Financing

Would Domino's ever work with third-party delivery? Maybe

The pizza delivery giant is keeping the door open regarding aggregators such as DoorDash and Uber Eats. The company uses a simple, risk-reward calculation in evaluating whether it makes sense to be on those apps.
Domino's third-party delivery
Domino's is not shutting the door on the use of third-party delivery apps. | Photo courtesy of Domino's

Domino’s remains the most prominent U.S. restaurant company to avoid using third-party delivery companies. Even as previous holdouts have given in and started using them, and competitors like Papa Johns and more recently Pizza Hut have proclaimed the glories of DoorDash and Uber Eats, the Ann Arbor, Mich.-based company remains a notable skeptic.

Or is it? Domino’s views on third-party delivery are not so simple. The company globally generates about $1 billion in total sales through third-party aggregators, CFO Sandeep Reddy said at the Oppenheimer Consumer Growth and E-Commerce Conference on Wednesday, according to a transcript on the financial services site Sentieo/AlphaSense.

So why not just use it in the U.S.? Reddy said the company is constantly evaluating third-party delivery based on a simple, risk-reward calculation. Once the potential reward outweighs the potential risk, he said, then the company will use them.

“For us, it’s a very simple calculation, a simple evaluation process,” he said. “We just look at what is the incrementality of a potential partnership, weighed against the potential risk of customers who are on our platform, switching out of our platforms into an aggregated platform. And if we see that on a long-term basis, the incrementality of the opportunities is greater than the risk than that calculus leads us to actually partnering with a third-party aggregator.”

Domino’s views on third-party delivery have spanned multiple CEOs and CFOs and have been based on this very idea. But this was the company’s most straightforward explanation yet of why it has been holding out.

Pressure on the company to start using such aggregators built over the past year and a half, as a labor shortage made it difficult for franchisees to find enough drivers to deliver its pizzas.

Papa Johns started using aggregators in 2019 when a controversy surrounding founder John Schnatter made it difficult for the chain to find drivers while providing some incremental sales. The company said last year that aggregators helped it overcome the late-pandemic labor shortage.

That shortage led Pizza Hut to start using aggregators last year, and that chain has cited the delivery companies in part for its outperformance in recent quarters. Same-store sales at that chain increased 8% in the first three months of the year, compared with flat at Papa Johns and 3.6% at Domino’s. Both Papa Johns and Pizza Hut say they get incremental sales from customers who prefer using the aggregators' apps. 

Reddy noted that the company gets a lot of questions about using aggregators, and why the company doesn’t use them, which is what prompted his comments.

Many global markets have powerful aggregators that are popular with diners, which drives delivery sales in places such as China. Reddy said the company is “very comfortable” with its use of aggregators.

“It’s really simple,” he said. “We get to the point where if the long-term benefit is greater, we sign up. If we get to the point where we say the risk is much greater versus the long-term benefit, we don’t. And it’s like that.”

But he also noted that “it’s not static.” That means Domino’s evaluates the market, suggesting that if the market for third-party delivery business grows large enough that the company should move onto those apps, then it will. “The marketplace evolves over time,” Reddy said. “You’ve got to continuously be updating your assumptions as you evaluate the opportunity. And that’s exactly what we’ve been doing.”

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