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Domino's is getting squeezed by intense delivery competition

Delivery services like Seamless and Uber...

Posted: Jul 16, 2019 10:06 AM
Updated: Jul 16, 2019 5:30 PM

Delivery services like Seamless and Uber Eats are eating into Domino's business.

The pizza chain's sales have been suffering recently in part because of 'aggressive activity from third-party delivery aggregators,' said CEO Richard Allison during a call with analysts discussing second-quarter earnings on Tuesday. He added that Domino's continues 'to see a significant amount of pressure' from those services.

'I do not expect this activity to ease in the near term,' he said.

Tuesday's results disappointed investors, who expected the chain's sales to grow at a faster clip. Shares of the company fell about 6% in midday trade on Tuesday.

For years, pizza chains were the main option for consumers who wanted delivery. But by partnering with third parties, fast-food and fast-casual chains have been able to offer delivery to customers — driving up competition for pizzerias outside of their sector. Plus, those third-party delivery services tend to lure customers with discounts and heavy advertising, Allison said, which gives them a short-term advantage.

To combat the newly crowded delivery market, Domino's is trying to offer more tech-savvy delivery services. This year, it plans to roll out GPS tracking technology that will let consumers track their orders in real time, and alert them when the order is about two minutes away. Domino's started testing the technology in the spring. It's also experimenting with delivery via autonomous vehicles.

'We'll continue to invest in technology,' Allison said.

Domino's has also tried to boost sales by rapidly opening up new locations.

During the second quarter of this year, the company opened 200 new stores, 42 of them in the United States.

The chain has been opening new locations at a rapid pace to help boost sales. It opened its 16,000th location in March, and it has grown by nearly 50% over the past five years. Domino's plans to add another 2,350 stores in the United States by 2028. This so-called fortressing strategy is 'the right long-term answer for the brand,' Allison said.

At this time the company still has fewer stores than one of its main rivals, Pizza Hut, which has more than 18,000 locations globally. Papa John's has about 5,000 restaurants worldwide. Competition among its main rivals, Pizza Hut and Papa John's, is fierce. And upstarts like the fast-casual pizza chains Blaze and MOD are gaining attention.

The efforts aren't working well enough. Investors have been disappointed in sales so far this year.

The chain reported that US company-owned restaurants open at least a year grew 2.1% in the second quarter.

But analysts expected that figure to be closer to 3.2%, according to institutional broker estimates from Refinitiv. At this time last year, sales at those stores grew 5.1%.

The company also posted slower-than-expected sales growth of 3.1% at its US franchise locations open at least a year. Analysts expected that figure to be about 4.7%, per Refinitiv. At this time last year, that number was 7%.

Domino's also missed its revenue expectations of $836.6 million, instead bringing in $811.6 million for the quarter. That marks a 4.1% increase from the same period last year. Domino's attributed the growth to the new locations it has opened in recent quarters.

— CNN Business' David Goldman contributed to this report.

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