Domino’s Pizza Inc. reportedly hopes to bring in an extra $1 billion in sales via a new plan that allows its customers to order pizza via Uber Eats and Postmates. But one analyst on Monday suggested the pizza chain could end up broadening its service to customers on other delivery apps as well as it tries to reach that goal.
Hitting that $1 billion sales target was “immanently achievable but will take some time — and possibly other (third-party delivery app) partners — to build,” BofA analyst Sara Senatore said in a Monday research note. But she said that Domino’s
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as a big brand capable of driving a large amount of delivery volume, would likely be able to secure lower delivery fees from Uber and higher menu-item prices.
Against that backdrop, Senatore hiked her price target on Domino’s shares to $465 from $415, and kept her buy rating on the stock. Shares of Domino’s were up 1.3% on Monday.
Those shares climbed toward an eight-month high last week after Domino’s announced the partnership with Uber Eats and Postmates. The move marked a reversal for the chain, which had long resisted working with delivery apps on the grounds that using its own drivers, traveling to and from a single given store, was more efficient.
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Chief Executive Russell Weiner disclosed the $1 billion sales goal in an interview with the Wall Street Journal last week, when the chain first announced the partnership.
That partnership will allow U.S. customers to order Domino’s through Uber Eats and Postmates, with Domino’s staff still handling deliveries. Domino’s will test the service in four markets in the fall, with nationwide availability expected by the end of the year. The pizza chain believes the deal could eventually bring Uber Eats orders to 70% of Domino’s locations worldwide.
“Our research in the U.S. and learnings from 13 of our international markets has shown us that taking orders using the Uber Eats Marketplace provides access for Domino’s and its franchisees to a new segment of customers and what we believe will be a meaningful amount of incremental delivery orders once it’s widely available,” Weiner said in a statement last week.
Senatore, in the research note, noted that Papa John’s International Inc.
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has said that 50% to 60% of its third-party delivery-app customers are new, and estimated that delivery-app users accounted for around 10% to 15% of sales. For Pizza Hut, owned by Yum Brands’ Inc
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third-party delivery-app sales likely ran “in the high single digits.”
She also said that larger, national brands tend to pay significantly less than the 15% commission rate typically charged by Uber Eats. And she said that Domino’s pizzas would likely still sell for full price on the app.
“The impact on margins is further mitigated by the fact that pizzas sold on the Uber Eats platform will likely sell at menu price, versus the ~20%+ discount applied to the average non-3P pizza order,” she said.
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