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Once a week Brandi Johnson peeps through her red curtains and looks for her favorite delivery – which means she doesn't have to cook dinner. When the driver turns the corner and stops in front of her apartment, she runs upstairs to look out another window, this time to make sure the box is on her doorstep.
Like many Americans during quarantine, Johnson ordered a lot of pizza.
"Pizza is the perfect comfort food for me – not too messy, hard to screw up, good whether it's hot or cold, and I don't need any cutlery," says Johnson. "It's just a perfect guaranteed meal in such uncertain times."
Top pizza chains have benefited from demand from customers like Johnson. For example, Papa Johns reported that sales at its North American restaurants increased 28% year over year in the second quarter, with double-digit increases for three straight months. To keep up with this rapid demand, the company said it hired 20,000 additional employees between March and June – and plans to hire an additional 10,000. In early August, Papa John's shares had risen around 55% this year after several years of underperformance.
Yum Brands' Pizza Hut, which has been struggling with declining sales in recent years, had its best week for delivery and fulfillment sales in eight years in early May. The surge in pizza delivery was a ray of hope for Yum Brands – whose portfolio includes Taco Bell and KFC – in a quarter when total sales fell 15% worldwide.
“Pizza Hut's off-premise business grew 21% in the second quarter. For a company that has underperformed in recent years, the performance suggests that pizza stock gains have a significant industry component, ”said Credit Suisse analyst Lauren Silberman.
But no delivery man has benefited more from America's increased appetite than Domino's Pizza.
Domino is the world's top-selling pizza company and had the largest slice of the U.S. market to get caught in the pandemic. According to Bloomberg Intelligence, Domino made 19% of all pizza sales in the US last year thanks to its dominance in delivery. The company gobbled up a whopping 36% of U.S. shipping sales in 2019, up from 26% for other major chains. (Regional chains and independent restaurants scored 38%.)
As with its pizza counterparts, the company's sales have grown in recent months. In July, Domino reported that U.S. revenue grew 16% in the second quarter of 2020 and earnings per share rose to $ 2.99 from $ 2.19 in the year-ago quarter. Domino posted net income of $ 240 million for the first half of 2020, a 30% year-over-year increase despite slower growth in international markets.
Domino shareholders have been well rewarded. In the first week of August in 2020, the pizza giant's inventory increased 24%. This is on top of years of strong returns. In the past three years, Domino's inventory has grown by 99% – significantly better than its pizza counterparts.
According to analysts, Domino & # 39; s was uniquely positioned to meet the increased consumer demand for comfort food containing hot peppers and cheese as it has been committed to innovation in recent years.
"Domino has outperformed the industry for the past decade due to its strong execution, which has allowed it to gain shares from smaller competitors and Pizza Hut," said Silberman. "Domino has an industry-leading digital and delivery infrastructure that we consider to be its top performing asset."
Domino's long-term investments in improving its delivery capabilities and restoring its public image have paid off greatly. When former Domino CEO Patrick Doyle was promoted from his role as president of the company's domestic retail business in 2010, the company's stock was trading at around $ 9 per share and customers complained that the crust tasted like cardboard. The sauce? Like ketchup. Domino's goal is to improve its reputation and perfect delivery under Doyle's leadership. By the time Doyle stepped down in 2018, Domino's price per share had risen to over $ 250 and its market value had risen by a staggering $ 11.2 billion.
"If you look at the three big players in pizza, they are already an expert on delivery as the pizza industry has been using this model for decades," said Shan Li, professor at the Zicklin School of Business at Baruch College. "However, Domino is the only one relying on its own skills to deliver groceries to customers rather than working with third parties (like Seamless or Uber Eats)."
Today Domino's technology leads the way. Customers don't have to be at a specific address to get their favorite cake – Domino launched hotspot locations in 2018 where people can get their pizza anywhere from the beach to the stadium parking lot. The Ann Arbor-based company also introduced the dinner bell function in 2018. With the mobile app, customers can create groups of their friends and family members. The app rings automatically when your order can no longer be delivered.
There is another fundamental difference in the way Domino delivers compared to its competitors – one that allows it to maximize profit. While many Pizza Hut and Papa John's stores deliver their pizzas direct to customers. These chains have also partnered with third-party delivery services to help reach more customers. In 2019, Papa John partnered with DoorDash, while Pizza Hut has a similar agreement with Grubhub. Local pizza chains are particularly dependent on third-party providers. In contrast, Domino relies entirely on its own delivery infrastructure.
Third-party delivery services allow local pizzerias to increase their delivery volume, but this comes at a cost. For example, Uber Eats charges restaurants a fee equal to 30% of the order for delivery to their customers. While mom and pop pizzerias may receive more orders, it doesn't always translate into an increase in profits. Many small businesses are just hoping to break even as the cost of staying remains open and there are few customers in the restaurant. Dominos franchisees pay $ 0.25 per online sale, according to financial services company BTIG, but small businesses are charged $ 2 or $ 3 for a similar third-party transaction.
The Nickerson family of Indian Harbor Beach, Florida have done their part to keep their local pizzerias busy. Since Caroline, 26, moved home with her parents two months ago, they have been ordering pizza at least three times a week, all in restaurants within three miles of their home.
"I think we're all stressed out, so it's the first thing we think about," says Caroline Nickerson. "Under normal circumstances, we wouldn't order that much pizza. We'd eat in different restaurants and live in separate houses."
Nickerson planned to move to Philadelphia for a job, but when the opportunity presented itself, she decided to move home. As the coronavirus pandemic is driving millennials home and forcing families to balance work and childcare, many households are turning to pizza for a quick and affordable option, says Li, a professor at Baruch College.
"From a budget perspective, many consumers are struggling with lower budget constraints due to the pandemic," says Li, whose order is California Pizza Kitchen's Thai pizza. "To some extent, for many of us, pizza is just one of the best ways to support a family at a lower cost."
Pizza chains now need to find a way to keep these new customers. Papa Johns responded in February with his new flatbread sandwich, the papadias. And Domino released a new recipe and sauces for chicken wings in July. Typically, pizza is still the most profitable menu item for a pizza company, says analyst Silberman. However, smart menu additions and pages in particular can help increase the average check and generate more profit.
While experts don't know how long the pandemic pizza boom will last, Li says pandemic concerns will change consumer behavior for a long time. According to a survey by Brick Meets Click and Mercatus, online grocery shopping, which has grown very slowly over the past 20 years, has suddenly seen tremendous growth in the past few months. People have gotten used to the new ease of ordering, Li says, and will stick to their new habits of using platforms like Instacart.
"People are not going to return to their pre-COVID lives overnight," she says. "I think this shift in consumer behavior and the impact of the pandemic will be long-lasting and profound."
And maybe filled with pizza.
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