Domino’s still hopes it can fix delivery without using third parties

The pizza chain’s sales continue to lag, largely because it can’t find enough drivers. But it says “all options will remain on the table” until it can solve the problem.
domino's delivery shortage
Domino's doesn't want to use third-party delivery to help with its driver shortage, but may have no choice./Photograph: Shutterstock.

Domino’s doesn’t want to call DoorDash or Uber Eats to help fix its driver problem, but will if it has to.

The Ann Arbor, Mich.-based pizza chain on Thursday reported its third U.S. same-store sales decline in four quarters. The key metric declined 2.9%, which in reality was better than the 5% decline analysts expected. Its sales also accelerated on a three-year basis from levels in the first quarter.

Still, “I can assure you that nobody at Domino’s is happy with our recent performance,” CEO Russell Weiner said on the company’s earnings call Thursday, according to a transcript on the financial services site Sentieo.

Domino’s sales problems are rooted in reduced demand for delivery—though executives said that the diminished impact from stimulus payments also played a role. Its carryout business has been performing far better. For carryout, same-store sales increased 14.6%. But they declined 11.7% for delivery. Delivery is a much bigger business for Domino’s.

That has the company considering using third-party delivery providers to supplement its existing fleet. Domino’s has resisted that, calling third-party providers its biggest competitors, yet some of the chain’s more direct competitors—notably Papa John’s—have done well by using companies like DoorDash and Uber Eats to provide some of those services.

Company executives said that they are eager to find an “internal” solution to its driver problem. But until they find that solution, they will continue to keep “all options” open, suggesting it remains open to using other sources.

“The question remains,” Weiner said, “can we close the gap in performance and get back to fully meeting demand utilizing our current delivery model as it has evolved over many decades? Until we fully answer this question, all options will remain on the table.”

It’s an important question for Domino’s, which is facing its biggest challenge in more than a decade. The company is one of the industry’s most innovative restaurant chains and it used that innovation and strong marketing to generate more than 10 years of quarterly same-store sales increases in the U.S. That streak came to an end in the third quarter of last year as it suddenly found itself without enough drivers.

Domino’s has since overhauled its management team, bringing in Weiner and naming former CEO David Brandon executive chairman. The company’s stock, which once considered regular increases something of a birthright, is down 27% this year, though that it not necessarily unusual, given the current stock market. It fell another 1% on Thursday, in part because Domino’s didn’t meet earnings expectations as its food costs rose more than expected.

The company’s struggles with delivery have masked its strength with carryout. Buoyed by promotions such as $3 coupons given to carryout customers, its same-store sales accelerated in the second quarter, improving to 14.6% from 11%. On a three-year basis, same-store sales for that business have improved to 33% from 24% in the first quarter.

Domino’s loves the carryout business for several reasons: It is cheaper than delivery. It also represents a much bigger piece of the overall quick-service industry than delivery, which to the company means there’s a lot more growth to be had. One of the reasons the company continues to push forward on its “fortressing” strategy, in which it builds more locations in a market, is to generate more carryout sales because such customers do not travel as far to get their pizzas.

As such, the company has been targeting carryout customers for some time. “It’s an accelerating trend on a business that is a significantly larger business in the QSR space,” Sandeep Reddy, Domino’s CFO, said on the earnings call Thursday. “So there’s a lot of runway for growth for us on that business.”

But Domino’s is known most for delivery. Those orders are generally larger. It’s a bigger overall piece of its business. And the company has a lot more competitors for such orders thanks to DoorDash and Uber Eats.

Executives believe they’re making progress. They say that the gap between its top-performing restaurants on delivery and its worst-performing restaurants narrowed in the quarter. Executives believe that the better-performing locations are more likely to be fully staffed. The bottom locations are more likely to have reduced hours or services due to a lack of drivers, which is hurting sales.

Domino’s is working to give drivers what they want most, such as more flexibility to work shorter shifts, fewer hours and sign up for shifts with shorter lead times.

The company is working to spread best practices from those top stores to the rest of the system, believing that could fulfill demand for drivers without the use of anyone else. “Our first priority is to try to fulfill this stuff internally,” Weiner said. “We have a lot of franchisees that are doing that.

“We are 100% committed to getting this done ourselves, and we’re seeing improvements.”

But, he said, Domino’s is still not there, and that means those other options remain options. “Until we get to where we need to be, we will continue to explore all options,” Weiner said. “But our big focus is to be able to serve our own customers.”

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