Domino’s expansion works for its delivery drivers – not against them
Lacklustre salary increases since the 2008 financial crisis – despite the rejuvenation of the global economy – are a regular fixture in discussions of labour markets. And the companion-narrative of big companies paying workers as little as possible while they grow around the globe is never far from the news cycle – just earlier this month, one such company (Amazon) caved to years of pressure to increase the amount it pays workers. Plenty of other companies are fighting off strikes and unions, but Domino’s Pizza is not one of them. Rather, in a stroke of strategic brilliance, the company has found a way to ensure that its continued expansion puts more money in its delivery drivers’ pockets.
Domino’s Pizza has seen its share price rise by 42% so far this year
SOURCE: Yahoo Finance
Domino’s mastery of technology and innovation in all things from mobile apps to customer loyalty programs has quickly taken it on a rollercoaster ride to market dominance. In the last quarter alone, the company added around 232 new stores. And while other companies might struggle to find reliable, long term, staff, Domino’s is seeing more and more people lining up to deliver their pizzas. The reason is simple: tips are a big part of overall compensation when it comes to pizza deliveries. If drivers are busier (i.e.: delivering more pizzas) they will receive more tips. So even if a driver’s hourly wage, or compensation per delivery, doesn’t improve, if he gets more orders coming in, he’ll likely earn more money.
The company’s CEO, Rich Allison, discussed this very fact on a recent earnings call. He said: "You know I think labour is tight in any business in the U.S. today, and we're certainly no exception to that. The fact that our drivers are so busy, it helps us. When we take a look at what the driver can make at Domino's Pizza relative to delivering or driving for some other businesses, it's very, very attractive." Allison says this trend will continue. He plans to add more Domino’s stores, thereby decreasing the amount of delivery territory that each store covers. This should give drivers shorter delivery routes, meaning they can make more deliveries an hour, and, thereby, earn more tips. He added that better and more tips can be a decisive factor in drivers’ decisions to stay where they are, or move to a competitor.
That’s great news for Domino’s, which operates in an industry where employee retention rates are notoriously low, but drivers are incredibly important. According to the Bureau of Labour Statistics, as many as 72.5% of people working in food service or hospitality dropped their employer in 2017.
Dominion holds Domino’s Pizza in its Global Trends Managed Fund.
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