Domino’s Pizza (DPZ) made its mark by offering a fast-food type of pizza service option. Domino’s marketing promotion to deliver pizza in 30 minutes really helped the company grow.
The company expanded by appealing to customers' desire to sit on their couch and wait for food to be delivered. Timely delivery was one of the key ingredients to its success.
Another key ingredient to Dominos success was its approach as a low-priced pizza option. Faster delivery and lower priced pizza than its competition proved to be a winning strategy for the Michigan-based company. The pizza company started in 1960 and has grown primarily through franchisees to 85 different countries. Since the company is mostly independent franchise owners, the owners can determine if their stores will charge delivery fees and at what ticket price threshold to have free delivery.
Pizza businesses are fiercely competitive and during the pandemic the industry was primed for the type of business that was needed, home delivery. Almost all other industries had to pivot business models, but pizza delivery did not. More people ordered pizza during the pandemic routinely than ever before. Dominos reported large increases in sales during the stay-at-home orders.
Dominos Was Unable to Evade Pandemic Economic Issues, Inflation
The pandemic is likely the root cause of the inflation across the globe and no industry is immune to its effects. Worldwide inflation is causing price increases at every turn. During the Q3 Earnings Call, Domino's CEO Russel Weiner stated, "Given the continued inflation we have seen, our analytics now indicate we should take pricing [up] on our national carryout deal as well. We will continue to balance customer value and franchisee profitability by taking our carryout mix and match deal from USD5.99 to USD6.99 starting on October 17. From a delivery capacity perspective, we saw progress throughout the quarter, resulting from our initiatives in this area."
Raising prices in a company that built its business on low priced pizza and timely delivery is quite a blow to loyal customers. Customers already feel the burn of higher prices, and the low-priced dinner option had been a saving grace, as its deal is still far cheaper than going out to other fast-food restaurants like McDonald's (MCD). Prices have been a much more gradual increase but sticker shock at McDonalds is still happening. McDonalds was reportedly increasing pricing by 6% this year, and the $1 price increase by Domino's reflects a 15% increase.
Since franchisees can decide whether or not to charge for delivery it's really a toss-up on how much of a savings there is between carry out and delivery. All things considered paying an extra $1 for each item in the mix and match deal may seem like small potatoes but being dinged $1 everywhere consumers shop really begins to add up.
Pizza is Still a Formidable Dinner Option, Overall
Dinner is getting harder to put on the table for many families, especially those who are living paycheck to paycheck. All of those families who used to be able to afford to go out to dinner once a week or every once in a while, are now finding the most affordable options to treat their families.
Curbside pick-up or carryout pizza options are still popular at an affordable price. Since the pandemic, many restaurants increased carry-out capacities and began delivery options to reach customers. While convenient, the majority of restaurant chains and small business restaurants have had to increase their prices to deal with inflation as well. Considering how a family can eat a pizza for a meal and only pay $1-$2 more for the same meal compared to delivery fees, increases costs on multiple food items, pizza is still a formidable competitor in dining.
Pizza restaurants have also been feeling the pains of staffing shortages, as well as any other industry. It has gotten to the point where some pizza delivery will be done through outsourcing through other delivery companies that have the staff to be able to get dinner on the table on time.
Companies are getting creative on how to attract customers. Most recently Domino's Pizza made a marketing plea to customers to save 20% for an "Inflation Relief Deal." The deal is available when customers place their order online through Domino's app, online, over the phone, or in person. The special promotion is for a limited time, through Oct. 16 and applies to both carry out and delivery orders.
