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Pizza has a delivery problem

In early March, Domino’s then-CEO Ritch Allison warned that a shortage of drivers would be a burden on the business.

“Delivery driver staffing can remain a significant challenge in the short term,” 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 has continued into this year. In the first three months of 2022, delivery at Domino’s US stores, which have been open for at least one year, fell by 10.7% compared to the previous period, Allison said in an analyst interview in April, noting that he was “disappointed” with the delivery results. . Overall, sales in these stores fell 3.6% during that period, partly due to staffing problems.

It’s not just Domino’s (DPZ). Pizza Hut, owned by Yum brands (NAM), is also painful. The brand’s sales in the same store in the US fell 6% in the first quarter due to “our supply channel, where capacity constraints limited our ability to meet demand,” said Yum Brands CEO David Gibbs during an analyst discussion discussing the results. “This was driven by staffing challenges, mainly from the shortage of drivers who have been felt in the industry.”
Domino's has a delivery problem.
Slow service is bad for business, and not just because of lost sales – a few late pizzas from Domino’s can send someone right into the arms of Pizza Hut, Pappa Johns (PZZA) or another competitor.

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

The US labor market has not yet fully recovered from the pandemic, but it is on its way there. Of the 22 million jobs lost after Covid-19 hit the United States in 2020, around 20.8 million have been restored. And the labor market seems to be cooling down this year, making it harder to hire.
Meanwhile, the demand for delivery is through the roof. Domino’s noted that although the delivery rate has fallen compared to 2021, it is still up almost 6% compared to 2019. Other restaurants also report higher demand, and predict that it will stay.
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Lack of drivers can also be a vicious circle, noted Cowen restaurant analyst Andrew Charles.

“Drivers take the job because they want to give tips. If there are less deliveries to make … it hurts to try to get delivery drivers,” he said. “I do not think this is a very simple solution.”

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

Call centers and delivery providers

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

The company is facing some pretty serious staff shortages, Charles said. “So what they can do to alleviate it is under consideration.” He estimated that around 10% to 15% of Domino’s US orders are placed over the phone.

In mid-May, Domino’s expects between 2,500 and 3,000 Domino’s locations to use remote call centers in one way or another. They should “allow stores to focus on production and delivery when they have little staff during rush hour,” CEO Russell Weiner said during the April conversation.

In addition to contacting customer centers, Domino’s is also working to make employee jobs easier, including the use of technology that will make hiring and training better, a CNN Business spokesman said. So far, Domino’s has stayed away from third-party vendors such as DoorDash, Uber Eats or Grubhub, which charge a commission fee – but “nothing is off the table,” Weiner said.

Pizza Hut also faces staffing challenges.

Pizza Hut is also taking several steps to help fix the delivery issues.

“The team prioritizes restaurant operations, including a focus on improving staffing levels, restoring business hours, increasing the availability of online ordering and more efficient use of our overflow call centers,” said Yum Brand CEO David Gibbs during an analyst interview in May. But Pizza Hut has also used third-party delivery drivers to “reinforce our own delivery drivers,” he said.

Gibbs hopes a technology acquisition will help improve the situation.

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

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

Papa John’s solution

Papa Johns has also faced staff shortages, but “we feel pretty good about staffing,” said CEO Robert Lynch during an analyst interview in May that discussed first-quarter results. In North America, sales in Papa Johns stores, which open at least one year, increased by 1.9% in the first quarter.

Lynch believes 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 the people talking about staffing” as a major issue, he said.

“We are premium priced. We do not need quite as many transactions, and therefore we are less affected by the staffing challenges that we all see.” In other words, it does not matter much to Papa Johns how many customers buy his pizza, because each pie is priced higher than what the main competitors charge.

Until the shortage of workers subsides, pizza lovers may have to wait a little longer for their pies.

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