Domino’s Shows Again: ‘You Want to be in Delivery’
Domino’s just released its second-quarter results, and shows yet again that delivery and digital is the place to be during the shaky COVID-19 recovery process.
As business operations in some states remain limited, other areas are closing again and still more states see novel coronavirus case numbers skyrocket, Domino’s did some incredible business. The company reported 16.1 percent same-store sales growth for the second quarter and revenue growth of 13.4 percent.
“The second quarter marked a rather unprecedented acceleration for food delivery in the U.S. and we were certainly no exception. Our 37th consecutive quarter and strongest in that nine-plus year run for same-store sales, with evidence of this tailwind in delivery,” said CEO Ritch Allison in an earnings call discussing the results.
He said digital transactions rose to 75 percent of sales as well, ticking up to 80 percent at some points. That, he said, drives loyalty further and gets consumers locked into the ease of app ordering and the one-to-one marketing via push notifications and in-pocket advertising.
“This, combined with loyalty adoption, gives us a good proven chance at driving additional customer frequency. And I am glad more than ever that we have this direct digital and loyalty relationship with our customers and that we're not dependent upon a third party to bring us orders,” said Allison. “Our task there is to take those new customer opportunities and convert them into the second purchase and the third and ultimately loyal customers going forward. We've been working hard on that and the second quarter was our best quarter for driving new active loyalty members. Best quarter we've had since Q1 of 2019 when we ran our Points for Pies promotion.”
Papa John’s saw real growth as well. The company reported same-store sales growth of 5.3 percent when it announced first-quarter earnings in May. The company is set to unveil second-quarter earnings in early August.
Share prices tell a dramatic story of companies that are convenient and those that are more convenient, as seen in the chart below. While McDonald’s and Restaurant Brands International have done well with drive-thru, delivery as a core competency has consumers (and investors) flocking.
None of the delivery growth, however, started with the pandemic. Like many trends, the trend toward convenient off-premises food consumption was accelerated by the COVID-19 crisis. And as more people opt out of casual dining, they’re sticking with convenient solutions.
As Wedbush stock analyst Nick Setyan wrote, it wasn’t just a blip from scared consumers—the trend is likely to continue.
“We continue to believe the COVID comp uptick has a longer and larger tail than medium- to long-term expectations. Management highlighted relatively consistent trends through the end of Q2 even as dining rooms across the industry reopened,” wrote Setyan in a research note exploring the results.
According to the casual-dining analysis firm Knapp-Track, casual dining sales are again slipping as markets close down again and consumers worry about the worsening pandemic. Sales and traffic rose to negative 16 percent and negative 20 percent year-over-year in the week ending June 21. But they've sank again, to negative 28.3 and negative 27.7, respectively in the week ending July 5. That suggests there won’t be any sort of V-shaped recovery for casual dining.
Consumer surveys suggest the same. In a recent survey of 1,200 consumers by data insights firm Revenue Management Solutions, consumers are not eager to get back in a restaurant. Respondents instead said they’re using off-premises more: 30 percent said they’re using delivery more, up from 23 percent in April; 35 percent said they’re using takeout more, up from 25 percent in April; and 28 percent said they are using drive-thru more, up from 19 percent in April. Half of respondents said they will eat out less or much less through the pandemic (however long it lasts), and 41 percent of that group say it’s due to health and safety concerns.
Whenever the pandemic winds down, the focus on health, safety and convenience is going to remain. Also in the RMS survey, respondents reported a dramatic shift from “food quality” being the chief deciding factor, with 42 percent of respondents saying so, to not appearing among the top eight deciders. Now, “contamination” is the chief factor, followed with 24 percent of respondents saying so, representing a surge of 10 percent compared to pre-COVID surveying where 14 percent of respondents said cleanliness was a deciding factor. The second and third most popular deciding factors: “safety and sanitation” and “cleanliness,” each with 19 percent of responses.
As Domino’s CFO Jeff Lawrence said during the earnings call, it was a trend before, and it’s been accelerated—and consumer shifts like that don’t just go away.
“You want to be in carryout; you want to be in delivery whether there's a pandemic or not,” said Lawrence.