How Domino’s is looking to beat delivery services and win the pizza wars
Domino’s Pizza is the world’s largest pizza chain by sales. And it wants to go further, hitting 25,000 stores and $25 billion in sales worldwide by 2025. With traditional rivals Pizza Hut and Papa John’s looking to turn around their struggling businesses, the coast seems clear – except for one thing: the prodigious growth of a new set of food order and delivery companies like Grubhub and Uber Eats.
Both Domino’s and Grubhub have traded down by around 4% over the past week
Source: Yahoo Finance
These delivery platforms, which have no restaurant space of their own and offer a far broader menu, have been squeezing Domino’s US business this year. Heavily marketed, consumers are proving susceptible to their message that you can gain access to thousands of restaurants in one place. Deutsche Bank analyst Brian Mullen recently wrote in a note: “The call here is really about the competitive intrusion of the third-party delivery aggregators, which we expect to increase in magnitude over the next two-to-three-year period, before it potentially levels off or gets better.”
But Domino’s CEO Ritch Allison thinks there’s a flaw in these delivery services’ business model. For one thing, aggregators seem to keep popping up, and in a furore to outcompete one another, they’re pushing discounts and spending on marketing in a way that won’t be sustainable in the long term. For another thing, Allison says many of these restaurants are becoming leery when it comes to the high commission fees DoorDash and others are charging (sometimes as high as 30%). Over time, restaurants that experience a strong demand for orders may find it cheaper to employ the traditional “bloke on a bike” to do their deliveries instead.
Allison thinks the key to winning this war is through existent strategies: embrace innovation (Domino’s recently announced that it was using artificial intelligence systems to check pizza quality, and is still experimenting with autonomous delivery vehicles) and quality. After all, if Domino’s offers the best delivery pizza around, the demand won’t just be for pizza… it will be for Domino’s pizza.
Dominion holds Domino’s Pizza in its Global Trends Managed Fund.
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