Domino’s says its sales are withstanding third-party delivery

The chain's stock soared more than 8% after another strong sales quarter, aided by more delivery orders.

Domino’s Pizza on Thursday said that its same-store sales rose 8.3% in the U.S. in the first quarter ended March 25, extending a remarkably long string of sales performance that has now reached 28 straight quarters.

But this period’s growth came thanks to an increase in delivery orders. In recent years, in-store takeout orders led growth at the Ann Arbor, Mich.-based chain.

To Patrick Doyle, who will soon step down as CEO, the results are evidence that the company is more than withstanding the rise of third-party delivery services and, with it, the increase in available delivery options.

“We have continued to see very little impact on the business from third-party delivery,” Doyle said Thursday on what will be his final earnings call as CEO. “Delivery aggregators are challenging and unproven. Those companies are likely realizing something we’ve known for almost six decades: Delivery is hard.”

Investors have long wondered whether the rise of delivery companies such as DoorDash, Grubhub, Uber Eats and Postmates would have an effect on traditional delivery players such as Domino’s. But pizza chains have long contended that they have little to worry about, because of the efficiency of their own delivery operations and the ultimate value that pizza provides.

While delivery services are apparently taking business from some restaurants, Domino’s results show they’ve thus far been immune to the increased competitive pressure.

Indeed, Domino’s has been immune to a lot of competitive pressure. The company’s long string of sales growth has made it one of the most successful restaurant brands in the U.S. in any sector.

It is now the largest pizza chain in the U.S., having surpassed Pizza Hut last year, according to Technomic's Top 500 Chain Restaurant Report. It is now the ninth largest restaurant chain in the U.S.

The company’s stock rose more than 8% Thursday morning on the earnings report. Domino’s stock, which in early 2009 was trading at below $4 a share, reached an all-time high of $255 a share on Thursday.

Doyle, for his part, believes the chain has plenty of growth remaining. “Five out of six pizzas in the U.S. came from somebody other than Domino’s,” he said. “There is clearly more room for growth ahead.”

The company recently announced a pair of initiatives that executives believe could become growth drivers in the future: The Hotspots program and artificial intelligence for phone orders.

Domino’s recently said it would deliver to nearly 200,000 “delivery hot spots” across the country, including parks, beaches, sports fields and other places. Consumers will now be able to get pizzas even if they’re not at home.

Doyle believes the service could “drive incremental sales” in the coming years. “It’s a meaningful step in our mission of industry-leading convenience,” he said.

Doyle said that the company is making sure that these delivery hot spots will be safe for its drivers. “The most important delivery our drivers make is them coming back safely at the end of the night,” he said.

In addition to the hot spots strategy, Domino’s also recently said that it is testing voice-activated artificial intelligence for phone orders.

Doyle says that the benefit of that program will be freeing up workers in stores to help in-store customers and make pizzas, and “driving sales through better customer satisfaction.”

He said the program will “continue to get better” as it expands and the company learns more about how it’s used.

“Artificial intelligence allows you to learn faster and faster the more iterations, the more reps it has,” he said. “We are very confident this technology is going to get there.”

Doyle also compared it favorably to voice-activated programs such as Google Home or Amazon Alexa, which have general responsibilities. Domino’s program, on the other hand, is very specific, which should help that program improve more quickly.

“We wouldn’t be rolling it out to more stores if it wasn’t getting good results,” Doyle said.

Doyle said that Domino’s has been intent on making itself the “dominant” pizza chain since it overtook Pizza Hut to be No. 1. “Complacency just doesn’t exist in this culture,” he said.

Domino’s sales results have yielded stronger cash flows for operators who are building more units. Franchisees opened a net 31 new locations in the first quarter in the U.S. and 79 internationally. The brand now has 5,649 locations in the U.S., and 14,966 worldwide.

Thursday was Doyle’s last earnings call as CEO. His successor, Richard Allison, called Doyle “the top CEO in the industry” and says he has “big shoes to fill” in June once the president of Domino’s international division takes over.

Doyle, for his part, said that Allison “couldn’t be more prepared and ready to move the brand forward.”

And, he said, “I will be a Dominoid forever.”

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