For years, as its competitors jumped on the third-party aggregator bandwagon, Domino’s remained a holdout, arguing that its own delivery was the better option for customers who wanted food brought to them.
And then its sales began stumbling in 2021 and in 2022, wiping out years of consistent increases. By 2023, the company gave in, announcing a deal late that year with Uber Eats. By the end of the year, 3% of its sales came through that channel. By May, Domino’s will be selling pizzas on DoorDash’s app, though it will still manage the delivery.
“When you look back prior to COVID, we intentionally didn’t want to help grow these aggregators because they were going to be competitive to us,” Russell Weiner, CEO of Domino’s, told analysts last year. “Now, who knows what would happen if COVID didn’t happen. But it did. They became big. And we need to compete there. It’s a marketplace where people go for delivery orders.”
Before the pandemic, pizza chains dominated the delivery business. Delivery accounted for less than 4% of industry occasions. So whenever Americans wanted food brought to them, their choices were generally limited to whatever pizza concept was near enough to provide the service—or, if they were fortunate, a local Chinese restaurant.
That has changed dramatically, and it has put immense pressure on the pizza business. As consumers grew accustomed to third-party delivery players like DoorDash and Uber Eats through the pandemic, total delivery occasions have taken off, and now account for 9% of occasions, according to the National Restaurant Association.
But it’s also taken business away from those pizza players. A business that has long been largely saturated in the U.S. has lost one of its biggest selling points: The fact that it was one of the few items you could get delivered to your door.
According to the Technomic Top 500 Chain Restaurant Report, sales of fast-food pizza chains in the ranking grew less than 1%. But a lot of that was thanks to the relatively strong performance of market leader Domino’s (up 5.4%). The typical fast-food pizza chain, including concepts on the Top 1,500, declined 0.7% last year.
The data only includes restaurants and doesn’t include convenience-store brands like Casey’s or retailers like the warehouse brand Costco that sell a lot of pizzas. Yet those companies’ success shows just how much prepared pizza there is in the market right now.
Aggregators, meanwhile, have taken off. Last year, DoorDash and Uber Eats combined to generate $154.8 billion in delivery sales, up 18% from a year earlier and triple the amount they generated in 2020. While that number includes convenience stores and grocers, most of it remains restaurants. Yet even if we cut that $154.8 billion in half, that is still more than double the $31.5 billion in total sales generated by fast-food pizza chains last year.
Consumers can now get anything delivered, whether it’s burgers or lasagna. And there’s plenty of evidence to suggest that pizza chains are losing delivery business.
Some of the most intriguing information comes from Papa Johns, which was the first major pizza delivery chain to actively use aggregators. The chain now gets 17% of its sales from aggregators, compared with 35% through their own channels. And those two numbers are getting closer.
In the fourth quarter of last year, fewer customers ordered Papa Johns through the chain’s own channels. But it sold more pizzas through aggregators. “We believe aggregators are going to continue to be a meaningful contributor to growth,” CFO Ravi Thanawala told analysts in February.
Indeed, traffic at the chain in the fourth quarter was “solid” for both carryout and from aggregators. But its total same-store sales during the period declined 4%, implying that business from its own delivery channels declined well over 4%.
That trend has been evident throughout the business for the past three years. At Domino’s, same-store sales from carryout increased 3.2%, but delivery declined 1.4%. Its total same-store sales increased 0.4%.
A pizza business that gets fewer customers from its own channels and more from aggregators and carryout essentially makes the business look like every other fast-food restaurant. And it has significant implications for the business over the long-term. Two major Pizza Hut franchisees in California did away with drivers in late 2023 in advance of the state’s $20 fast-food wage law. Some franchisees in other states have done the same since then.
A typical Pizza Hut location generated $845,000 in sales last year, according to Technomic. That is nearly $300,000 per location less than Papa Johns and about $500,000 less than a typical Domino’s. Given the cost associated with operating a self-delivery operation, coupled with soaring costs for food and labor and a customer demanding value, the chain’s franchisees are obvious candidates to do away with self-delivery. But if trends on delivery continue, franchisees of other brands could do the same, if they haven’t done so already.
The focus on carryout, meanwhile, is already leading brands to create new prototypes and push more remodels to make the in-store visit more pleasant. Major pizza brands have already added drive-thru windows while pushing more curbside to be more competitive with the drive-thru customer. In Texas, Pizza Hut is testing a prototype with an actual drive-thru, in-store kiosks and a menu of freshly prepared items.
Papa Johns is likewise strategizing ways to build more carryout business. “We think we have a really big carryout opportunity,” Thanawala said.
Domino’s has already been moving in this direction for years. As third-party delivery players grew, the chain pushed to make its business friendlier for carryout customers, who are less willing to travel far to get their pizzas as they are to have them delivered. So the company started “fortressing,” or building locations in existing markets, to do so. “Carryout is bigger than delivery for pizza in the states,” Weiner said.
Other issues, however, make this shift less desirable on the part of pizza chains. As they lose delivery customers to aggregators, pizza chains lose more higher-income customers that may be more willing to pay full price, which may mean existing customers rely more heavily on value.
The bigger issue is the data on the customers themselves. Customers who use pizza chains’ apps give those chains information that the chains can use for marketing and personalized offers. If more customers are using aggregators, the pizza chains then lose information and marketing on a growing group of its users.
On top of that, companies that self-deliver control the delivery process and can do more to ensure pizzas get to the destination on time.
As such, while Domino’s may be jumping on the aggregator bandwagon, it is not jumping on the third-party delivery bandwagon just yet. The company will deliver the pizzas itself. And it is tailoring offers on its app to encourage customers to use its own channels.
At the same time, it also needed to bow to reality. “We’re a pizza company,” Weiner said. “So we’re going to compete in every occasion.”
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