Interview with Stephen Hemsley

Stephen Hemsley is best known for making a fabulous success at Domino’s Pizza. Since he joined Colin Halpern and Nigel Wray at Domino's in late 1990s he has re-built the business and brand into a pizza and money making success, and, more latterly gone on to launch Franchise Brands with Nigel Wray, his long term business partner.

I met Mr Hemsley at a quiet location on the south coast, as he is a water-baby at heart and loves boating. He offered me a unique insight into business and business improvement from his many years of hands-on experience. During the conversation, he offered up some great business learning and focus points for improvement, some of which are so simple, I wonder why everyone doesn’t take note.

In short, I felt I was offered an MBA Practical Masterclass in two hours.

If he needs any validation, Mr Hemsley over saw store sales ‘triple’ at Domino's during his tenure.

Here are the highlights of the interview:

How did you come to be in charge at Domino's?
One of the things that Nigel Wray - my business Partner and owner of Saracens Rugby Club – has always done very well with every business he invests in is to improve the management. After Domino's floated in 1999 it became clear a new leadership was needed. A number of people were interviewed and rejected by the Board, they eventually they asked me to take Domino's on its journey as CEO. I did a deal with Nigel and Colin, and 20 years later I still lead the business as Non-Executive Chairman doing a few days a month, but focusing more on my other investments. 

I put in place a programme we called Dambusters, where we analysed the things that were constraining store sales growth. This included things like installing additional phone lines and the extra employees needed to man them, and installing longer makelines to increase pizza making capacity at peak times.

Can you give us some insights into how and what you did?
One of the first things I did first was go and spend time in stores with franchisees to really understand the business from their perspective. I made pizzas, washed up and mopped the floor at 3am. In one store I was asked to fill out by hand a daily return, even though all the information was on the point-of-sale system.

Having gone back to Headquarters I discovered that most of this paperwork ended up in a store room, unused and unnecessary. From then on we stopped doing anything that didn’t help us grow the business.

To support the IT change, we did two other things. We looked at time management, and got back to what’s important; making and selling pizza. And we simplified the mission, to give the customer good hot pizza delivered in 30 minutes. Much of the other non-productive reporting was dropped, and nobody noticed the difference!

What else did you do to improve the stores?
In 2000 we worked on the brand and image, and implemented little things which helped make stores more profitable. We also negotiated with an oven manufacturer to build us ovens better suited to our stores and service, so the franchisees could bake more pizza, more efficiently and therefore sell more in their peak times to capitalise on demand. 

In the early days, students were our focus, now young families are the biggest market for our products. By re-focussing and fitting stores with better ovens, our franchisees significantly improved business.

Whilst it’s important to make money when you are busy, you must learn how to make money when you are quiet. Such as targeting families and encouraging them to order early evening with an attractive discount, or offering students value deals early on in the week. During this time we helped our franchisees triple sales. 

My motto: Fill your valleys, maintain your peaks!

What’s your view on Lean?
Limited. Lean might be useful in, say, manufacturing. But let’s be honest, it’s a limited tool. You cannot lean your way out of trouble, nor can you lean your way to success. Lean can help you save a few pounds, but it is sales that drive a business. People need to understand this. When you have a successful business, you can look at ways to save or reduce, but you will not Lean a poor business into a good business. 

Here’s a tip: Don’t over focus on costs, focus on sales!

What’s more important, Strategy or Culture?
Sometimes you have to clear your mind of what strategy is, and ask ‘do we have the right culture’?

Strategy is often a given, it’s not flexible and is dictated by the market environment, the legislation and finances, whereas culture is much more dynamic and gives you the ability to grow the business exponentially.

When I joined, most people at Domino’s, headquarters had never worked in store. After my experience working in stores, we rectified that, and now spending time in store is part of the development programme for all team members. It really helps them really understand where we make money which is in stores, not in headquarters, and by helping and enabling happy franchisees to be successful.

