Pizza has a delivery problem

Originally posted: MAY 15, 22 09:04 ETBy Danielle Wiener-Bronner, CNN Business

(CNN) — Pizza places have always been delivery experts, flexible with remote deliveries and robotic delivery cars. But now they face a problem: not enough pilots.

In early March, Ritch Allison, then CEO of Domino, warned that a shortage of drivers would be a drag on business.

“The staffing of delivery drivers may remain a significant near-term challenge,” he said, pointing to a drop in deliveries in the last quarter of 2021 compared to the previous year.

He was right – and the problem continued this year. In the first three months of 2022, delivery to U.S. Domino’s stores that have been open for at least a year fell 10.7% from the year-ago period, Allison said on a call with analysts. in April, noting that he was “disappointed” with the delivery results. Overall, sales at these stores fell 3.6% during this period, partly due to staffing issues.

Difficulty finding and keeping employees has hampered businesses in multiple sectors, but the restaurant industry has been hit particularly hard, leading to shorter opening hours and longer wait times for customers.

It’s not just Domino’s. Pizza Hut, owned by Yum Brands, is also suffering. The brand’s same-store sales in the U.S. fell 6% in the first quarter due to “our delivery channel, where capacity constraints have limited our ability to meet demand,” the CEO said. Yum Brands, David Gibbs, on an analyst call discussing the results. “This was driven by staffing issues, primarily due to the shortage of delivery drivers that has been felt across the industry.”

Slow service is bad for business, and not just because of missed sales — a few late pizzas from Domino’s could send someone straight into the arms of Pizza Hut, Papa Johns or another competitor.

So how do you solve the delivery problem? Hiring more drivers is the obvious solution, but it’s not easy.

The US labor market has yet to fully recover from the pandemic, but it is getting there. Of the 22 million jobs lost after Covid-19 hit the United States in 2020, around 20.8 million were restored. And the labor market seems to be cooling this year, making hiring more difficult.

Meanwhile, delivery demand explodes. Domino’s noted that while its delivery rate is down from 2021, it’s still up nearly 6% from 2019. Other restaurants are also reporting higher demand and expect it to continue.

Driver shortages could also become a vicious cycle, noted Cowen Restaurant analyst Andrew Charles.

“Drivers accept work because they want to tip. If there are fewer deliveries to be made…it hurts to try to get delivery drivers,” he said. “I don’t think it’s a very easy solution.”

Pizza companies will have to do more than just try to convince more drivers to deliver more pizza. Filling the void will require other changes, such as outsourcing phone orders to dedicated call centers, relying more on technology and, if they can do it, charging more for pizza.

Call centers and delivery providers

One way to add more drivers without hiring more people is to reassign current employees. Domino’s hopes the call centers will help.

The company “is facing some pretty serious staffing shortages,” Charles said. “So anything they can do to help mitigate that is being investigated.” He estimated that about 10-15% of Domino’s orders in the United States are placed over the phone.

By mid-May, Domino expects between 2,500 and 3,000 Domino sites to use external call centers in some way. They should “allow stores to focus on production and delivery when they are short-staffed during peak hours,” CEO Russell Weiner said on the April call.

In addition to operating call centers, Domino’s is also working to make work easier for employees, including using technology that will improve hiring and training, a spokesperson told CNN Business. So far, Domino’s has steered clear of third-party delivery providers like DoorDash, Uber Eats or Grubhub, which charge commission fees — but “nothing is out of line,” Weiner said.

Pizza Hut is also taking several steps to resolve its delivery issues.

“The team is prioritizing restaurant operations, including a focus on improving staffing levels, restoring opening hours, increasing online ordering availability and using more efficient use of our overflow call centers,” Yum Brands CEO David Gibbs said on a call with analysts in May. But Pizza Hut has also used third-party delivery drivers to “augment our own delivery drivers,” he said.

Gibbs hopes a technology acquisition will help improve the situation.

Last year, the company completed its purchase of Dragontail, which features an AI-enabled platform designed to make restaurant operations more efficient, including reducing disruption from driver shortages. The brand is piloting the platform in more than 100 of its thousands of US stores in an attempt to upgrade the delivery network.

Another way to reduce the impact of the problem? Charge customers more.

The Papa Johns Solution

Papa Johns has also faced staffing shortages, but “we’re pretty happy with staffing,” CEO Robert Lynch said on a call with analysts in May to discuss first-quarter results. In North America, sales at Papa Johns stores open for at least a year jumped 1.9% in the first quarter.

Lynch thinks the company’s partnership with third-party aggregators has helped, but what really gives him confidence is the company’s pricing strategy. “Our premium positioning is a different model than people talking about staffing” as a big deal, he said.

“We offer high prices. We don’t need as many transactions, and as a result, we’re less impacted by the staffing issues that we all have. In other words, the number of customers who buy his pizza doesn’t matter as much to Papa Johns, because the price of each pie is higher than that of its main competitors.

Until the labor shortage eases, however, pizza lovers may have to wait a little longer for their pies.

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