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Why third-party delivery worked for Papa John’s

The chain has seen its sales through aggregators triple this year, without the profit loss. RB’s The Bottom Line looks at why.
Photograph: Shutterstock

The Bottom Line

Last year, as Papa John’s struggled to get its head above water after two years of controversy that sapped the chain of sales and employees, the company embraced an odd strategy: Work with third-party delivery providers.

It was odd for a simple reason. Papa John’s employed its own drivers. Using a third party would cost it control, as well as the valuable data that comes with delivery orders. Competitors, notably Domino’s, strenuously avoided using “aggregators,” as they call them.

So far, however, Papa John’s odd strategy appears to be paying off. Third-party delivery sales at the chain have soared 300% this year, three times the rate over overall sales growth at the providers themselves. Third-party delivery now represents 6% of sales, up from 2%.

“We’re very excited about our partnerships,” CEO Rob Lynch said in an interview. He said the sales are incremental, coming on top of sales the chain would already get, and profitable.

They’re profitable, Lynch says, because Papa John’s understands the delivery model. “It’s a little bit of a different model than the dining folks using aggregators as a supplemental channel,” Lynch said. “This is our channel. We’re used to delivery fees.”

Third-party delivery remains both a frustrating and intriguing business opportunity for restaurants. Most chains have embraced the service, even if they privately admitted they didn’t like it, and that intensified as delivery became the only business during the pandemic.

At the same time, that lack of control over quality and providers’ charges for the service remains a frustration.

Chains that specialized in delivery beforehand viewed the rise of aggregators more as competitors, for the most part—Domino’s along with the sandwich chain Jimmy John’s both vowed not to use the service. Their argument was reasonable. They already provided delivery, did so more cheaply, and could control the process.

By agreeing to go along with third-party providers, Papa John’s was making a deal with a potential competitor.

But the chain needed the sales at the time that it first made the agreement. Third-party delivery companies have their own sets of customers. Getting on those companies’ platforms gave the company access to those customers. Given that Papa John’s is so small—it has half of the locations as rival Domino’s, for instance—that access proved vital.

As such, the apps gave the company a bigger boost, allowing it to spread its restaurants’ reach further.

It also helped eliminate some delivery challenges. And at the time Papa John’s made that deal, it was lacking in delivery drivers.

“The aggregators increase our capacity,” Lynch told analysts on Thursday. “Our No. 1 bottleneck, frankly, is drivers. And adding a significant number of drivers through models like DoorDash helps us in a big way. It helps us manage our labor, but also helps us manage our throughput as they can show up and take delivery.”

Lynch said that Papa John’s continues to build the number of stores signed up with delivery providers. “Their business is growing at 100%,” Lynch said of the providers. “And we’re a piece of that. And they’re a piece of our business. We’re finding that to be very incremental.”

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