Third-party delivery has long been expected to disrupt Domino’s and that’s exactly what’s happening—just not quite in the way that the company expected.
Specifically, Domino’s has struggled to get drivers, and at least part of the reason for those struggles is the kind of shifts they’re demanding.
“Drivers who would like to drive are interested in being engaged,” Sandeep Reddy, Domino’s CFO, told investors on Thursday, according to a transcript on the financial services site Sentieo. “They’re looking for shorter shifts, much more flexibility, the ability to sign up at the last minute and actually have a much more flexible employee-earn model that’s available to them to engage with.”
In other words: Drivers want from Domino’s what they can get from ride-sharing services and delivery aggregators.
“This is a shift in the marketplace in terms of how labor wants or drivers want to engage with us,” he said, largely saying that aggregators “got a bit disruptive” in the way they employ drivers.
The driver shortage has been a real problem for the Ann Arbor, Mich.-based pizza chain. After increasing every quarter for a decade, same-store sales have fallen in the U.S. for two of the past three quarters and executives’ commentary on the company’s first-quarter earnings call suggested it would soon be three of the past four.
The weakening performance has hammered the stock price. Even after the price of its shares increased in the past two weeks, Domino’s stock is down about 32% from its 52-week high reached earlier this year. Amid this, the company overhauled its management team, replacing CEO Ritch Allison with Russell Weiner and bringing in Reddy to be the CFO.
Domino’s same-store sales
Source: Restaurant Business, company reports
Company executives have also said this is largely due to a lack of drivers, which has hurt delivery sales by reducing delivery times and even limiting the number of hours stores are open. Allison told analysts in April that the top 20% of the chain’s stores outperformed the bottom 20% by 12 percentage points and that the top stores were “close to fully staffed.”
There was no difference in sales for carryout. But the top stores outperformed the bottom locations by 17 percentage points—leading the company to conclude that a lack of drivers was the biggest problem.
Reddy said that cancelations have increased, suggesting people want pizzas but aren’t getting them delivered quickly enough. “We have enough information to tell us that the demand is still really strong,” Reddy said. “It’s more of that capacity to serve.”
Reddy likened the situation today to that of more than a decade ago, when Domino’s was struggling and overhauled its pizza recipe, bolstered its consumer-facing technology and began its decade-long run that made it one of the most successful stocks on Wall Street over that period. He suggested that technology could be the answer.
“We’ve proven that from a consumer technology standpoint that we can actually come up with technology that helps consumers engage with the brand,” he said. “So why can’t we do that with drivers.”
But technology is only “one piece of it,” he said. Store managers also have to work with drivers. Reddy said managers have figured out how drivers want to work, and the periods of time when they want to work.
Domino’s stock price
Reddy said the biggest problem is with the worst-performing locations. So the company must work with the managers at those locations so they understand driver demands enough that they can recruit them back to the restaurants. “With the rich strength we have in terms of talent in the company, it’s just a matter of time before we actually fix a lot of this stuff,” Reddy said. “From a labor standpoint, it’s pretty clear that we’ll get there.”
The lack of drivers has Domino’s rethinking its long-held view that it should not use third-party delivery, which has made it among the biggest holdouts to the trend. Reddy on Thursday reiterated that “nothing is off the table” and said that the company is looking at options including “white label” delivery to more full-service options.
Yet the company still hopes it can fix the problem itself without bringing in that kind of assistance. “I think we’re definitely getting more confident that we’ll be able to reduce the gap based on what we’re seeing,” he said. “Is it going to go all the way to where we can fulfill all the demand ourselves? We hope that’s going to be the case. (But) we don’t really have a clear line of sight yet to that, which is why we said if we don’t really have that full capacity to return to our system, we are open to other options.”
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