As we near the third anniversary of the start of the COVID-19 pandemic, the pizza delivery frenzy that defines America during lockdowns has slowed significantly, and pizza chains are struggling to regain momentum.
Like its competitors, Domino’s is facing a trifecta of inflation, staffing challenges, and growth of consumer dine-in demand as same-store sales grew only 0.9% for the fourth quarter ended Jan. 2, 2023, boosted mainly by pricing increases taken during the quarter, and offset by a decline in orders. However, unlike its competitors, Domino’s faces another challenge that has been tough to navigate throughout the fiscal year: self-delivery with no third-party platform partnerships. Therefore, the company said they will have to rely more and more on innovations like the Nuro robot delivery fleet to offset staffing challenges.
The softened delivery demand throughout the quarter has been boosted carryout sales, which CEO Russell Weiner said now comprise about half of all orders.
“As consumers returned to many of their pre COVID eating habits, some of the sit-down business that was a source of volume for restaurant delivery orders returned to that channel,” Weiner said during Thursday’s earnings call. “Inflation impacted delivery due to the added expenses of fees and tips on that channel. […] Higher delivery costs during inflationary times lead some customers to prepare meals at home instead of getting them delivered. We believe this dynamic will continue to pressure the delivery category in the short term.”
Since these challenges in delivery demand have been impacting the Domino’s business for a while now, the company has rolled back its unit growth update from 6-8% for 2023 to 5-7% for the remainder of the year.
“The US delivery business and the constraints that we see in front of us on the US delivery business are a big driver of the decision to actually slow down the expectations from a unit growth standpoint,” Sandeep Reddy, CFO of Domino’s said during Thursday’s earnings call. “The headwinds that we saw throughout 2022 are expected to continue into the first half of 2023 and that is going to put pressure on the unit growth that we expect to see moving forward in 2023.”
Moving forward, Domino’s plans to continue implementing various strategies to mitigate some of these challenges, including introducing new menu items, focusing on improving the experience of their most loyal customers and tweaking value pricing. Last year, for example, Domino’s started raising the prices on its everyday meal deals and now the $7.99 meal deal is for carryout customers only.
“Moving the $5.99 mix and match offer we launched in December of 2009 to $6.99 in 2022 was the right decision for our brand,” Weiner said. “But we must be vigilant to make sure value exists across our entire menu, not just in promotional offers. We also need to drive more innovation.”
Innovation like AI and automotive tech achievements, as well as new menu items like the loaded tater tots, will be able to propel Domino’s forward to withstand external headwinds.
Domino’s revenues for the fourth quarter increased $49.0 million, or 3.6%, in the fourth quarter of 2022 as compared to the fourth quarter of 2021. Net income increased $2.6 million, or $4.43 earnings per share in the fourth quarter of 2022 as compared to $4.25 in the fourth quarter of 2021. Domino’s opened net 361 stores in the fourth quarter for a total store count of 19,880 restaurants systemwide.
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