Dive Brief:

• Increased ad spending and free or discounted delivery promotions from third-party aggregators negatively impacted Domino's same-store sales growth in certain urban and suburban markets during the first quarter of 2019, Domino’s CEO Ritch Allison said during an earnings call with investors.
• Allison also doubled-down on the company's commitment to not work with aggregators in the U.S., citing concerns that doing so would take away the company's control over service, quality and customer data and impact franchisee profitability. He said some master franchisees have worked with some order aggregators in a dozen or so international markets, where these delivery companies are more advanced, but it still delivers its own orders.
• Instead, the pizza chain has been focusing on its fortressing — where Domino's splits a franchisee's territory and adds more units — to improve delivery times and access to carryout business, Allison said.

Dive Insight:

While Pizza Hut and Papa John's have been more willing to work with third-party delivery companies, Domino’s has remained fervently against it. It also isn’t the only restaurant to continually express concern over third-party delivery companies, with Jimmy John's and Olive Garden saying they have no plans to work with third-party delivery providers. Domino’s seems ideally positioned to go it alone given its robust technology and delivery network.

While third-party delivery has started to eat into Domino's same-store sales — which fell to 3.9% growth in Q1 2019 from 5% growth in the year-ago period — CEO Ritch Allison said he believes this is a short-term impact. With delivery companies eating into restaurant profits and market share across companies, he said he doesn't view this model as sustainable long-term. 

Instead the company will remain focused on fortressing,  which has helped franchisees grow carryout. Allison said customers aren't willing to drive or walk to pick up pizza beyond a mile from their homes. Carryout can also help the company better compete against third-party aggregators, and there aren't the same costs and complexities as there are with delivery, he said.

Fortressing has allowed franchisees to be closer to more customers and improve delivery times. Domino's has the advantage of a significantly larger scale and has higher deliveries per driver per hour because of its fortessing method, which shrinks a unit’s delivery area, he said.

"Every time we look at it, we are the lower cost delivery channel," he said.

The company is also a strong digital leader in pizza and loyalty with 20 million-plus active members, and Allison said he doesn't see any value in giving up franchisee margins and customer data to a company that would ultimately use that data against Domino’s. He also expressed concerns that giving up control of delivery to an untrained third-party driver could hurt the quality and safety of the product.

"What happens when you have a service failure?" he said. "Who is to blame?"

With 62% of diners blaming both restaurants and delivery companies for bad business, it makes sense that third-party delivery is just a risk Domino's isn't willing to take.