Wall Street has grown skeptical of pizza chains lately—and of delivery in general, for that matter—as investors sense a return to more normalized activity as the pandemic comes to an end and states wind down their restrictions.
Just about any company that delivers food to consumers has seen its stock price dwindle in recent weeks. That includes Domino’s Pizza (down 16% from its 52-week high) and Papa John’s (down 22%). They’re not alone in the least, as third-party delivery rivals DoorDash has lost half of its value while Uber Eats parent Uber is down 17%.
Stocks in general have fallen somewhat in recent days. And skepticism about DoorDash is focused on the company’s sky-high early valuation and its lack of profitability. Still, it’s clear that investors believe the delivery party is about to come to an end.
The pizza chains themselves, however, argue they have strategies in place to offset whatever delivery sales they do lose as customers return to normal.
At Domino’s, for instance, the company’s strategy to “fortress” markets by building more locations is designed in part to generate carryout business—a business that has slumped over the past year as consumers grew reluctant to walk inside a restaurant.
Company executives believe they can pick up some carryout business in a post-pandemic recovery. “As we look forward into 2021, one of the important drivers that we see in terms of our ability to continue to grow sales in the U.S. is the restart of that growth on the carryout side of the business,” CEO Ritch Allison said in February, according to a transcript on the financial services site Sentieo.
Papa John’s, meanwhile, believes that a combination of investments in technology, growth in its loyalty program, increases in marketing spending and its innovation calendar can help the company as it runs into difficult comparisons. “We are extremely pleased with the start to 2021,” CEO Rob Lynch said in February, according to Sentieo. “Q1 is giving us a lot of confidence that we’re going to continue to outperform the industry long after the pandemic recedes.”
That said, there are reasons for skepticism. After all, delivery companies have had a captive market for much of the past year. Consumers, stuck at home with extra cash because they’re not spending it anywhere else and the government keeps sending stimulus checks, have embraced having food brought to them.
This has provided a massive tailwind that tripled sales at some third-party delivery sites while helping Domino’s, Papa John’s and Pizza Hut generate strong sales over the past year.
Yet those sales slowed in the back half of 2020. Papa John’s same-store sales slowed from a peak of 28% in the second quarter to 13.5% in the fourth quarter. At Domino’s same-store sales slowed from 17.5% in the third quarter to 11.2% in the fourth. Pizza Hut, however, saw its same-store sales accelerate—though it also closed some underperforming dine-in units that likely influenced those numbers.
At the same time, however, there is evidence that they can keep strong sales even as consumers do return to some of their previous habits—at least for a few weeks as those stimulus dollars flow from bank accounts and into restaurants.
As my colleague Joe Guszkowski reported, this past weekend set records for a lot of delivery companies, including some pizza chains, driven by March Madness and those stimulus checks.
And yet, anywhere we went, the parking lots at restaurants were crowded. We saw a three-hour wait at a local Texas Roadhouse. And on Thursday Darden Restaurants said its same-store sales rose 5.4% last week—compared with 2019 numbers! That included 23% at LongHorn Steakhouse.
For now, at least, delivery and a return to normal appear to be going hand-in-hand.