The Most Fascinating Billion-Dollar Chain You've Never Heard Of

Today we’re analyzing a chain that’s growing and thriving while breaking many of the traditional “rules” of franchising.

This is the first Tuesday deep dive we’ll be taking at Industry Bites. I hope you have as much fun reading about Dodo Brands as I did writing about them.

Andy

The Russian town of Magadan sits on an icy bay perched over the Sea of Okhotsk, located due north of Japan, about 3,600 miles away from Moscow. As I write this, the temperature there is -26 Celsius (or -15 Fahrenheit). Permafrost covers the ground.

In recent years, Magadan has branded itself as the “golden heart of Russia,” a reference to its vast mineral reserves buried under nearby mountains. It’s perhaps better known, however, as once being a major gateway to a string of gulags, where tens of thousands lost their lives during the Stalin era.

With this bleak backdrop in mind, I’m witnessing something remarkable. From my laptop, I am watching a team of Magadan pizza shop employees prepping for what appears to be a massive lunch service. They’re working in an impeccably clean, well-ordered kitchen. Occasionally a team member’s comment will draw out a laugh, but otherwise they’re all business – everyone knows their role. Soon, orders begin popping up on wall-mounted tablets and the order flow never stops.

I know a lot about this pizza shop in Magadan. I know that it did $276,727 in sales last month, a 9% percent increase year over year. I know that 77 percent of its sales came through its app and 53 percent were delivery orders. I know that the average delivery time was 27 minutes and that customers rated the store 4.8 stars out of 5.

All this information – including a live, always-on webcam – is publicly available. 

The Magadan pizza shop is a franchise of a restaurant chain called Dodo Pizza, which prides itself on being the world’s most transparent restaurant company. It backs up its claim by posting review scores, delivery times, and detailed sales information for every one of its stores. 

My introduction to the brand came a few weeks ago, when a LinkedIn post by company founder Fyodor Ovchinnikov caught my eye: 

One thousand units. Its own IT system. How did this company slip under my radar for so long? 

I spent the past few weeks devouring everything I could find on Dodo Pizza (and its parent company Dodo Brands). It turned out to be a lot of material – the company not only posts granular sales data, but it also broadcasts many of its internal meetings on YouTube. 

Below is a summary of what I was able to learn. Think of it as a case study for a very 21st-century restaurant company.

Humble Origins

Fyodor Ovchinnikov took a circuitous path to opening the first Dodo Pizza.

An archeologist by education, Fyodor’s first entrepreneurial venture was a chain of bookstores. It failed in 2010, the victim of the financial crisis and an overly aggressive expansion strategy. In his 20s, he moved to St. Petersburg with thoughts of opening a restaurant chain. He pursued a course in fast-food self-education, taking a series of entry-level positions at McDonald’s, Sbarro, and Papa John’s, where, according to one biography, he took copious notes on the pizza chain’s processes, even measuring his future competitor’s equipment. 

(Fyodor is clearly a hardcore restaurant nerd, peppering his talks with examples pulled from deep within the annals of McDonalds’ lore. In one, he compares his franchise recruitment strategy with Ray Kroc’s, both of whom sought to find creative entrepreneurs who’re long on hustle and short on capital. Kroc visited VFW halls to recruit enthusiastic young veterans; Fyodor built a website that played matchmaker between investors and managers.)

Fyodor blogged, religiously, about his findings, his plans. In 2011, he told his readers about a basement location he had discovered in his small hometown of Syktyvkar. The cramped space could hold just one pizza oven. There’d be no room for dine-in seating. Fyodor remodeled much of the interior himself, and, after opening the restaurant, he personally prepared and delivered pizzas alongside his skeleton kitchen staff. 

On his blog, Fyodor shared details well beyond what anyone would reasonably expect to see made public. He shared his menu recipes. He published his P&L, showing that by Month 2 he was profitable:

And he talked about the IT system that he was building from the ground up. His transparency became a recruitment tool – tech-savvy readers jumped at the opportunity to help program what would be called Dodo IS.