Creating a culture where Head Office understands how it needs to serve the franchisees is an important element in bringing the strategy to life. Sometimes you need to ‘cut the bullshit’ and get down to basics, in Domino’s case, selling pizza.

Percentage or cash?
Some managers become obsessed with percentages. I am interested in cash. I cannot spend percentages, I can spend cash!

The biggest cost in making pizza, is cheese, which can fluctuate in price by £1500+ per tonne. Rather than get hung up on percentage margin, which meant we had to charge the franchisees for the increase in price, plus our %, every time there was a change, I fixed our ‘margin’ at ‘£1000 per tonne’. Now our percentage margin varies but our cash profit was maintained.

Tell me about your new project.
I set up Franchise Brands with Nigel Wray in 2008. We like the franchise model and know how to help franchisees grow successful businesses. After a bumpy start and a recession, which included closing some of the franchises and giving others back to the franchisees, we now have a strong business.

Franchise Brands owns Chips Away, Oven Clean, Barking Mad and Metro Rod. Chips and Oven Clean have been expanding aggressively with over 350 Franchisees. Metro Rod is our new drain cleaning/repair business which I am currently focussed on.  

When we bought Metro Rod, we discovered that HQ treated franchisees badly and seemed to see them as sub-contractors to be managed and told what to do rather than business partners. It was clear very few people at HQ appreciated what went on in the field.

I have just completed a tour of all 40 Metro Rod franchises to understand how HQ can help grow their businesses.

How have you improved Metro Rod already?
I’m spending time with the franchisees on the job to understand their work and how we (HQ) can help them to improve business, sales and profit. You have to remember that a franchisors job is to help and support franchisees to build and run better businesses. When they are successful and make money, we make money! In this case, it’s about brushes down drains, it’s not about fancy head offices of complicated strategies, it’s about enabling franchisees to spend more time cleaning drains. Creating a culture in HQ that puts the success of the franchisee first goes a long way to enabling and improving performance in the field.

If an HQ manager makes a change to systems, it can impact on thousands of people in the field. So I will be sending out all my senior staff out in the field to learn what Meta Rod is about, what we do and what we need to do in order to help Franchisees to do more of what makes them successful.

How did you fund Franchise Brands?
Nigel and I and our board colleagues put up £12m of the £20m equity needed to fund the acquisition of Metro Rod. The balance came from an institutional equity placing and a five year loan from HSBC.

No deal ever goes to plan! There are issues that will impact short term on income, but will benefit us in the longer term. Because HSBC knew so much about the deal it was easy to bring him up to speed so that he could see in 18 months we will be in an even better position than we expected. 

In my view, people need to speak to their bank managers more often and bring them closer to the business so they understand it, and you. Treat them like a shareholder. Too many people do not communicate with the Bank and as a result they miss out on opportunities and, when they need help, it’s often too late. We take our Relationship Manager to meetings and include him in negotiations so he is clear on what we are doing and his role in our success.

Is FIFA just a corrupt Franchise?
FIFA is a little more complex than ‘just a Franchise’, but yes in essence it is. Nigel Wray is a great one for improving management when he invests in a business, so I expect he would do that. Whilst I am not fanatical about Corporate Governance, you can see why FIFA is in greater need than most of such a regime! When there is no – or very low – governance, it appears even good people can become corrupt. 

FIFA need to rethink their Mission and who they serve, and be very clear on that. Then they need to work to create the right culture and excite staff about doing the right things because they understand why. Too many people appear to have helped themselves in the past, instead of helping the community they serve.

Corporate Governance is of course important, but so is leading people in the right way and showing them what really matters. That’s how we have been so successful at Domino’s, we have a clear mission, great processes and we all work together to achieve our objectives.

And the next project?
Create another great business in Metro Rod…..and then find another one!

Finally, will you write a book?
I’m more of a doer than a talker/writer, really. I’m far happier being out with the franchisees or in the stores than I am sitting in the boardroom talking about corporate governance. So will I write a book, no. I have too much to do and I’m having too much fun doing it.