Financing

Carryout carries Domino's through a tough period

The pizza chain’s delivery sales are falling as consumers shift to other options. But its carryout business has become a major source of customers.
Domino's carryout
Domino's "carryout tips" promotion has helped that business thrive at the pizza delivery chain. / Photo courtesy of Domino's.

Domino’s has had a tough run. Same-store sales rose just 0.9% in the fourth quarter, which masked a 4.5-point slowdown in its three-year figure, which compares the pizza delivery chain with the pre-pandemic era. Its stock price on Friday hit a new 52-week low, closing below $300—a price its shares have not traded at in four years.

It’s all related to a slowdown in the delivery business on which the company built its reputation. That 4.5-point slowdown was due to “clear evidence of softening demand from delivery customers in particular.”

But the company did have a substantial bright spot: carryout. That business now represents about 40% of the chain’s sales and about half of its traffic. Carryout same-store sales rose 14.3% in the fourth quarter and 31% on a three-year basis.  

“That’s really a business that’s on fire,” CEO Russell Weiner told investors.

Domino’s in fact boasted that it has the largest business of carryout pizzas in the U.S., as well as delivery. The company is now generating $1 billion more in carryout pizza sales than it did before the pandemic.

“If it were a company of its own,” Weiner said, “Domino’s carryout would be counted among the top 20 QSR brands in America.”

Domino’s has long been a delivery-focused company, one that helped revolutionize the entire pizza business by delivering orders directly to customers’ homes. It was so popular, in fact, that it convinced Pizza Hut, which had been the largest pizza chain but was primarily a dine-in destination, to overhaul its entire business to concentrate on the at-home market.

Over the past decade, however, Domino’s has worked to build its carryout business, using remodels to make its stores more inviting and adding technology such as screens that display the status of various carryout orders and more recently pickup shelves.

As delivery drivers became difficult to find, the company began a massive promotion to shift more orders to that channel, giving customers $3 “carryout tip” that they can use toward their next order. That promotion clearly worked to generate sales last year.  

Domino’s does like carryout business, in large part because those orders come at a lower cost. After all, it doesn’t have to pay a driver to deliver a pizza that customers get themselves.

“Carryout remains highly incremental to delivery for us,” Weiner said. “And in cases where it’s not incremental, customers are moving to a service method with significantly lower costs for our system.”

Domino’s “fortressing” strategy, in which it builds additional stores in existing markets, is done in part to increase those carryout sales. Customers will only go so far for a carryout pizza, and company executives have long said that more stores increase overall carryout sales.

There is also this: The market for carryout is bigger than the market for delivery. As such, Domino’s believes it has plenty of room to keep adding more sales through that channel.

“Carryout pizza QSR is significantly bigger than delivery QSR,” Weiner said. “Every time we open up a new store, not only to our delivery times get tighter, but the carryout volume is very incremental.”  

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