Aggregators aggravate big pizza, reports Scoreboard
As delivery continues to grow, the meals replaced have to come from somewhere. Mark Kalinowski, principal and lead researcher at Kalinowski Equity Research, took a look at the correlation between delivery growth (measured in the growth of Grubhub’s reach) and sales growth across the public restaurant spectrum over the last 17 quarters. For the industry as a whole, there hasn’t been a game-changing impact yet.
Among casual and family dining brands there were modest, positive correlations between sales and Grubhub’s growth, but they could be explained by the equally modest rebound of several casual dining brands. But it doesn’t show that sales have been impacted negatively either. Other factors—namely gas prices—could explain the sales boost that started in 2015 and the subsequent declines that mirror the overall industry starting in the third quarter of 2016. Among QSR burger players, despite the major efforts to advertise and integrate third-party delivery, there’s little correlation to sales growth either positive or negative.
Third-party delivery does seem to be putting some real pressure on quick-service pizza, including Domino’s, Pizza Hut and Papa John’s. Comparing Kalinowski’s index of big pizza brands showed a correlation of negative 87.1 to 88.9 percent, so as active diners and other third-party delivery metrics rose, sales growth at pizza chains slowed.
“As Grubhub has been growing (a useful proxy for growth of third-party delivery aggregators in general), same-store sales for the publicly traded components of the U.S. chain pizza sector have been decelerating,” wrote Kalinowski.
Domino’s itself noted that it was feeling some pressure from “aggressive marketing of third-party aggregators” during its first-quarter 2019 earnings call.
Kalinowski wrote that those pressures could keep Domino’s from continuing the same growth it saw from 2014 to 2018. In Q1 of 2019, Domino’s same-store sales rose by 3.9 percent, strong in this market, but a slowdown from 8.3 percent in Q1 of 2018.
Certainly, there are other macroeconomic and brand factors. Domino’s fortressing strategy of building more restaurants was also noted as a factor by the brand. Time will tell as delivery as a percentage of total sales rises from the current 4.3 percent.