Fyodor ultimately would make the software open source. Even today, the code underpinning Dodo Pizza’s labor scheduling, order tracking, and sales analytics programs can all be freely copied on Github.

Domestic Takeover

Fyodor’s decision to name his restaurant after an extinct bird was not without irony – the concept was geared to scale, quickly. Within a year of opening the first store, Dodo Pizza began franchising. Five units opened in rapid succession. In 2013, the company launched a corporate facility in Syktyvkar, and prospective franchisees were required to travel to the freezing town for management training. This became a kind of filtering mechanism – how badly do you want to get into the pizza business?

By the end of 2015, 75 Dodo Pizza shops peppered Russian villages and towns. The following year, the company had 150 domestic stores and it could lay claim to being its country’s largest pizza chain (beating Domino’s, which first entered Russia in 1998).

Dodo Pizza took its time before reaching Moscow, but eventually the siren song of the capital proved too hard to resist. At first, the company encircled the 11-million-person city, systematically opening units in satellite towns. Later, when Dodo Pizza finally made it to the city center, the pioneer shops faced heavy competition and they struggled to break through the urban noise.

Perhaps unsurprisingly, Dodo Pizza blogged about its difficulties – as they were occurring – and shared its plans to reconfigure the city cafes to better serve a cosmopolitan audience. The company added real cutlery and streamlined the app for quicker orders. It expanded a coffee line. By 2019, Moscow was home to 63 Dodo Pizza shops.

Worldwide Expansion

Meanwhile, Dodo Pizza had begun franchising outside of Russia. A store opened in Romania in 2014 and locations soon followed in Estonia, Belarus, and Kazakhstan (where it’s now the country’s most popular pizza chain) among other Eastern European and Central Asian nations.

There were international adventures in larger markets. Fyodor had made friends with Steve Green, the publisher of the influential trade publication PMQ Pizza Magazine. Steve visited Fyodor in Russia in 2015 when the company had just a few dozen locations (to say Steve was impressed would be an understatement – PMQ’s follow-up article called Fyodor the “Steve Jobs of pizza”). 

Fyodor believed that private investors would be more likely to take the Syktyvkar-based company seriously if he could position Dodo Pizza as an international operation. He visited Steve in Oxford, Miss., and, with PMQ’s help, opened a Dodo Pizza in the college town. A franchisee was recruited from Russia to move to Mississippi and run the location. (That franchisee, Alena Tikhova, now runs the entire company.)

A second store soon opened in Memphis and a third followed in Los Angeles. The L.A. store technically lasted only three weeks – after its 2019 closure, Fyodor, in a characteristically long essay, wrote that the U.S. market was no longer a top priority. The company, he said, had learned from its successes (Oxford was actually profitable) and its failures (L.A.). One day it would return to America – when it had more resources and a more mature Dodo IS. 

Dodo Pizza opened its first Chinese franchises in 2016. The stores were not dissimilar to the Russian outlets and they didn’t translate to the new market. The company closed its stores in 2018, relaunching the following year as a cashless, non-delivery, touchscreen operation in a high-foot-traffic area in the major e-commerce hub of Hangzhou. The relaunch also didn’t quite work. Fyodor took to his blog again in 2021 to detail why he had decided to pull out of China, despite investing $2.5 million into the country. The company had been forced to modify both its strategy and its tactics, becoming an entirely different concept along the way. Again, he said that one day, Dodo Pizza would return.

The American and Chinese setbacks paled in comparison, though, to what happened in February 2022, when Russia launched a full-scale invasion of Ukraine.

Prior to the war, Dodo Pizza had begun receiving positive attention from the Western restaurant world. In 2019, it was named the world’s most innovative foodservice brand at the Global Restaurant Leadership Conference, and, in 2021, industry research company Technomic named it the world’s fastest growing pizza chain. A small U.K. expansion was going well.

