Russia’s Pizza King Wants to Use the Cloud to Take Over the World

(Bloomberg) -- Once you crack the profit code for delivering hot pizzas in the Arctic, where blocks of cheese arrive on nuclear icebreakers, expanding into more hospitable climes like Britain and Nigeria is as easy as pie.

Or so says Fyodor Ovchinnikov, the freshly crowned franchise czar of Russia and soon, he’s betting, beyond. From a single basement oven in his native Syktyvkar in the Far North, the failed bookseller and serial blogger has turned Dodo Pizza into one of Europe’s fastest-growing restaurant chains, leapfrogging Papa John’s, Domino’s and Pizza Hut in his home market in just eight years.

An archaeologist by education, Ovchinnikov, 38, and his franchisees have opened 457 pizzerias in Russia and 69 in 11 other countries. Dodo owns 23 of those itself, including its new flagship in China. Now he’s planning to add another 1,000 in Europe, Asia and Africa over the next five years, a goal few people in the industry doubt he can achieve.

That’s because of a secret sauce that isn’t edible, but ethereal—Dodo IS, a proprietary mix of application software and analytics stored in the cloud. Overseen by a “chief agile officer” and maintained by 120 technicians, it provides, among many other things, instant monitoring of cash flows, inventories and service times at every location in the network, all viewable with just a few taps on a tablet. And mandatory, live-streaming kitchen cams allow anyone with an internet connection to watch a Dodo pizza being made.

“We’re a cyborg company,” Ovchinnikov said in an interview at Dodo’s headquarters in Moscow. “We’re half food and half tech. That’s our advantage. We’re incredibly efficient.”

Dodo is also incredibly open for a successful enterprise in Russia, where shakedowns by authorities are a major gripe of many business owners. The company publishes much of the financial data it collects online, even revenue for the 500-plus franchise restaurants. Weekly sales in dollar terms, for example, recently ranged from $48,164 at Dodo No. 2 in Novy Urengoy in Siberia to $1,329 at Dodo No. 2 in Karaganda, Kazakhstan. Two of the highest-grossing outlets are inside the Arctic Circle, in Norilsk and Salekhard.

Another selling point of Dodo IS, which Ovchinnikov’s programmers are working on now, is the ability to automatically create marketing campaigns for individual locales when sales dip below a certain threshold. Or, as he likes to put it, “when labor productivity is getting low.”

Such simplicity and what Dodo refers to in its manifesto as “the principle of radical transparency” are winning converts around the globe.

Ovchinnikov recently sold the franchise rights for Nigeria to Quality Foods Africa, the same group of British investors that brought Krispy Kreme to that continent’s most populous country last year. QFA Director Alex Trotter said the first of a planned 20 Dodos will open this month in Lagos.

“This industry is becoming a technology business and Dodo’s at the top of the class,” Trotter said by phone from London. “It has the best platform we’ve seen in fast food.”

Ovchinnikov said the deal with QFA and continuing growth in Russia, Europe and Asia will help him meet his goals of hitting $500 million in network revenue by 2021 and $1 billion by 2024. He expects to do that in part by bucking prevailing trends in an industry that’s undergoing a major technological shift.

While global fast-food giants led by McDonald’s Corp. are spending billions to develop delivery services, Dodo is redesigning its restaurants to attract more foot traffic and achieve what Ovchinnikov calls perfect “brand balance,” which is sales parity between dining and delivery.

A featured speaker at tech conferences who’s been hailed by Microsoft Corp. for his pioneering use of its cloud platforms, Ovchinnikov refuses to work with delivery apps like Yandex.Eats and Delivery Club in Russia. He says they sever the final link with customers that his well-coached drivers complete.

Ovchinnikov named his company and mascot after a flightless, extinct bird that’s also a character in one of his favorite novels, “Alice in Wonderland.” It’s a brand that’s becoming synonymous in Russia—and increasingly overseas—not only with cutting-edge restaurant and delivery management but also guerrilla marketing.

Dodo made headlines from Washington to Tokyo with what it billed as the world’s first commercial delivery of pizzas by drone, to customers in the central square in Syktyvkar in 2014. A video of the event that Ovchinnikov uploaded to the internet earned him something of a cult following among a new generation of entrepreneurially minded Russians.

A prominent journalist, Maxim Kotin, wrote a book about Ovchinnikov called “Nerds Do Business” that recounts how he reinvented himself after his bookseller collapsed in the wake of the global financial crisis a decade ago. Ovchinnikov, then in his 20s, moved 1,100 kilometers southwest to St. Petersburg to study the fast-food business for a spell, working entry-level jobs at McDonald’s, Sbarro and bliny chain Teremok before landing a job at Papa John’s.

He treated his stint at his future competitor as a self-help course, secretly measuring every piece of equipment, weighing every ingredient and scanning every page in Papa John’s recipe binders, Kotin wrote. Rather than challenge Kotin’s reporting, Ovchinnikov hired him as Dodo’s “chief storyteller.”

“Nerds Do Business,” which has sold 44,000 copies, the drone stunt and all the online candor have helped turn Ovchinnikov into one of the most popular figures in Russian business. He and Dodo have more than 2 million followers on social media between them.

Last year, his readers were treated to the rare spectacle of a successful Russian writing frankly about being interrogated by police over an alleged drug ring being run out of one of his properties in Moscow. He calls the case, which was eventually dropped, a “provocation” that he’d rather not get into.

And this summer, Ovchinnikov blogged in painful detail about the mistakes, since corrected, that he made in the course of opening the first corporate Dodo in China, his “primary market of the future” along with Britain. That outlet, in the e-commerce hub of Hangzhou, is a cashless, non-delivery, fully touch-screen operation with a unique menu designed for local tastes.

Ovchinnikov’s tech prowess extends to the online “commercial marriage” service he offers through a web portal, matching people who can afford to invest in a Dodo with people who have the “passion” to run one. It’s resulted in hundreds of partnerships, but nobody gets to participate until they graduate from a training course he runs in Syktyvkar that includes lessons on how to properly clean a toilet.

One thing the pizza impresario hasn’t achieved yet is massive wealth. Ovchinnikov has 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% of sales, that every franchisee pays.

Not everyone has benefited from the arrangement. Alexander Sidorov, a former franchisee in Chelyabinsk, opened his first Dodo in 2012 and grew his business to five outlets before selling them all in June because he said the margins he was allowed to make were just too small.

“Dodo is very transparent to the outside world, but within the system the franchisee doesn’t have any power,” Sidorov said. “While it's a very well-run company and sales are always strong, its financial model limits how much shop owners can make.”

Still, Dodo itself has hundreds of investors and franchisees have thousands more as a result of crowdfunding, though Ovchinnikov retains more than 50 percent ownership. One of those shareholders is also one of the biggest names in pizza—Steve Green, a former Domino’s franchisee in the U.S. who now runs PMQ, the industry’s leading trade publication and advisory firm.

Ovchinnikov gave Green 25 shares after the American took what he described as an eye-opening trip to Syktyvkar to study Dodo’s business in 2014. They have a nominal value of $25 each, but Green said he won’t sell them anytime soon because he hasn’t been this excited about a company’s prospects since Domino’s started its nationwide rollout in the U.S. four decades ago.

Domino’s, based in Ann Arbor, Michigan, priced its initial share sale, in 2004, at $14 apiece. Now the stock trades at more than $250 and Green said he expects a similar return from “my friend Fyodor” once Dodo goes public, as Ovchinnikov is planning, in the next few years.

“Fyodor is the Steve Jobs of pizza,” Green said.