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Food Delivery Apps Killing Dominos’ Buzz?

Domino’s launched its ‘Delivery Under 30 Minutes’ campaign back in 2004, and swept the markets with its funny adverts promising delivery under 30 minutes, and offering free pizza if it fails. It saw instant success and became the go-to place for pizza delivery; it’s blue fleet buzzing around the streets.

And then came food delivery apps, offering wider choice and matching delivery times. Did this turn out to be a buzzkill for Dominos? Well, not really! Here’s why.

1. Hinged branding 🔨

With its early initiatives of branding, products that suited the Indian palette, heavy spend on advertising, crazy offers and pioneering of its delivery system, Domino’s established itself as the go-to name for pizza delivery.

Its competitors, such as Pizza Hut and Papa Jones, had a hard time competing due to the incredibly fast delivery time. Domino's was even the first to launch an online mobile ordering app nationally, replacing the need to order over the phone and wait in the dark until the doorbell rang.

In short, it established itself deep in its consumers’ minds, hearts and stomachs!

2. Captive resources 🛵

Having its own delivery fleet helped Domino’s maintain a high standard of quality of its services. It’s natural for quality to be high when you have full control of your operations:

  • Domino’s could deliver on time - didn't have to depend on others for their delivery

  • Pizzas would still be hot - cold pizzas are meant for breakfast, and Domino’s could deliver in 30 minutes or lesser

  • Optimisation - with end-to-end control, Domino’s could optimise its operations right from getting orders to having them delivered; no broken supply chains

All these work extremely with consumers, and they stick around to the brand despite having a wider choice on food delivery apps.

3. Friends and not enemies 👬

Historically, Domino’s had the upper hand in delivery. But with food delivery apps changing the game, it would be rational to question this standing. But probably not. The blitzing popularity of food delivery apps did a few things that helped Dominos too:

  • The market expanded - rather exponentially

  • Consumer habits changed - it is now default to order through an app

  • Paying for delivery - consumes are now even paying for delivery, which was free earlier

  • Ecosystem enhancement - efficient delivery fleets which are on the go through dining times are resulting in favourable business economics

  • Higher reach - restaurants get reach and visibility by plainly being present on food delivery apps, they don’t really have to rely solely on marketing and advertising to get their name out

While the above help small local restaurants, it does work for Domino’s, too. But this has been a two-way relationship. Just like Domino’s benefits from the above points, food delivery apps too make a bigger buck with Dominos being listed on them. Domino’s is popular, brings in traffic, and even delivers by itself.

It hence makes sense that Domino’s has a part-integration with the food delivery guys, and is going the partnership-way rather than individually fighting it out. Claps to co-existence.

4. Favourable economics 💲

We’re diving the analysis in three parts here to show how the economics work in favour of Domino’s:

  • Volumes - Ordering food through apps has become a norm. Zomato and Swiggy have changed consumer habits. Even with Domino’s, last quarter, 97.8% delivery orders were online, out of which 97.2% was through the mobile. Both Zomato and Swiggy have 100 million plus app downloads, and Domino’s stands at nearly 75 million.

  • Revenue - Traditionally Domino’s relied heavily on branding, marketing and advertising to generate sales. However, with Zomato and Swiggy spending big bucks, and having a larger reach, Dominos’ presence on the apps provides free marketing and reach. More sales can be generated without direct effort and revenue growth is supportive.

  • Cost - Food delivery apps typically charge restaurants a commission for the reach and delivery that they enable. This ranges between 7 and 30% of the order value, and then there’s a platform fee anywhere between Rs. 799 to 199 per week depending on the weekly order count, with a decrease in the fee as the number of orders per week increase. Since Domino’s brings in value for the food delivery apps (and also delivers by itself), it could strike a deal with both of them in the early stages, paying lesser commissions and platform fees.

But here’s the good part - if customers order using the Domino’s app, Domino’s doesn't have to pay any commission or platform charges to anyone - obviously. It would always hence prefer that customers use the Domino’s app. So it pushes people to do so, by offering great deals, and discounts that makes it more lucrative for itself. Is it working?

More than 65% of the online orders that Domino’s scored were on its own app! In short, it is able to manage both the ecosystems (captive and partnerships) profitably together, with its delivery fleet working as a common resource for both, thereby also upping its unit economics.

5. Volumes support profitability

With delivery, the formula is simple - the busier the delivery guys, the more revenue a restaurant can generate. The more revenue they can generate, the more profits they can - since the fixed costs are pretty large - salaries, vehicles and delivery equipment, while variable expenses include fuel.

It naturally then doesn’t make sense for small local restaurants to own their delivery. Delivery can become a loss-making initiative for them. However, the game changes for Domino’s. With orders pouring in from delivery apps as well as its own channels, the delivery fleet is common in servicing them. For Domino’s, the cost is easily taken out because of volume, with an added benefit of control of quality, and end-to-end supply chain.

6. The dine-out fall-back 🪑

The lockdowns did have an adverse effect on the dine-out industry. Many businesses closed down but it recovered surprisingly fast.

Dine-out is still not back to pre-pandemic levels but still makes up approximately 13% of the sales for Domino’s. In fact the chain added a record number of stores (55) last quarter. This establishes for a fact that the chain believes dine out is not dead.

Food delivery apps have definitely had an influence and the demographic has shifted. But dine-out is far from dead. It's still a major contributor to sales, which will only continue to grow as we move back to normality.

What about the stock?

Domino’s is owned by Jubilant FoodWorks, and the stock has gone 5x in the last 5 years. This despite its underperformance in the last 6 months, where it has lost 40% of its value. Most of the recent downfall can be attributed to its CEO Pratik Pota leaving.

The business however remains strong. Other than Domino’s, Jubilant has also, over the years, added several other strong brands to its kitty - Dunkin’ Donuts, Hong’s Kitchen, Ekdum, Chef Boss and Popeyes.

Part of 2 of our portfolios

Jubilant FoodWorks is part of 2 of our portfolios:

1. Bread & Butter 🍞

Jubilant is a household name that has done extremely well over the last many years on the stock market. We continue to like its business for the strong brand, expanding food delivery market, changing consumer habits, and its co-existence with the digital ecosystem. To invest in Jubilant and successful household names:

2. Rocketship 🚀

Jubilant has been exhibiting strong growth in both revenue and profitability, thanks to the aggressive expansion the market has seen. Moreover, the brand has been aspirational and sits well with the Indian middle-class, seeing growth directly linked to India’s upgrading lifestyle. To invest in Jubilant and other high-growth companies:

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