactions. We've talked about profitable growth. I talk about global retail sales and comp store growth and whatever you want to look at. But the way to do that sustainably and profitably is through transaction growth, it's not through pricing, right? So you're trying to get your customers to come back more often to order more frequently and to acquire new customers. And in a world where you think about our growth over the past year, we didn't do our traditional boost weeks. We haven't done one since last March. And that's our big customer acquisition tool. So there's a lot more we have that we can be out there talking about and saying. I don't think you'll find too many marketers out there that would tell you they have too much money to spend. Most of them can always find a way to drive value with additional ad revenue.

And was that ad revenue, was that surplus, I should say, did that lead you to ratchet up the original advertising plan for 2020? Or do you believe that holding on to it until 2021 is the better use of it?

I mean we were already advertising across all of our weeks last year. We did some pivoting certainly to the types of messaging. And for us, it's -- again, it's just a value -- it's a value cost play, right? You're just try to be smart with our franchisees' money, right? Where we are stewards of our franchisees' money from that perspective. And they, they certainly provide input and hold us accountable to that. So we just want to make sure that we're using their money the right way.

Okay. Maybe zooming out a little bit. The entire swath of restaurant delivery saw sales lift in 2020 from the pandemic that benefited both native pizza and sandwich concepts that own their delivery network and had always offered delivery as well as broader aggregators. And we've seen a wave of financing events in 2020 in third-party delivery between M&A and IPO and its businesses in far better cash positioning. So I guess what gives you confidence the aggregator competitive environment won't present a material headwind to Domino's delivery sales in 2021?

We -- I'll be honest, we have a lot of questions about the aggregator model. So I think the thing that puzzles us a little bit is we've been delivering for 60 years. And in 60 years, we have never made money on delivery only, right? We make money on the food that we sell. So we're -- it's -- it makes us question how you can have a model that is providing delivery and drive a sustainable business model from that. Because we certainly have not been able to on delivery alone. And when you think about the value chain that's included in that, that profit is going to have to come from somewhere, right? And we've seen it with the public companies who have said, "Hey, we don't make money on delivery, right? And when profitability becomes the metric and as a public company, it changes the game a little bit. You've got a finite value chain. And in that value chain, these aggregators are essentially inserting themselves, right? And they have to get paid in 1 -- from 1 of 2 ways. It either has to come from the restaurant, and largely, a lot of these smaller independent restaurants, right? Who are already facing rising -- labor. They're facing rising food costs. And now there's another player in here trying to take a piece of what's not a huge profit pool. Or it has to come from the customer. And we believe that at a certain point, the customers are going to start pushing back a little bit on some things that maybe they were willing to take during COVID, that maybe they're not willing to take moving forward. At a certain point, the value proposition of paying, say, $15 to get $9 worth of food delivered to you, it doesn't make a lot of sense. And the feeling that you get when you see free delivery with a $12 service charge, it doesn't start to feel free. So somewhere along the line, that profit for the aggregator has to come from somewhere. And we have a lot of questions about what the long-term sustainable is of trying to take it from the customer or trying to take it from a restaurant operator who maybe doesn't have quite the margin to play with that somebody else would. So for us, look, there are a lot of questions out there about these business models. We're just not sure how it's all going to pencil.

Maybe just taking that last point, thinking about it from Domino's perspective, your delivery fee, I mean, how do you determine that? Because obviously, the customer you guys are obviously in a promotional category, where someone else could theoretically undercut you on price. But on the other hand, obviously, delivery is a convenience-based channel. And so there's a little bit more elasticity around that. I mean maybe give that from your perspective that do you see it when you guys raised either menu prices on the delivery channel or your service fee, do you see that backlash in traffic?

I mean we do a ton of customer analysis market by market, and we support our franchisees as they're looking at their markets to determine what the right delivery fee is. But the other thing that we do so our delivery fees are going to be different by market based on what the market can sustain. But we're 100% transparent about it, right? You know exactly what that delivery fee is going to be before you click to purchase. And I think we think for us, we think that's important. We think customers value us being upfront with them. There's not a hidden fee associated with ordering from us. But I mean, ultimately, though, at a local market, we're not telling our franchisees what to charge from a delivery perspective, right? That they're doing that analysis themselves. But it's not -- as I said, they understand the same way we do that growing your business by pricing is not the path to -- not the path to sustained healthy growth.

