McDonald’s and Domino’s have long been bigger competitors than you probably think. But the pandemic has made their head-to-head competition for the budget convenience consumer even more intense.
The two do not seem like competitors. McDonald’s sells burgers, chicken sandwiches and breakfast from ever-present restaurants with drive-thrus in high-traffic areas. Domino’s is a pizza chain that pioneered delivery. And, while cold pizza is a breakfast staple in and around colleges across the country, it’s not as if Domino’s delivers egg pizzas in the morning.
Yet for much of the day, a certain segment of the customer base is deciding between the two. Both companies serve a lot of families looking for budget meals. And the person who might opt for McDonald’s on a busy night may instead get a Domino’s pizza or vice versa.
The pandemic and the labor shortage that followed have led both companies to move further into one another’s territory.
Domino’s is doing a lot more carryout business. McDonald’s is doing a lot more delivery. And that takes both chains directly into one another’s respective orbits.
To be sure, customer restaurant choices are complex and are based more on “need states.” A customer’s need for convenience might overtake their desire for a specific menu item, for instance. Or a customer might make an impulse purchase while walking past a restaurant on the way to work.
This makes it difficult to tell for sure who is getting business from whom.
Still, it’s difficult to ignore some of McDonald’s most recent quarterly data, while comparing it to what’s been going on at Domino’s.
Delivery same-store sales at Domino’s declined 7.5% last quarter. And the likely number of lost customers is probably far more than that given the chain’s higher overall prices. Company executives have suggested that the economy is keeping more customers away from delivery.
But McDonald’s just had one of its best quarters for delivery ever in the U.S. Delivery, CEO Chris Kempczinski said, “remains a key driver of our business to enhance convenience.”
Domino’s has been saying for more than a year that third-party delivery companies were its biggest competitor, beyond even Pizza Hut and Papa John’s. The idea that consumers can get a broader selection of menus delivered to their home has long been a threat to the traditional delivery concept.
But delivery at most chains is expensive. A typical third-party delivery can be as much as twice the cost of ordering it and picking it up.
McDonald’s, however, has a better reputation for pricing than most chains, which can help it keep delivery sales where others might lose them (though it is still not yet certain whether other chains will lose delivery business in the short term).
On top of that, its omnipresence means most Americans live close enough to one of the chain’s locations to make delivery a better option. All of that makes McDonald’s a formidable competitor to Domino’s.
Meanwhile, the pizza chain has taken steps to make its own restaurants more competitive with fast-food chains like McDonald’s. Domino’s has remodeled its restaurants and is building more of them so customers will be more likely to go and pick up their own pizzas. Carryout same-store sales at the chain rose more than 20% last quarter.
Last year, for instance, when Domino’s was pushing its “Carside Delivery” service, company executives explicitly said it would make them more competitive for the customer that might otherwise go through the drive-thru.
“It’s a great technology-enabled way to serve our customers and will remain an important part of our long-term strategy to serve our existing carryout customers and to attract new QSR drive-thru-oriented customers going forward,” then-Domino’s CEO Ritch Allison said last year, according to a transcript on the financial services site Sentieo.
And pizza chains have an edge over almost everyone else heading into any potential recession: Pizza as a rule is cheap on a per-person basis. A couple of pizzas can feed a family for $20 or less quite easily, and getting those pizzas yourself can eliminate delivery charges.