Domino's has a plan to get delivery sales back, and investors are buying it

The pizza delivery chain plans to innovate its way into customers’ good graces and has massive hopes for its Uber Eats partnership. Its stock has taken off.
Domino's delivery
Domino's hopes innovation and a loyalty program change can bring in new customers. | Photo: Shutterstock.

Domino’s delivery sales have been struggling for the better part of two years now and the company on Monday said things were not much better last quarter.

On a two-year stacked basis, same-store sales for delivery in the second quarter were down 15.2%. The carryout business, up more than 20% over the past two years, has barely made up for it. But considering price increases, it’s clear the chain is losing a lot of delivery customers right now.

The company has a plan to change all that. Its recently announced deal with Uber Eats should give Domino’s access to customers it has been ignoring for years. It spent the summer improving service. And it is hitting innovation hard, adding spot delivery last month and with plans for a new stuffed cheesy bread next month and a loyalty program overhaul in September.

Executives said on Monday that they expect these efforts to show results by the end of the year. “We expect a slight improvement in trend in Q4 as our updated loyalty program begins to roll out, followed by considerable improvement in 2024 as a result of transaction growth from our Uber Eats partnership and other initiatives,” CFO Sandeep Reddy told investors on Monday.

Investors are buying it. Since its stock fell below $300 per share in early June, Domino’s shares are up nearly 32%, including more than 1% in early trading on Monday. It is a long way from the $564 per share it hit in 2021 before labor and then waning delivery demand became a problem, but it is recovering.

Delivery has been a problem for the chain since 2021, averaging a decline of 0.1% for each of the past eight quarters. Some correction from the pandemic was to be expected—the chain’s same-store sales in the U.S. averaged an 8.6% increase in the eight quarters before then. But the company’s sales challenges, notably the loss of delivery demand, appeared to take the company by surprise.

The company has blamed a host of issues for this, including a lack of drivers and then an inflationary economy that has kept such customers away. Carryout has thrived in the meantime. But given that Domino’s has primarily been a delivery company for years it was not quite enough to make up for the lost delivery demand.

The delivery challenges do the most to explain Domino’s reversal on using third-party aggregators. The company had been a long holdout—the largest among major fast-food chains—having argued that it wasn’t worth the prospect of losing customers who’d use its own app.

The aggregator market could be a $1 billion opportunity for Domino’s over time, CEO Russell Weiner told investors. Most of that would be incremental. “Our feeling here at Domino’s Pizza is if there is a category that sells pizza vigorously, we should get our fair share,” Weiner said. That share, he said, is one out of every three pizzas.

Domino’s is taking other steps to improve delivery sales. The company has spent the summer working to improve service, for instance. It has improved the time between when an order is made to when it is delivered by nearly 2 minutes over the past year. “We’ve improved the underlying fundamentals of the business,” Weiner said.

Some of that is coming from having more drivers. The company is getting more applications now for drivers than it did in 2019, for instance. Some of that is from a fleet of 1,000 electric vehicles around the country, which has enabled locations with those vehicles to lure people who have driver’s licenses but are reluctant to use their own cars for delivery.

Domino’s also believes Pinpoint Delivery, enabling customers to have a pizza delivered to a specific spot on a map, could drive demand over time, particularly given its uniqueness.

The company has two other efforts it believes will drive sales. The company plans to introduce a Pepperoni Stuffed Cheesy Bread late next month. Domino’s hopes to generate some of the same success it had with its Loaded Tots.

And Domino’s is planning a substantial change to its loyalty program. Weiner provided few details, but said that it would still be a “transactional”-based loyalty program, essentially rewarding people for the number of visits they make, rather than based on dollars spent.

Domino’s will likely allow customers to redeem their points earlier for smaller items, rather than require them to wait until they have 60 points to redeem for a free pizza. “We think that will be a nice driver of order counts,” Weiner said. And customers can then add items from the menu when they redeem their points. “There’s a lot of upselling on the website and on the apps,” he said.

Whether this works, of course, will remain to be seen. But Domino’s plan for getting its delivery sales back is becoming clear, and investors are on board.

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