Our strategy: CEO’s letter to team members, partners, and investors

Our strategy: CEO’s letter to team members, partners, and investors

15 April 2020

Fyodor Ovchinnikov

Dodo Pizza CEO

Fyodor Ovchinnikov

My friends, I would like to share some thoughts on our strategy in this new reality disrupted by the crisis. But first, let’s take a step back.

A couple of weeks before the crisis started, our financial director, Kirill Vyrypaev, and I discussed the possibility of Dodo’s IPO in 2 years.

I have to explain here that our company has a lot of shareholders. About 200 of them are the investors who supported us during Dodo Pizza’s crowdinvesting campaign a few years ago. We didn’t promise them dividends and quick returns. They invested their money in our company because they believed in our future.

Apart from investors, we have many team members who own shares in Dodo Pizza. They joined us, invested their talents and energy in our company because they also believed that we would build a global company.

For all of them, we want our shares to be liquid. And we were discussing the move to IPO with Kirill—deadlines, goals, strategy, and limits. And I shared with him my personal thoughts on the business and the company. It was important for me as a key shareholder, the company CEO, and founder.

Here is my letter to Kirill.

- — -

Hi Kirill,

I’d like to share some thoughts regarding our IPO. I don’t think any of this will come as news to you; nevertheless, I want to emphasize a few things.

I want to grow this company in the long-term. It’s a conscious desire of mine, and it’s related to how I understand my life, its meaning, and my mission. I am inspired by the example of companies like Nintendo or P&G. People who created these companies built organizations that have been able to grow, adapt, and make innovative products for over a hundred years. Just imagine, Nintendo started from making paper playing cards in the end of the 19th century, and later went on to develop simple toys for kids, and then, in the 1970s, they became a tech company, made a huge amount of innovative products, and have been making them to this day. My life philosophy is very simple—life will end someday, so you want to make it as interesting as possible, and the process of developing and creating a global business and achieving incredible goals—what can be more exciting?

I’m inspired by a big goal—building a global consumer company from a country where no one has ever done that before, because the goal itself seems impossible, and, to be frank, many professional investors don’t really believe in it. They think Russia isn’t a place to start such a company. They think we are going to break at some point and return to the tried-and-true approach of operating successful franchises, selling the company to a strategist, moving to IPO, and limiting ourselves with Eurasian and Eastern European markets. But I want to go further :) Every time we achieve something and reach a new level, that’s an opportunity, a chance to make something bigger and more interesting. And that’s not a one-time whimsy or a transient emotion—I am prepared to patiently move forward for years, and that doesn’t scare me, because the process itself brings me immense pleasure.

Work doesn’t frighten me. What frightens me is retirement and stagnation.

What inspires me is the idea of breaking the mold, going your own way, and doing what nobody has tried before. Those are things that can leave their mark in history.

I have to admit that we won’t become an abstract global company. I’ve come to the conclusion that pure global companies simply don’t exist. American global companies exist. British, French, or Japanese global companies exist. And we also have only one possible way forward—to become a Russian global company. What do I mean by that? All global companies are based upon the culture, values, and human potential of a certain country. McDonald’s is an American company, despite the fact they operate in almost every country on Earth. Starbucks is an American company as well, despite the fact they have almost as many coffee shops in China as they do in the US. And I’ve realized that our only solution is becoming a global company from Russia.

We have to be flexible and multicultural, but our company has to get its talents, first and foremost, in Russia. Here, we’re superstars. We can get the best people, the best engineers, and managers, to advance globally making a cool product. Our goals inspire people to do wonders. In Russia, we’re not just pizza, not just a franchise, and not merely a company. We’re an idea. We live in a large country with strong education and cultural traits that are good for business (enthusiasm, creativity, and energy), and for those that are not so good, we compensate by understanding them precisely (with systemic approach and discipline) and by taking in people from other cultures. Building a Russian global company is also a very inspirational goal.

What does it all mean? Accepting that our HQ, our base of operations, will be in Russia, just like the Pizza Hut’s HQ is in Texas. And we will have strong international offices.

Here is our main philosophy and business approach: the product and the real value are what matters most. That’s what we need to spend our energy on. The making of products inspires while meeting investment bankers is a necessity, but not something that inspires. The status and the bravado of the financial world bear no importance to us. All of this is short-term. What matters to us is long-term greatness, and that is built on the product and solid business, not on the ability to sell oneself to investors in the short run. We’re looking for investors that are similar to us—those who have long-term goals.

