Domino's value offerings protect it from third-party delivery threat, report says
- Domino's value offerings give it a competitive edge over third-party aggregators that offer more variety but deliver at a higher cost, BTIG said in a recent report.
- The pizza giant, which offers a $5.99 menu lineup, charges delivery fees of about $3 compared to almost double that for some aggregators. It also has better delivery times, according to the report.
- "We believe this relatively wide gap in delivery charge presents a financial and psychological barrier which could limit adoption of the aggregators' delivery service outside of major cities given the price sensitivity of most restaurant customers," BTIG analysts Peter Saleh and Ben Parente outline in the report.
Even though Pizza Hut and Papa John's are testing the waters with third-party delivery, Domino's is perfectly fine sticking to its in-house delivery. Its CEO Rich Allison has said maintaining its own delivery fleet allows it to control cost and quality. As the company eyes the $25 billion sales mark by 2025, its competitive position will become increasingly important.
While investors have expressed concern about the impact delivery companies might have on Domino's, executives have said that these same pressures exist in other markets — such as China and the U.K. — and haven't had a significant impact, according to BTIG. Domino's sales continue to grow, reaching $3.4 billion for fiscal year 2018. BTIG expects its sales to surpass $4 billion by 2020.
Domino's has focused on leveraging technology innovations and data to improve guest experience and increase efficiencies at its store locations. Remodeling stores to improve carryout and delivery has also been part of this push, which could suffer under a third-party delivery provider.
Domino's fortressing initiative, which adds franchised restaurants within existing territories to get closer to customers, has helped also helped reduce delivery times, executives said during a February earnings call with investors. Its Domino's Hotspots, which provides delivery to over 200,000 sites, offer additional ways to get closer to customers.
One of its strategies is also using data to build "smart" average check growth through add-ons, menu trade-up and targeted delivery fee increases, which BTIG expects will add 1% to 2% to check growth. This will only add to its ongoing sales growth, an element that Pizza Hut and Papa John's have struggled with in recent years.
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