If you can't beat them, join them.
In a major reversal, Domino's Pizza said Wednesday it's partnering with Uber Eats to make deliveries in the U.S. and 27 international markets. While franchisees in a handful of international markets like the Netherlands have been working with third-party apps for years, Domino's has long said that partnering with delivery companies didn't make economic sense in its 6,600 U.S. stores.
Under the agreement, uniformed Domino's drivers will still make the deliveries that customers order via Uber Eats, and Uber Eats will share data with Domino's on delivery efficiency and incremental sales. Ann Arbor, Michigan-based Domino's wouldn't say what percentage Uber Eats will take from each order.
The partnership will be piloted in four U.S. markets starting this fall and is expected to be available nationwide by the end of 2023, Domino's said. Uber Eats will Domino's exclusive U.S. partner until at least 2024.
Domino's shares jumped 10 per cent in morning trading.
Domino's had been reluctant to partner with third-party apps in the U.S. because it wanted to control the delivery experience. In 2019, then-CEO Ritch Allison predicted that third-party delivery would eventually collapse because companies were charging too little for the service.
But then the pandemic happened. Demand for delivery soared and remained elevated even as COVID waned. Domino's found itself losing market share to competitors who were available via third-party apps.
In the year ending May 28, Uber Eats, DoorDash and other delivery companies accounted for 14 per cent of U.S. pizza sales, or US$4.7 billion, up from 4 per cent before the pandemic, according to Circana, a market research firm.
Little Caesar's, the third-largest pizza chain in the world, inked a delivery deal with Uber Eats in April.
Russell Weiner, who took over as Domino's CEO in 2022, said in a statement that third-party delivery operators have reached such a large scale that it makes sense for Domino's to partner with them. In the first quarter of this year, Uber Eats' deliveries grew 12 per cent to US$15 billion, excluding the impact of currency fluctations. Domino's global retail sales grew 6% in the same period.
Domino's has been struggling with higher food costs, labour shortages and increasing competition. The company's same-store sales, a key metric of a restaurant's health, fell 1% in the U.S. last year, while international same-store sales were flat.
Domino's said Wednesday that its labour challenges have largely abated over the last year, and it's confident it will be able to meet increased demand from Uber Eats orders. The company wouldn't say how many drivers it has in the 28 markets; nearly all Domino's stores are independently operated by franchisees.
Peter Saleh, a managing director and restaurant analyst with the investment bank BTIG, said Wednesday that the deal was "the best possible path" for Domino's, which will still control the delivery experience and access data. He also said the agreement leaves the door open to other partners, including DoorDash.
Saleh said he also expects Domino's will still offer better deals, like its US$6.99 Mix and Match menu, on its own website to encourage customers to order directly. But Saleh said consumers are loyal to third-party apps and unlikely to switch.
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