Domino’s Pizza’s domestic same-store sales were down 0.6% in the third quarter as the category continues its post-pandemic slowdown after meteoric 2020 and 2021 numbers. Broken out by channel, the carryout business continued its positive momentum with a same-store sales increase of 1.9%, while delivery was down 2.3%, rolling over a negative 7.5% last year.
Despite the drop in same-store sales, executives on the company’s earnings call Thursday morning were bullish about finishing the year strong and growing in 2024. Driving that optimism is the chain’s recently announced partnership with Uber Eats and Postmates, marking the company’s initial presence on a delivery aggregator marketplace. Las Vegas has served as a pilot market, with a national rollout expected by the end of the year. CEO Russell Weiner said so far “things are going as planned,” and the company expects the partnership to drive incremental delivery volumes, an increased share in the delivery market and improved economics for franchisees by Q1 2024.
“We want to exceed the expectation of incremental customers we’ll get, and we do that through best-in-class delivery service,” he said, adding that this partnership comes as Domino’s returned to pre-pandemic delivery times in Q3, driven by its “Summer of Service” training program.
Additionally, Domino’s just revamped its rewards program to include tiered redemption options and a lower entry point – 10 points for every order of $5 or more, versus the previous $10 or more. Weiner said the update is meant to create more redemption opportunities for lower frequency customers and early indications show they’re “clearly engaging more with these changes.”
“We’ve done two things with the rewards program, and both are working. We took the entry level down from $10 to $5 and that’s … a nice way to get lighter users and carryout customers,” Weiner said. “Also, it used to be buy six times to get a free pizza and now you can buy as little as two times to get free items. That plays with the frequency of lighter users and as we’ve moved so far, that’s what we’ve seen.”
And, the company has returned to product innovation, recently launching the Pepperoni Stuffed Cheesy Bread just months after the new Loaded Tots launch. Weiner said this is the first time Domino’s has had two major product launches since 2011.
“This is indicative of two things you’ll see from us – news about our non-pizza platforms and our rewards. It’s great to see our product and technology innovation work so well together. It’s an example of purposeful innovation … leading to topline growth and greater profits,” Weiner said.
About those profits – though the company had a nominal decline in same-store sales on the quarter, franchisees experienced higher cash flows.
“Our unit economics are strong, and we experience continued EBITDA (earnings before interest, taxes, depreciation and amortization) growth. We are on track to deliver an average store profitability of at least $155,000 in 2023, which is up from $150,000 that we shared on the last call,” CFO Sandeep Reddy said during the call.
Those economics are driving more store openings and Weiner said the company has “visibility into over 70 builds right now” after opening 27 net U.S. stores in Q3. He added that the headwinds on such openings, like permitting delays, are starting to subside, and that staffing is back to 2019 levels.
“Build costs are up 20% versus 2019 yet profits have actually gone up, so the returns are more compelling given that dynamic. And, frankly, with the Uber opportunity, we expect even more growth in terms of profitability of the stores,” Reddy added.
Finally, though it’s early off of this announcement, Domino’s also expects momentum from its new partnership with Microsoft to develop an in-house generative AI assistant. The technology is expected to help automate some back-of-house tasks for employees and improve the ordering process on the consumer side. Weiner called this partnership a competitive point of difference and added that the culmination of these initiatives should help Domino’s continue to gain market share in the intensely competitive pizza category.
“We are going into 2024 with an improved operating model. The foundation of the business, in a quarter that was essentially flat in the U.S., margins improved, and franchisee profit has improved,” he said. “Take that and bring in the increased orders we expect in Q4 and especially in 2024, that just leverages really, really nice. The foundation of Domino’s is ready to be leveraged.”
Contact Alicia Kelso at [email protected]