War changed things for the Russian-born business – even though Dodo existed far outside of the corrupt state oligopoly. The U.K. stores shut down. Fyodor – and the company’s headquarters – both left their home country for Dubai. At the Global Restaurant Leadership Conference in Nov. 2022, Fyodor, who previously had spoken out publicly against the war, admitted that the previous months had been extremely challenging but that he couldn’t complain; it was “nothing compared to war.” 

While the geopolitical situation remains grim, today Dodo stands at a fascinating tipping point. Despite the previous years’ upheaval and some start-and-stop international expansion, the company’s growth is actually accelerating. It took eight years to reach 500 locations. It took half that time to get to 1,000. 

Systemwide sales are also growing faster than any other restaurant company over the past five years:

And Dodo is pacing to easily clear one billion dollars in system sales this year:

Finally, the most recent earnings report showed a 22.5 percent increase in company-wide adjusted EBITDA year-over-year:

Takeaways from Dodo Brands

How did Fyodor and his team accomplish this growth? Let’s look at three ways:

1. Radical Transparency

Let’s return first to how we began this long exploration of Dodo Brands: me, staring at a webcam of a Siberian restaurant.

The fact that this public webcam exists – or that someone with no ties to the company can know average delivery times and weekly sales for every one of its 1000+ restaurants – is something of a miracle. I don’t know of any other chain that makes this kind of data available. I sent it to a few industry lifers who’d never seen anything like it either.

Webcams from Tajikistan to Cyprus inevitably beam back spotlessly clean kitchens. Which is kind of the point: As Fyodor told PMQ in 2015, “We show our customers that we have nothing to hide from them, and we show our employees that we don’t hide anything from our customers. We wanted to create a tool that wouldn’t allow us to do inferior work. It’s a very powerful psychological tool—we make commitments that force us to work flawlessly. And this uncompromising attitude attracts customers—they are sure of our quality. They trust us.” 

The webcams heighten the stakes. Work life becomes a reality show. The light is always on; the pizza-makers feel they should be too. Find it all a little dystopian? Consider this: The open kitchen has been a staple of diners since at least the 1870s – what’s a webcam if not a 21st-century update?

Fyodor describes his decision to make sales information public as one meant to drive competition and collaboration. Franchisees are not just motivated to make money – they want to see their stores rise in the rankings as well. (Of course, the public data is both a carrot and a stick – presumably, franchisees are equally driven by a fear of ranking low on the sales sheet.)

And the importance of the blog cannot be overstated. It helped make a one-unit Dodo Pizza the most famous pizza shop in Russia. In chronicling the good and bad of his business adventures, Fyodor “built in public” before that term was even a twinkle in a Twitter influencer’s eye.

In talks today, Fyodor still highlights transparency as one of the chain’s most impactful business drivers. It’s easy to see why: The information shared on the blog attracted Dodo’s initial programmers and franchisees while the sales data and P&Ls continue to drive interest in the brand. (Exhibit A… this article.)

2. Heavy Technology Investments

Fyodor began hiring programmers soon after opening his first Syktyvkar store. Currently, Dodo Brands employs more than 250 developers and the company has spent untold millions on building out its information system, in the process eschewing the ecosystem of third-party apps and delivery aggregators.

Dodo IS covers both customer-facing and back-of-the-house technologies. It includes its own proprietary app with 3.5 million users and an online-ordering platform. There is a shared call-center, too (albeit one that’s decreasing in importance, since 85 percent of all sales are now digital orders). 

Customer orders are sent to the company’s own POS system. The preparation process is gamified with actual make times constantly measured against preferred times. Employees are even asked to rate their moods on kitchen tablets (employee satisfaction scores positively correlate with strong sales).

AI helps determine when supplies need to be reordered. Data also forecasts the kitchen’s workload needs, alerting shift managers if too many or too few people have been placed on the schedule. And if a pizza has been sitting on the shelf for too long waiting for delivery, a shift manager is encouraged to call in more drivers.

