Domino's gets caught in the Delivery Wars crossfire as third party apps apply pressure
Domino's Pizza ($NYSE:DPZ) is feeling the heat of what we call the Food Delivery Wars, a nationwide battle between third-party apps delivering local food — in this specific case, pizza — for low fees in order to edge out the competition. Food delivery apps came, partnered up, and are now conquering the concept of pizza on demand.
Up until the food delivery apps disrupted the industry, Domino's was locked in a war with legacy brick-and-mortar players like Papa John's ($NASDAQ:PZZA) and Pizza Hut ($NYSE:YUM), as it wanted to claim the title of the #1 pizza chain in America. In order to do this, it carried out an expansion strategy called "fortressing" — opening up more stores in existing markets to cut down on delivery times to a large group of customers. Over the past quarter, the company expanded its global footprint by 200 stores, with just under a quarter of them located in the United States. Here is that expansion strategy in practice:
(Open up the "Timeline" tab to see the company expand in the U.S. over the past two years.)
Instead of fending off third-party apps, the aggressive retail strategy caused the company to miss on domestic same-store sales, as it reported a growth of 3% instead of the expected 4.8%.
Meanwhile, apps like GrubHub ($NYSE:GRUB) continue to attack Domino's in America's largest markets with nearly double the number of local pizza options. Both GrubHub and its sister service Seamless dwarfs Domino's in the number of Pizza restuarants it delivers from.
One thing that Domino's has on its third-party competition, however, is how spread out it is out in the rural West and South. It's still catering to the needs of people in Winnemucca, Nevada and Mankato, Minnesota. But when it comes to cities like Minneapolis and Las Vegas, the third-party delivery services — or even just Grubhub — dominates.
How is it doing this? Not only is GrubHub going out and delivering from local pizzerias, but it also went to Domino's competition. Some stores that GrubHub offers delivery from either from its own app or Seamless are Papa John's and Pizza Hut restaurants, the very chains Domino's wants to beat in a storefront arms race.
With Domino's being adamant on using their own delivery platform to delivery pizzas and not turn to third-party apps, it put itself into the Delivery Wars as a vertical force. However, in doing so, it may have just given their direct business rivals a foot in the door to joining the opposition, and may leave Domino's cooked if it continues to go its own way.
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