Photo: Domino’s
Should Domino’s Work With Third-Party Delivery Apps?
Reversing its long-held stance against working with third-party delivery apps in the U.S., Domino’s Pizza has agreed to make Uber Eats its exclusive third-party delivery service.
America’s most popular pizza chain has been reluctant to work with delivery apps in part due to the profit hit. Restaurants are charged between 15% and 30% in fees for listing, payment processing, and delivery. Reputational risks of using an outside delivery service have also been an issue. In 2021, Domino’s ran a promotion giving away $50 million worth of free food to call out the “surprise fees” being charged by delivery apps.
Under the new agreement, orders placed on the Uber Eats platform will still be delivered by Domino’s drivers, allowing the chain to maintain control of delivery execution. Uber Eats will also share data with Domino’s on delivery efficiency and incremental sales.
Being listed on Uber Eats and its sister site Postmates enables Domino’s to reach new customers who are used to ordering there. Uber’s customers tend to be younger and more affluent than those ordering directly from Domino’s.
Domino’s CEO, Russell Weiner, acknowledged to the Wall Street Journal that direct orders from pizza chains have stagnated while those through delivery apps have accelerated over the pandemic. Third-party app loyalty programs also keep customers from ordering directly from Domino’s.
“It’s a multibillion-dollar marketplace that sells food and pizza,” Mr. Weiner said. “We need to play in a big category like this.”
Weiner declined to discuss the commissions Uber will charge but insisted noted that franchisees will profit from the incremental sales.
The partnership comes as Domino’s had flagged a slowdown in deliveries in April. Pizza Hut and Papa Johns have said their moves to start working with delivery apps since 2019 have broadened their customer reach and helped them find drivers amid the late-pandemic labor shortage.
Domino’s has no plans to use the apps to deliver pizzas in the U.S., but Mr. Weiner suspects the Uber Eats alliance will help franchisees overcome labor challenges because the locations will be busier.
The Uber Eats partnership is exclusive until at least 2024, indicating Domino’s may eventually make its menu available on other food delivery apps, like DoorDash and Grubhub.
Discussion Questions
DISCUSSION QUESTIONS: Does partnering with third-party delivery aggregators now offer more potential upsides than downsides for Domino’s? Does Domino’s Pizza’s move to use its own drivers do more to reduce the risks or limit the benefits?
Poll
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I don’t know how much Uber Eats is charging Domino’s. Since they are not delivering, it is not the unsustainable 30%. No matter if it is 5% or 10%, it is coming out of the franchisees’ bottom line. Even that small commission could be the entire profit of the franchisee.
Perhaps this is the future of the delivery business. Until the delivery apps start charging the customers, there is no room in the restaurant’s P&L to hand off 30% to a third party. The restaurant could raise every diner’s price to continue with free delivery and have sustainable bottom-line returns.
As much as they may want to resist, the pandemic trained people to use food delivery couriers, and they aren’t going anywhere. Having a presence there will expand their reach to audiences they may not acquire otherwise.
Charge them for the delivery and watch how quickly they change their habits.
Being on UberEats increases the exposure for Domino’s and potentially brings it new customers – although given how well known the brand name is, the upside is somewhat limited. This is helpful as the pandemic-driven boom in delivery continues to fade. However, it is smart of Domino’s to use UberEasts as a listing opportunity rather than to have the company deliver its products. The delivery fees are at UberEats are eye-watering because the underlying business model is expensive and not very profitable. In contrast, Domino’s delivery is an integrated part of a profitable business.
I agree, I think Domino’s is getting the best of both worlds by listing, but not ceding delivery to Uber Eats. They will still own the customer experience and data. But I have to wonder about the general appeal of Domino’s to the younger generation they hope to garner with Uber Eats… We hear so much about these generations buying local and seeking craft goods.
I think in the short term it is a smart play but I don’t believe that it is a sustainable, long-term play primarily because of the profit hit and of Domino’s strong transition to digital sales on its own app. What’s interesting is that Domino’s, an accomplished marketer, has decided that this is the only way to reach a segment of the market it felt could provide growth. This is an expensive, highly targeted marketing strategy with little ancillary benefit. It will be interesting to see how it plays out.
Perfectly stated!
I’m a frequent user of DoorDash (instead of Uber Eats) but I have no doubt that this decision will be good for Domino’s. If you are in the business of selling food for home delivery, you are not on enough customers’ radar screens if you depend only on your own proprietary app.
As to Domino’s option to use its own drivers, it’s a justifiable choice when there is a premium on prompt delivery of hot pizza. Here in Milwaukee, Chicago-based Lou Malnati’s has made the same decision, with its customers learning to trust its execution.
Pizza seems like a sure category where, once a household decides which restaurant it likes, sticks with it rather than constantly shuffling orders among different stores. Once the affinity is there, the restaurant’s objective is lock-in with quality/taste and just enough promotional touches to keep them top-of-mind – and teaching the diner how best to send orders in at their optimal transaction cost. Great local pizzerias probably have better margins than chain stores as a result. Our local shop in NE Minneapolis, Parkway Pizza, is a beehive of delivery and in-store business (and gets to my house in under half an hour with their own drivers) compared to the Pizza Hut a few blocks away on a prime intersection (even closer to my house) with little in-store traffic and 45-to-90-minute delivery windows.
Even though there is a direct cost to this move for Domino’s, it seems smart to test the waters with this time-limited partnership. And it seems doubly smart to (for now) maintain delivery execution. The next year will give Domino’s insight into how well their brand will fare with UberEats’ customer base as well as understand what costs they can absorb seeking out this additional revenue.
Good points Ryan! This is worth testing to see how much it will drive new customer acquisition and revenues. The commissions were probably negotiated to be much lower than the standard fees charged by UberEats for orders that include delivery. The bonus is that Domino’s will be acquiring customer data that they can market to directly in the future.
Albeit, late to the game, a good defensive strategy. Key is that Domino’s is still maintaining the physical delivery. Uber Eats & other third party delivery apps give Domino’s entry into new demographics. If Domino’s can convert these customers, the apps become a valuable new customer generation tool, which Domino’s can continue to serve without any third party fees.
Dominoes can benefit from this partnership because Uber Eats has the potential to help them expand into another tier of transactions and repeat business.
Big questions are costs and operational trade-offs. How much do they want to be in the fast pizza biz growth with challenges of expanding operational delivery? Looking long-term, Dominoes could either ramp up their own branded delivery network, making room for other food brands to jump aboard, or they let big delivery networks like Uber Eats shoulder the heavy load.