Our restaurant is situated between a Domino’s one block away and a Round Table another block in the other direction. Neither have hurt our business, and we don’t consider them to be “competitors”. They sell cardboard topped with crap and we sell real pizza – local, organic, and quality ingredients on hand tossed dough. We get the occasional visitor who complains about the price ($20 for a large cheese pie!), but I stick to the “you get what you pay for” bit. Those who don’t walk out often thank us for what we do. For people who just want cheap, you can’t compete with the likes of Domino’s, and I wouldn’t waste my time trying to convert them.
Focus on what you have to offer that Dominos doesn’t. This will vary, but might include being locally owned and operated, use of locally grown produce, meats free of preservatives, your contributions to the community, etc. People like knowing that their tax dollars will be spent in their own community, so don’t hesitate to point that out. Take credit for what you do and post a statement in your window.
If you consider Dominos to be a competitor, you will never be able to compete on price. They’re just too big. You have to differentiate yourself, and quality and community focus are at least two things Domino’s will never compete with.