Feb 24, 2023 - Economy

Domino's Pizza sounds warning on delivery price fatigue

Illustration of a pizza box, with the chef having his back turned, and waving his hand.

Illustration: Brendan Lynch/Axios

Fees combined with price increases are weighing on food delivery orders.

Why it matters: Early rumblings of a potential consumer pullback on delivery are appearing, and the biggest players in the game — whose businesses soared during the pandemic — are getting creative to lure customers as the costs pile up.

Driving the news: Domino's Pizza, which has more than 19,500 locations worldwide, sounded the alarm Thursday, saying that its delivery business is shrinking.

  • The company's same-store delivery sales fell 6.6% in the fourth quarter. compared with a year earlier, as customers turned "to carryout, sit-down meals and home cooking," Domino's CEO Russell Weiner said on an earnings call.
  • "We believe this dynamic will continue to pressure the delivery category in the short term as long as consumers' disposable income remains pressured by macroeconomic factors," he said.

And while Domino's internal delivery strategy — it doesn't open its business to third-party apps — has triggered issues distinct from its competitors, the decline in delivery has been anything but.

By the numbers: Quick-service restaurants like Domino's experienced an 11% decline in delivery orders in 2022, according to data from the NPD Group provided to Axios.

  • In January 2023, 15% of Americans placed food delivery orders at least once a week, down from 18% a year earlier, according to Morning Consult.

Between the lines: The decline in delivery may stem from consumers hitting their breaking point on inflation, as delivery fees stack on top of product price hikes.

  • Domino's said its U.S. prices rose 6.3% in the fourth quarter, compared with a year earlier.
  • "It’s more of a macro issue," CFRA Research analyst Siye Desta tells Axios. "There’s added fees and it costs more for consumers."

The other side: The largest food delivery companies haven't yet felt the sting of pressured household budgets, however.

  • DoorDash's revenue rose 40% in the fourth quarter, and total orders grew 27% compared with a year earlier.
  • Uber Eats also saw growth in order frequency and monthly active platform consumers, prompting CEO Dara Khosrowshahi earlier this month to say "delivery remains resilient."

Yes, but: Both DoorDash and Uber Eats are taking steps to lure in customers with compelling value plays. Both have been offering discounted deals to new subscribers.

What to watch: How delivery services respond to price sensitivity.

  • The segment benefited from a "COVID-related pull forward in that method of ordering" in the early pandemic days, Bank of America analyst Sara Senatore wrote Friday.
  • But that means current delivery growth prospects are muted.

The bottom line: DoorDash shares jumped last week following its fourth quarter results, but have since lost a fifth of their value over the last five days amid broader market declines and concerns about delivery demand.

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