More than 1,000 delivery drivers working for a pair of California Pizza Hut operators got news just before the holidays that their positions will no longer exist come February.
According to Business Insider and the Los Angeles Times, the franchisees, PacPizza and Southern California Pizza Company, are laying off more than 1,100 workers in a half-dozen counties in the state. The layoffs were announced in Worker Adjustment and Retraining Notifications (WARN) filed in California last month. Such notifications are required when businesses lay off at least 50 workers.
The reasoning behind the layoffs, apparently, is a change in the franchisees’ business model. The franchisees “made a business decision to eliminate first party delivery services and as a result the elimination of all delivery driver positions.”
Blame automatically shifted toward a planned increase in California’s minimum wage for fast-food chain restaurants to $20 an hour. And the move is already becoming a political football in the debate over that law.
The state is increasing that wage as part of a compromise between labor organizations and groups covering the restaurant industry. That compromise created a panel that will oversee regulations affecting fast food chain restaurants in the state and will pave the way for the higher wage.
But the move by the two franchisees is more complex than that and its implications are potentially deeper. It could well spell the end of first-party delivery as we know it.
Pizza Hut began using third-party delivery services late in 2022 as a way to ease its challenges finding drivers. The company followed Papa Johns, which now gets 15% of its sales through third-party delivery providers. Domino’s, meanwhile, has decided to start using such services itself and believes it will get a large chunk of the third-party pizza delivery pie in the coming years.
Yet those companies have made no hints at dropping their own services. The decision by the Pizza Hut franchisees to drop the services changes that. The franchisees are effectively deploying the same model as Little Caesars, which exclusively uses third parties for delivery but is traditionally a carryout concept.
The franchisees must have looked at the landscape and decided that it would be better off taking that step. And it’s easy to see why they would do this.
First, third-party delivery is generally more popular in the parts of California where these franchisees operate, meaning that they likely get a bigger percentage of revenue from those services.
Second, finding drivers is not easy. They were the most difficult workers to find during the Great Labor Shortage of 2022, one that forced companies to rethink much of how they do things.
Third, it’s expensive. There are insurance and other costs to consider when running an in-house delivery operation. Add a fourth complexity in the higher wage, and then the equation for the franchisee becomes relatively simple.
Why keep a service when it is becoming less necessary and the cost for providing it is becoming more expensive?
But this also says a lot about the delivery landscape. That landscape has changed dramatically over the past three years as customers shift much of their delivery orders to those apps. This move means that it could even force companies that have long used delivery to abandon their own in-house services when things get a little more difficult.
In short, this could be the beginning of the end for in-house pizza delivery.