Domino’s this week announced that it now has an app that works with Apple Carplay. As part of that story, we included this notable statistic: In late 2019, just before the pandemic, a third of Domino’s business was coming through carryout. In the fourth quarter of last year, that had grown to 40%.
The number is indicative of a dramatic shift in Domino’s sales. Customers, the company said, were ordering less pizza delivery, which it largely blamed on the economy. Same-store sales through that channel fell 6.6% in the fourth quarter. “Our research shows that a relatively higher delivery cost during inflationary times leads some customers to prepare meals at home instead of getting them delivered,” CEO Russell Weiner told analysts in February.
The comment is at least somewhat surprising, given that pizza is considered a relative bargain, which as customers are cutting back would theoretically be at an advantage. Yet Domino’s and other fast-food pizza chains lost delivery demand last year.
And yet we do not see similar numbers from third-party delivery services. DoorDash, for instance, made a record number of deliveries in the fourth quarter last year.
I have a theory. First, remember that consumers ordered a lot of delivered pizza in 2020 and 2021. A slowdown was inevitable, as consumers went to eat inside restaurants again. Any normalization of consumer demand was going to pressure pizza sales. And carryout was more likely to benefit from a consumer that was leaving the house more often, particularly given the discounts Domino’s was offering such customers last year.
But the difference in the response between Domino’s and third-party delivery is rooted in their customer base. Domino’s, as a mass-market pizza delivery chain, has a higher number of lower-income consumers who might have been more prone to the impact of an economic downturn.
As several executives have mentioned, lower-income consumers last year were cutting back on dining, and some credit card data indeed suggest that many Americans’ finances were stretched thin. That would have an outsized impact on a company like Domino’s that has made its business by offering low-priced pizzas to the masses.
Yet third-party delivery has a different customer base: People with more money than time. That base is less prone to inflation, or at least they were less prone to inflation last year. They were willing to spend for convenience, and the result was a better sales result than Domino’s demonstrated.
The question is whether the problems at Domino’s spread to third-party services. With their higher-income customers, DoorDash and Uber Eats have some protection against an economic downturn, because convenience matters. But it’s also a high-priced service, something that could be easily cut back on in tighter economic times.
There are some indications that higher-income consumers are starting to cut back, or at least they say they’re cutting back. And one of the things on which they’re cutting back is delivery.
If higher-income consumers do indeed cut back—and just because they say they are cutting back doesn’t mean they are doing so—then the pain felt by Domino’s in 2022 could spread to third-party services, not to mention all kinds of other restaurant chains. And that might make the Ann Arbor, Mich.-based pizza chain a canary in the economic coal mine.