Making what I’m writing about a reality will take time, patience, consistency in the implementation of our strategy, the robustness of our business, profitability, and investment in creating an organization that would foster leaders, managers, and knowledge preservation and development. It will take a certain freedom in implementing a long-term strategy. It will take making decisions with full transparency for the shareholders. It will take controlling a culture so that no one can change the company without our approval.

It’s important we save all of this after we move to IPO.

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Long-term strategy

What does our long-term strategy entail?

In collaboration with passionate and energetic entrepreneurs, we’re building a company that creates retail services and products for the everyday life of millions of people, reinventing and improving retail business with technology. That’s our strength.

We know how to do 3 things well: retail business, technology, and franchising. We know how to build a complicated business where you have to fight for every EBITDA percent. We know how to create products that attract millions of people. Right now it’s pizza shops with cool design, our pizza, our mobile app, and our services. We know how to create products that bridge the gap between IT and retail, and we know how to improve operations with technology. We know how to work with entrepreneurs, attract people with similar values, build stable and open relationships with them, and make a community; we know how to help entrepreneurs attract investments and achieve excellent results.

Our way is combining retail business, IT, and franchising. And this approach has no boundaries. We can play to our strengths here and truly make the world a better place.

Today we are making pizza. We’re going to be making it all over the globe. Pizza delivery is one of the most popular small business models in the world. We’ll be looking for entrepreneurs who share our values. Tough, open, and honest entrepreneurs in India, Asia, Europe, Africa, and South America, all wait for us. We will speak different languages, but we’ll be united by our openness. And we’ll make a great competitive product—a pizza shop franchise that will center around a powerful digital system and customer services. We will be making progress all over the world—in Europe, China, and Africa.

And we’ll go beyond pizza. We’re already doing that. Today it’s pizza, and tomorrow we’re going to be developing doner kebab shops where you can order a delicious shawarma in a whole-grain flatbread with fresh vegetables and meat on your way to work via a mobile app. We will be developing “digital” coffee shops where not only will you be able to construct your ideal coffee, but also find friends with the app. Guest retention and customer-oriented business will become a real “religion” there, and that will once again be facilitated by our mobile app and our digital system. That’s all real already. And what comes after?

I don’t have all the answers at the moment, but I know that we can improve a lot of goods and services where the “production model” of retail franchising can work and make them better. And it can be more than just food… Hotels? Yup. Imagine, we could make our own “smart” hotel with a cool and user-friendly design, a stylish interior, and technology—internet of things, a mobile app, and a digital key. Or, say, take the basic everyday service of a laundromat. We could make a digital laundromat chain. The business logic here is similar to pizza shops—we need to make a complicated operating business profitable and we know how to do it.

We will take simple products that everyone can understand and make them better with technology—by digitizing them, making everything transparent and convenient for customers and for business, introducing AI, robotics, and IoT.

That’s a very long-term strategy, but we’ve already done a lot so we now have a foundation to start implementing it. We already have the Dodo IS digital platform and we’ve got a team, experience, and the infrastructure for retail business development—supply chain, training center, QA, and much more.

All of this might look like a pipedream… But some time ago, everything we’ve achieved to date seemed an incredibly crazy pipedream. We’re dreamers, but we’re doers, too.

Medium-term strategy

Long-term plans and vision are all good. But what do we do now? How does our company plan on developing in these new conditions? How will we weather this horrible storm and, most importantly, what is to come next?

We’ve got a plan. I am sure that not only will we survive this crisis, but we’ll be able to grow from it. Why?

We’ve got delivery. After years of work, we’ve built a strong delivery system—we’ve got the Dodo IS, a convenient mobile app, and we weren’t working with aggregators, so we’ve accumulated our own customer base. Our mobile app is installed on millions of smartphones in Russia. Restaurants are closed all over the country and, obviously, they are not going to open any time soon. The delivery market has grown significantly and will only grow more. Despite the fact that our potential customers are going to be losing money, people in any situation need pleasure and distraction. At the moment, delivery doesn’t compensate for the decrease in revenue, but we are making decisions to adapt to this slump in sales and ensure that pizza shops break even in these new conditions.

We’re flexible, we’re acting quickly and efficiently, and we know how to adapt. In the first days, we’ve made a number of decisions to support our pizza shops and our customers:

  • we’ve lowered the minimum delivery fee;
  • we’ve closed some pizza shops and distributed their delivery between the remaining ones to increase efficiency;
    our partners are negotiating rents with their landlords;
  • we’re optimizing work in all pizza shops—trying to achieve high productivity and keep our teams (Dodo IS is of great help there);
  • we’re expanding the delivery menu (we’ve introduced hot beverages, tea and coffee, and also milkshakes, soups, and cereals);
  • we’ve decided to cancel our next national advertising campaign and suspended contributions to our joint marketing fund, while at the same time making ads in social media and increasing affordability (introducing new combos).

