Pizza has a delivery problem

Pizza has a delivery problem

In early March, Domino’s then-CEO Ritch Allison warned that a driver shortage would weigh on business.

“Delivery driver staffing may remain a major challenge in the short term,” he said, noting a year-on-year drop in deliveries in the final quarter of 2021.

He was right – and the problem has existed since this year. In the first three months of 2022, delivery at Domino’s U.S. stores open for at least a year was down 10.7% compared to the same period last year, Allison said in an analyst call in April, noting that he was impressed by the delivery results was “disappointed”. Overall, sales at these stores fell 3.6% over the period, in part due to staffing issues.

It is not just dominoes (DPZ). Pizza Hut, owned by Yum Marks (Yummy)It hurts her too. The brand’s sales in the United States fell 6% in the first quarter, attributed to “our supply channel where capacity constraints limited our ability to meet demand,” Yum Brands CEO David Gibbs said during an analyst call , in which the results were discussed. “This was caused by staffing challenges, primarily the shortage of delivery drivers, which was being felt across the industry.”
Domino's has a delivery problem.
Slow service is bad for business, and it’s not just because of lost sales – a few late pizzas from Domino’s could send someone straight into the arms of Pizza Hut, papa johns (PZZA) or another competitor.

So how do you solve the delivery problem? Hiring more drivers is the obvious solution, but this is not easy.

The US job market has not yet fully recovered from the pandemic, but it is on the way. Of the 22 million jobs lost after Covid-19 hit the United States in 2020, about 20.8 million were restored. And the job market appears to be cooling off this year, making hiring more difficult.
Meanwhile, the demand for delivery has gone through the roof. Domino’s noted that while the delivery rate is down compared to 2021, it’s still up nearly 6% from 2019. Other restaurants are also reporting higher demand and predict it will last.
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Driver shortages could also become a vicious cycle, noted Andrew Charles, Cowen’s restaurant analyst.

“Drivers take the job because they want to tip. When there are fewer deliveries to do, it hurts trying to get delivery drivers,” he said. “I don’t think that’s a very easy solution.”

Pizza companies need to do more than just try to convince more drivers to deliver more pizzas More changes are needed to fill the gap, e.g. Examples include outsourcing phone orders to dedicated call centers, a greater focus on technology, and higher fees for pizza where possible.

Call centers and delivery providers

One way to add more drivers without hiring more employees is to reassign current employees. Domino’s is hoping for help from call centers.

The company “is facing some pretty serious staffing shortages,” Charles said. “So everything they can do to alleviate this is being considered.” He estimates that around 10% to 15% of Domino orders in the US are placed over the phone.

Until mid-May Domino’s expects that between 2,500 and 3,000 Domino’s locations will use outside call centers in some way. They should “allow stores to focus on production and delivery when they’re understaffed during peak hours,” CEO Russell Weiner said during the April conference call.

In addition to using call centers, Domino’s is also working to make employees’ jobs easier, including using technology that improves hiring and training, a spokesperson told CNN Business. So far, Domino’s has stayed away from third-party providers like DoorDash, Uber Eats, or Grubhub that charge a commission — but “nothing is off the table,” Weiner said.

Pizza Hut also faces staffing challenges.

Pizza Hut is also taking several steps to address its delivery issues.

“The team is prioritizing restaurant operations, including a focus on improving staffing levels, restoring operating hours, increasing online order availability and using our overflow call centers more effectively,” said David Gibbs, CEO of Yum Brands, during a Analyst meeting in May. But Pizza Hut has also used third-party delivery drivers to “boost our own delivery drivers,” he said.

Gibbs hopes a tech acquisition will help improve the situation.

Last year, the company completed the purchase of Dragontail, which features an AI-enabled platform designed to make restaurant operations more efficient, including reducing disruption due to driver shortages. The brand is testing the platform in more than 100 of its thousands of US stores to try to improve the delivery network.

Another way to lessen the impact of the problem? charge customers more.

The Papa Johns solution

Papa Johns also faced staffing shortages, but “we feel pretty good about staffing,” CEO Robert Lynch said during an analyst call in May discussing first-quarter results. In North America, sales at Papa Johns stores open for at least a year rose 1.9% in the first quarter.

Lynch thinks the company’s partnership with outside aggregators has helped, but what really gives him confidence is the company’s pricing strategy. “Our premium positioning is a different model than people talking about staffing,” he said of a big problem.

“We have premium pricing. We don’t need quite as many transactions, so we’re less affected by the staffing issues we all see.” In other words, Papa Johns doesn’t really care how many customers buy its pizza because each pie is more expensive than what its main competitors are charging.

However, pizza lovers will have to wait a little longer for their cakes before the labor shortage eases.

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