Yes. For sure. Great. Switching gears just over to international. While we have about 5 minutes left or so. A significant amount of your international franchisees are publicly traded and from what we can see, DPE, Jubilant, ALSEA and Domino's U.K. have not announced any incremental closure plans beyond any company specific closures that have already transpired. As you look to 2021 and beyond, can you talk about the opportunities for accelerated growth in markets that outperformed in 2020 like Japan and China, for instance, to help offset what could be slower growth in markets that have been harder hit with COVID, such as India?

Yes. I mean let me -- so let me start on the India point, right? Because I don't -- what our master franchise partners did in India was incredibly smart, and it's something we've experienced in the past as well, which was taking an opportunity in a challenging environment to reset a little bit and revisit perhaps some real estate that wasn't optimal for them, right? And yes, they announced closures. They also put as many new stores in the market as they closed. And in most cases, in many cases, in the same cities. It was just a different format. It was something that was going to be more sustainable for them in how the market was evolving. So we look at India as another significant growth market for us. I think in terms of accelerating growth, it's true for not just internationally, but domestically, right? We want to. There's a question of what you can physically get done, either because of your own bandwidth of how many new stores can you open even if the opportunity was there. But also what the market will allow, right? Different markets are still in different places in terms of their reopening, in terms of how easy it is to get permits done, how easy it is to get construction crews out there. So we haven't -- we don't talk to markets that are saying, gosh, we're not sure where we're going to grow. And I think everybody would want to accelerate growth if it is feasible for them to do it. There's just dynamics that are outside of a lot of people's control right now that make it impossible to just snap your fingers and get a year's worth of lost growth back overnight.

And so I guess if I take that, we get this -- I guess, I'm getting a sense that you're much more enthusiastic about 2021 domestic development over international, just because it seems like it's more favorable. Obviously, the same store sales performance has been better in the U.S. but also just been more of a favorable construction backdrop relative to what you're seeing international as well?

Not necessarily. I mean, we've certainly seen new store openings in international markets as well. It's just I don't think when you're looking at store openings, I don't think it's fair to say U.S. versus non-U.S., right? You almost have to take each market as a market and understand what's happening in the U.K. versus in India versus in Japan versus in Germany versus in China, right? You've got to kind of break down the 90 different markets. So we've got -- we're very bullish about store growth internationally as well as domestically. But I wouldn't necessarily characterize one is greater than the other.

Sure. No, that's helpful. Maybe in the 2 minutes we have left, Domino's is ahead of the curve on convening the global system to one common point-of-sale system that you guys call PULSE. You've introduced that PULSE 2.0 is coming. And I'm wondering, what are the new features that are going to help you with the new point-of-sale system to help drive sales as well as potentially reduce costs as well?

Yes. I mean, our technology team, Kelly Garcia and team are really excited about what's coming down the pipe with PULSE. And a lot of it is about the way it is engineered and the flexibility that it provides for us, not just today, but the flexibility that it will provide moving forward to adapt to other changes, things that -- things that allow us to do things moving forward that have been harder for us to do on our legacy systems, just given the way they structured and engineered. So for us, a lot of it has to do with the flexibility. Certainly, there are features embedded in that, that will drive operating improvements and help our stores operate more efficiently. But a lot of it has to do with the way it's architected and engineered.

Yes. And is there a time frame for how quickly you'd like to roll this out, both domestically and globally?

I mean, we continue in development with it. Obviously, we were spending a lot of our -- a lot of additional technology time over the course of the last year on some of the things that we were pushing forward faster to satisfy things we needed during the pandemic, but that team is hard at work. And when we have an update to the time line of the rollout, we'll certainly provide that.

Got you. Just my last question on that, is it both -- is it a hardware update or a software update that's going to be behind it?

I actually -- it's both of it, I'm not sure the elements of each of those. And when that's appropriate, I promise you, I will learn enough of the technology background to be able to answer that question for you, sorry.

All good. Stu, I think we only have a couple of seconds left, so I think it's a good place to end it. Thank you so much for the presentation and for the insights today. And everyone, have a great conference. Thanks for joining us.

Appreciate it. Thank you, Andrew.

Thanks, everyone.