By Heather Haddon | Photographs by Audra Melton for The Wall Street Journal
It's the great pizza-delivery debate: to app or not to app?
The industry that pioneered delivery food is divided on whether
to make its pies available through apps like DoorDash and Uber Eats
in addition to their own delivery services. As pizza chains look to
maintain growth after the pandemic, some are working with the apps
to reach new customers or add delivery capacity, while others say
the services cut too far into their margins.
Papa John's International Inc. has struck deals with the major
delivery apps to promote its restaurants online and use their
drivers at times. Chief Executive Rob Lynch said his chain is
advertising to reach consumers who got a taste for delivery during
the health crisis, including those searching for pizza on DoorDash
and other delivery apps.
"It's profitable or we wouldn't be doing it," Mr. Lynch said of
sales through delivery apps.
Domino's Pizza Inc. refuses to work with delivery apps, saying
their fees dilute restaurant profits and distance chains from their
customers.
Over the last five years, Domino's and other pizza chains have
gained market share from independent slice shops by offering
cheaper pies and delivery with their own drivers, a shift that
accelerated during the pandemic and sent Domino's shares up 31%
last year. Domino's and Papa John's U.S. same-store sales grew by
double-digit percentages last year.
Pizza Hut is using delivery with app companies in limited
circumstances, typically when its own drivers are busy with other
orders, said Kevin Hochman, interim U.S. president for the chain.
It is also working to keep customers ordering from its stores,
which he said have faster average delivery times than the apps do,
particularly in the suburbs where companies like Grubhub Inc. are
building out driver networks.
He said it is also usually cheaper to order directly from Pizza
Hut than most other cuisines on an app.
"When you start adding up the delivery fee and the menu markup,
it's a much more expensive proposition," Mr. Hochman said.
Similar debates are playing out across the restaurant industry,
where businesses are pushing back on the commissions charged by
delivery apps or are developing ways to keep more control on
customer orders.
One edge for the pizza business is its low costs. Pizza, since
it is mainly dough, sauce and cheese, is generally cheaper to make
than many other types of food. Pizza restaurants are often left
with more profit to pay drivers and other overhead costs than
restaurants that specialize in other cuisines and rely on delivery
companies, industry executives said.
Speaking at a Wall Street Journal event earlier this month,
investor Bill Ackman said his Pershing Square Capital Management LP
fund took a nearly 6% stake in Domino's because it owns its
delivery service and doesn't rely on companies such as DoorDash
Inc.
"You can deliver pizza for $7.99. It's hard to do that with a
delivery service taking a massive, massive cut of the proceeds,"
Mr. Ackman said.
An Uber Eats spokeswoman said the company offers a range of
pricing structures for different services and that globally more
than 50,000 pizza restaurants use its platform.
Slice, a pizza-specific startup, is trying to compete with the
big apps. The company charges $2.25 to process an online order for
an independent restaurant, amounting to a roughly 6% commission on
a typical order of $40. Most of the 16,000 independent pizzerias on
its service do their own deliveries, but Slice negotiates fees
based on the operator's size to transport pies for the small
business, founder Ilir Sela said.
"It's the most critical decision that any independent business
can take, to transform digitally," said Mr. Sela, who aims for his
online pizza network to compete with Domino's.
Domino's has spent hundreds of millions of dollars on digital
infrastructure including a proprietary sales system and GPS order
tracking. It is testing on-the-road delivery with robots at one
Houston store.
Many Americans want fast, accurate delivery after trying more of
it during the pandemic, raising the bar for restaurants, said
Dennis Maloney, Domino's chief innovation officer.
"We think their expectations around delivery are just going to
continue to grow," he said.
Pizza is second only to burgers as America's most popular entree
ordered from restaurants, according to market-research firm NPD
Group. Pizza delivery was around decades before smartphone apps
arrived on the scene. Domino's founder Tom Monaghan helped build
the world's largest pizza chain by sales through to-go innovations
such as corrugated boxes designed to keep pies hot and a 30-minute
delivery guarantee.
Pizza delivery boomed during Covid-19 lockdowns, but the bulk of
that growth benefited quick-service pizza chains. Sales at
independent and small pizza chains fell 19% last year, according to
industry firm Technomic Inc. Nearly 81,000 pizza places closed
during the pandemic through April, around 10% of the total,
according to market-research firm Datassential.
John Barofsky, co-owner of La Perla Pizzeria in Eugene, Ore.,
didn't offer delivery from his Neapolitan-style pizza shop before
the pandemic. With office workers and college students at home, he
lost carryout business. Mr. Barofsky said when he added delivery
with the app-based companies, their commissions of roughly 30%
erased his margins. And discounts offered by chain pizza places
made it hard for his higher-cost pies -- topped with homemade
mozzarella and imported meats -- to compete, he said.
"The perception is that pizza is cheap. What we were doing was
higher quality," Mr. Barofsky said. "That was a challenge we had
from day one." He closed the restaurant in January.
Write to Heather Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
May 30, 2021 05:44 ET (09:44 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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