Growth of off-premise business and the importance of digital food ordering is a major, and constant narrative in the restaurant industry. A sizable chunk of the conversation is made up of third-party delivery. Every other week there is a news story related to the subject, and this time around it’s Domino’s – who doesn’t even engage with third party delivery services – that is said to be feeling the effects of their latest advertising campaigns. Yep, you heard us right, someone who doesn’t even engage with third party delivery, is experiencing a negative impact on their bottom line. So how is this even possible?
Well, it might be something to do with the fact that third party food delivery companies have borrowed some (traditional) marketing tactics from the OTA’s in the hotel industry, namely TV advertising. At the start of the year, DoorDash became the first nationwide third-party delivery platform to roll out a nationwide TV ad campaign, Uber Eats followed suit in March, while Grubhub leveraged its exclusive partnership with Yum Brands to advertise free delivery of Taco Bell to customers. Between them they spent $18 million on TV advertising in the month of March alone. They don’t call it March Madness for nothing.
All jokes aside, hotels know all too well the collective advertising spend and power the OTAs garner over individual brands and independents. Having generally lower overhead requirements and with higher margins and profits – which are largely due to the commissions they collect from hotel room sales, they command much bigger marketing budgets, affording them to spend significantly more marketing dollars, increasing their visibility and of course, their bottom line. It has led to fierce and unfair competition, to the detriment of the hoteliers, and the advertising wars have become so brutal that some government and political bodies have had to intervene to level the playing field. And now, like a bad dream, it seems that the same set of circumstances is about to play out in the restaurant industry.
From the outside, Domino’s Pizza Inc. is a digital leader and a company that is in solid shape. Its’ same-store sales rose 3.9% in the U.S. in the first quarter of the year, extending a remarkable eight-year run of uninterrupted growth in the key metric for the tech-savvy pizza chain. However, it was the company’s slowest performance in more than five years and was lower than many analysts expected. It is not a coincidence that this slowdown coincided with third-party delivery companies increasing their marketing activities and visibility in the same period. The chain itself even acknowledged that growth was pressured by “aggressive marketing of third-party aggregators.” Domino’s CEO Richard Allison told analysts, “We saw a big increase in advertising spend and push around free and discounted deliveries… which I think led to slightly greater impact on our same-store sales growth than perhaps it did in previous years “.
However, regardless of Domino’s feeling the effects of Uber Eats and Doordash recent attempt of dangling free and discounted delivery to encourage consumers to trial their services in the hope of converting and perhaps stealing more market share, for now, Domino’s, like some others, continue to go it their own way, resisting third party delivery services, “I don’t see any need for us to go onto these third-party platforms,” said Allison. “We have an incredibly strong digital channel in our business. We’ve got a loyalty program with 20 million-plus active members, so it’s just not clear to me why I would want to give up our franchisees margin or give up the data in our business to some third party who will ultimately use it against us.” – and that’s okay… or is it?
Delivery and online ordering are now pretty much essential in the QSR and fast casual space. And yes, third party digital delivery might not be for everyone, but if Domino’s already believes that their sale growth was adversely affected by Uber Eats & Co. first step into TV advertising, who’s to say they won’t get a taste for it and perhaps, do it again?
Let the in-house versus third party food delivery battle begin.