July 18, 2019

Domino’s Pizza faces new threat from apps like UberEats, Doordash

Domino’s Pizza faces new threat from apps like UberEats, Doordash


A Domino’s Pizza delivery driver

Jason Alden | Bloomberg | Getty Images

Delivery apps like UberEats, Doordash and GrubHub are cutting into Domino’s Pizza‘s business, so much so that it’s reducing sales growth for the world’s largest pizza chain, according to Morgan Stanley.

Domino’s built its business around a fleet of drivers who deliver hot pizzas fast. But outside delivery companies now pose a real threat to about 20% to 25% of Domino’s locations, Morgan Stanley analyst John Glass said in a research note Thursday. He said the relatively new competition could erode sales growth at Domino’s locations open for a year or more by up to 2%.

By aggregating nearby pizza restaurants onto their increasingly popular apps, the emerging delivery companies are giving consumers more options than they had in the past.

“While we are not dismissive of the sales risk posed by third-party aggregators, we believe our work puts reasonable boundaries around that debate,” Glass said. “While difficult to precisely translate that exposure into a sales impact, we think a reasonable estimate is 1-2% on [same-store sales], with some of that impact likely already in the sales base.”

Domino’s has the advantage over third-party delivery companies when it comes to value and speed of delivery, he said. The pizza chain has been aggressively expanding the number of U.S. stores as part of a strategy it calls “fortressing.” Increasing its store count is meant to decrease delivery times as a way to increase customer satisfaction and tips for drivers.

Morgan Stanley found that Domino’s has locations in about half of all U.S. counties, but its existing store base covers roughly 90% of the population.

When Domino’s reported its first-quarter earnings in April, CFO Jeff Lawrence told analysts on the conference call that “aggressive marketing from third-party aggregators” put pressure on domestic same-store sales growth. The pizza chain reported sales at U.S. stores open at least a year grew by 3.9%, falling short of Wall Street’s estimates of 4.2%. A year previous, it saw domestic same-store sales growth of 8.3%.

Investors will be watching to see if the pizza chain comments on third-party delivery again when Domino’s reports its second-quarter earnings before the market opens Tuesday. Analysts surveyed by Refinitiv are forecasting that the company will report earnings per share of $2.02, revenue of $836.9 million and U.S. same-store sales growth of 4.81%.

Shares of Domino’s were up 1% in morning trading Tuesday.



Source link

About The Author

Related posts