The company has adapted the Japanese concept of “gemba” in which everyone is encouraged to spend time in the actual places where the business makes money, “walking the floor” at company restaurants. Developers implement new programs and then test and tweak them as soon as possible in real-world situations.

Of course, Dodo’s fully “build” (vs. “buy”) strategy is not for everyone. It’s a very expensive path to take. 

In 2013, Dodo Pizza stores were uniformly profitable but heavy investments in corporate stores and Dodo IS had led to a cash crunch. Shut out by Moscow-based VCs, Fyodor turned to the readers of his blog, launching a $2 million crowdfunding campaign that was reportedly the largest in Russian history. Proceeds were poured into Dodo IS.

Even by 2019, Bloomberg would report that “Fyodor had spent so much money on digital infrastructure and opening his own outlets that Dodo’s parent company is only now starting to turn a profit. It brought in about $25 million in the past 12 months, split roughly evenly between own-store revenue and the fees, as much as 5 percent of sales, that every franchisee pays.”

It should be noted, too, that Dodo began building its IT program with its first store. It didn’t rip out a bunch of programs after it already had 100+ units – which undoubtedly would have made things even more difficult.

3. Kaizen

Gemba will not be the last Japanese business term we explore today. Let’s also look at kaizen – the concept that refers to continuous improvement in all aspects, and at all levels, of the business.

Fyodor built his company around the concept of kaizen. Dodo IS is an iterative operating system, always being tweaked and refined to better support the restaurants. (Fyodor: “With Dodo IS, we can run experiments, implement any feature we deem worthy, adapt our strategy on the go, and acquire knowledge and skills that are essential for survival in the digital world.”)

The blog is kaizen made public. Mistakes are analyzed in painstaking detail. Plans are made for improving every area of the business – from financial strategies to how best to sell a half-and-half pizza on the app.

The company could afford to invest heavily in iterative programs because elsewhere it worked to minimize risk. The first stores opened in low-cost markets. Cheap rents helped give the company the flexibility to be experimental. There were marketing benefits as well: Fyodor felt that he’d have a better chance of competing with international brands like Domino’s, Pizza Hut, and Papa John’s in smaller cities, where he could more easily generate excitement. (Today, the sales charts are still dominated by smaller cities and towns – Magadan, Chita, and Norilsk, which is located 300 km north of the Arctic Circle.)

The chain also made a wise decision to build flexibility into its supply chain, at first allowing franchisees to rely on local ingredients rather than attempting to build out a single, national program. Technology was used in innovative ways – cameras were trained on the dough formed at new locations; photographs were then compared with “ideal” dough to ensure the locally-chosen ingredients were up to par.

In 2019, the first Dodo Pizza opened in Nigeria with a localized supply chain. The menu was adapted, too, for local tastes – adding items like the Shawarma pizza and Dodo pizza with plantains. The company also proved flexible in its approach to real estate, launching its third Nigerian location in a shipping container. “In fact there was enough space for a stove, a fridge, and everything else,” the company wrote in a blog post. “The orange shipping container attracted customers so much that they began to take selfies in front of it. Currently this store ranks second in terms of profitability within the entire chain (store-level EBITDA is 21.23 percent as of March 2022).”

What’s next? Lately, the company has broadened its scope outside pizza, launching doner kebab and coffee concepts while rebranding itself as “Dodo Brands.” Five “Doner 42” and 23 “Drinkit” coffee shops are now open.

Fyodor (somewhat surprisingly) stepped down as CEO this year, remaining with the company as executive chairman. He handed the reins over to Alena Tikhova, who left Russia in the 2010s to go run the first American outpost in Oxford, Miss. She seems to have no less ambition than her predecessor: In her first speech, she laid out a vision that included 30,000 to 50,000 Drinkit coffee shops across the world. 

I’m not betting against them.

That’s all for today. Thanks to SAP for the edit and thanks as well to my early readers for their helpful feedback.

See you back on Friday for our weekly recap of the news.

Andy