Delivery Guys Take a Bite Out of Domino’s

Competitors are grabbing a bigger slice of this hot, delicious pie.

Branding itself as the recognized world leader in pizza delivery,

Domino’s Pizza

DPZ 0.44%

has historically differentiated its offering based on value and the speedy delivery capabilities enabled by rapid store expansion.

But the proliferation of third-party delivery apps over the past year is neutralizing these competitive advantages in the U.S., bringing deep discounts and more accessible delivery capabilities to the broader market, courtesy of investors willing to sustain money-losing, rapidly growing companies.

After nearly doubling from August 2016 to August 2018, Domino’s shares are down almost 15% over the past year and they still look vulnerable. Sales in the second quarter significantly missed Wall Street’s estimates and U.S. same-store-sales growth of just 3% disappointed investors after nearly 7% growth in the same quarter last year. Management noted third-party players continued to pressure its U.S. comparable sales in the quarter—pressure with no clear end in sight.

Domino’s has worked with such order aggregators internationally, calling those experiences “a mixed bag.” The company seems intent to go it alone in the U.S., citing costs, quality and safety, but it remains to be seen how long it can afford to fly solo. Following its July report, 16 analysts have lowered sales estimates for the third quarter, according to FactSet. U.S. same-store sales growth has decelerated to 3% to 4% in the year’s first two quarters from a quarterly average of nearly 7% last year. Analysts now expect U.S. comparable-store sales to slow even further in the back half of this year.

To be fair, the benefit of third-party delivery for chain restaurants is still somewhat unproven, with some restaurants reporting improved in-store traffic once quitting the apps. Still, online-delivery company


for example, continues to tout its success with its restaurant partners including Pizza Hut parent company

Yum Brands

Yum Brands hasn’t only been in partnership with Grubhub since 2018 but also invested $200 million in its stock. Pizza Hut’s U.S. President Artie Starrs now sits on Grubhub’s board. Grubhub says it has been piloting Pizza Hut locations on its platform since February. While not a huge improvement, Yum Brands’ U.S. same-store sales grew 2% in the second quarter, up from 1% in the same period last year. Yum Brands’ chief executive said in July that its partnership with Grubhub has led to incremental customer growth.

For its part, Domino’s seems to be innovating in many of the same directions as third-party delivery apps. The pizza chain offers a loyalty program and is working on a new point-of-sale system for its stores. It also is adding GPS technology for eaters to track their pizza’s progress and is even looking into self-driving cars.

That won’t avoid more disappointing quarters in the near term, though, as its technological edge erodes. It is likely that the epic market-share battle between online-delivery players will eventually exhaust balance sheets, relieving pressure on go-it-alone Domino’s. In the meantime, the pizza-delivery king may very well go stale in the face of discounted novelty.

Write to Laura Forman at

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

error: Content is protected !!