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Citing ‘unprecedented’ cost increases, Domino’s plans to change its value offers

CEO Ritch Allison said that the company will make changes to its national value offers, starting by making its $7.99 carryout deal online only, as supply chain and labor costs hit hard.
Domino's value offers
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Domino’s Pizza said that it plans to make changes to its national value offers this year, starting with its $7.99 carryout deal, amid “unprecedented” increases in the cost of food and continued rising costs for labor.

Speaking at the ICR Conference on Tuesday, CEO Ritch Allison said the company plans to make its $7.99 carryout offer digital-only.

Domino’s also plans to cut the number of chicken wings included in the offer to eight pieces, from the current 10. The offer gives people the option to choose a three-topping pizza or wings for $7.99 for carryout. Allison said the changes can be expected “in a couple of weeks.”

Online orders typically come with higher average tickets than orders placed over the phone. And, Allison said, it costs less to serve because employees aren’t answering the phone. The company also gets access to data from those customers that it doesn’t get from customers who order on the phone.

Still, the change will be the first in years for Domino’s value offers. The pizza giant has had the carryout deal, along with a “mix and match” $5.99 delivery deal, as part of everyday value for some time. Yet costs have taken off and there’s evidence that it has been impacting operator profitability.

One of the biggest is the cost of food. Domino’s said Tuesday that its food costs are expected to increase 8% to 10% this year. That is three to four times the level of inflation the chain sees in a normal year.

“We expect unprecedented increases in our food cost basket versus 2021,” Allison said. “I think many of you are aware of the significant inflation across the U.S. economy and how that is hitting many of the inputs that we have for our business, from meats to cheese to some of the grains that go into the production of our products.”

In addition, he said, the company expects to continue seeing wage inflation this year. Many operators have indicated they expect labor costs to continue to be high this year amid a continued shortage of workers, due in large part to an extended pandemic.

At Domino’s, higher costs have had an impact. Domino’s average per-store earnings before interest, taxes, depreciation and amortization is expected to be more than $170,000. That could be lower than the $177,000 average from 2020.

That said, at $170,000 average store EBITDA remains considerably higher than it has been historically. Average EBITDA per store was $143,000 in 2019, for instance.

Company executives have long held to their $5.99/$7.99 value offers, believing they bring in transactions that are important to the company’s revenue strategy. But Allison was quick to note that the company wanted to keep the $7.99 price point because of the equity the company has built behind that price over the years.

Executives have softened their stance on the offers more recently. Allison suggested in October that the company was analyzing the offers. “There are cost pressures on the business, both on the labor side, but also inflationary pressures as it relates to commodities as well,” he said.

Yet he also said the company was not “wedded” to any specific price points. For now, however, the price points will continue, even if the carryout offer itself will change.

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