And we have many more ideas. There are lots of opportunities to adapt to these new conditions.

Throughout our history, we’ve never been as prepared for a crisis as we are today. Thanks to our growth, financial planning, discipline, and the foresight of our financial team, we’ve created a serious stability reserve—we have money in our bank accounts, a positive income stream, and the absence of short-term financial liabilities and debts.

We will go through this crisis and strengthen our positions in the pizza market and foodservice market in general.

And at the same time, we aren’t shutting down our investments in new concepts—the “digital coffee shop,” the doner kebab shop, and further digitalization of our pizza shops. We aren’t shutting down the development of the Dodo app’s dine-in ordering feature. When the crisis is over, we will have concepts to grow from. We will have strong coffee shop and doner kebab shop franchises, and a great Dodo Pizza dine-in format. All concepts will include the option to order in-store with the mobile app, without waiting in line—100% digitization. It’s going to be the most powerful advantage in the post-crisis future. In this future, people will still be going to restaurants and coffee shops, but the consumption model will change—it will become much more “digital.”

So, with our current expenses, we will try to be as efficient as we can be, but the investments in the new concepts won’t be shut down. They are our opportunities for future growth.

Short-term strategy and international development

What’s going to happen to our international development during the crisis? We are going to slow down, but we won’t bring the Dodo Pizza development in the international markets to a halt. Why?

Firstly, we’ve got partners, international teams in Great Britain and China, our own pizza shops, and a commissary; contracts are signed, and serious investments are made.

Secondly, we see substantial growth potential in the international markets in the medium-term future. We’ve just signed an agreement for the Dodo Pizza development in Hungary in 2021. Our partners in Lithuania, Estonia, and Slovenia are holding up well in this crisis (if you can say that at all). We’d been looking for a space to open the first company-owned pizza shop in Britain for a whole year. The Leamington Spa pizza shop is already designed, but we can change the pizza shop construction and launch deadlines flexibly.

We see great potential for development in China. We’ve done a lot in that market. We have a working model, a menu, a product, an awesome team, two pizza shops, a strategy, and a WeChat app. I am sure, should the need arise, we could attract investments in our company in China (in China itself, Hong Kong, or the US) for scaling in that huge market, and we’re almost ready to begin. The market in China will come to life faster than anywhere else, because China was the first to defeat the epidemic.

Doubtlessly, we won’t force international development, but we won’t suppress it either. For example, we have decided not to open any new pizza shops in China for now, but we will be working to improve the operations of existing pizza shops, the product, and marketing.

What’s the short-term strategy of the managing company?

Right now we have to optimize and limit our expenses as much as possible. The first three months of the crisis will be the most difficult. Naturally, after some time people will start getting used to new conditions, and a certain restoration of the economy will begin; also, the epidemic can’t be endless, and the climax will pass. We just have to hold on until then, while keeping investing in our future (new concepts and international development), which will bring us growth as soon as the crisis is over.

Yes, we’ve met this crisis in the best shape in our history, but you have to understand that Dodo isn’t a giant corporation, our “reserves” aren’t that large, there’s a lot of uncertainty ahead of us, and we’ve got investment projects that we can’t and don’t want to shut down. We have to focus and reduce expenses as much as we can right now. This is wartime, so we must ration everything we can, for the future, especially for the next three months.

This is why we’ve decided to get rid of many non-essential expenses till July 1—hiring new workers, gym memberships, training fees, corporate events, buying books and fruit for the office, etc.

We will also be able to lower the managing company payroll through a voluntary decision of the members of our team for three months. The difference will be compensated with company stocks. 90 team members agreed to do this, and that will save us ₽20M ($270,000) within the next 3 months. That shows their huge trust and faith in our company. Thank you, friends! As the CEO of the company, I’ll do my best so that you will never feel disappointed by that decision.

What if these measures won’t be enough, and the crisis will go on for longer? We will find ways out. I don’t doubt for a second that, if we are in need, we will be able to find external funding—investments or an investment loan. Why? Because we already have a healthy large business, a brand, a system, and most importantly, a future. We will find ways out.

My friends, we are going to work and build our future. We will go through all trials, and our work will inspire other independent businesses and companies in Russia and in other countries not to give in. Onward and upward!

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