Domino’s CEO Says Food Delivery Model Broken

The chief executive officer of Domino’s Pizza — the world’s largest pizza company by sales — said a “significant shakeout” is coming to the food delivery space, Yahoo Finance reported on Monday (Dec. 30).

Domino’s Pizza CEO Richard Allison told the news outlet that third-party food delivery companies such as Grubhub and Uber Eats will eventually have to turn their attention to making a profit.

“I think we will see some shake-out in the third-party [food delivery] space,” Allison said. “Delivery as a service that these third parties are offering [is] not sustainable in its current form.” 

He pointed to Grubhub’s profit and loss statement after it changed its business model from order aggregator to third-party delivery company. 

“They have grown revenue very rapidly but their profit has declined to almost nothing. DoorDash is private, but speculation is out there they could be losing close to half a billion dollars,” Allison said. 

A Grubhub spokesperson said that while the food delivery space has “few barriers” to enter, there are “major barriers to creating a sustainable, profitable business.” 

Grubhub’s stock is down about 35 percent year to date and third-quarter sales announced in October totaled $322 million, missing analysts’ forecasts of $330.5 million. For the nine months ending Sept. 30, Grubhub’s non-GAAP net earnings dropped to $77.5 million from $135.7 million a year earlier despite a 35 percent uptick in sales. 

“We will be moving quickly, spending more and trying many different strategies over the next 12-18 months to increase restaurant supply aggressively while making our diner experience more sticky — effectively taking action to remove any reason for diners to look anywhere else,” Grubhub Founder and CEO Matt Maloney said in an October letter to shareholders.

To turn those numbers around, Grubhub has increased user incentives and will add more restaurants.

Uber Eats lost $911 million on adjusted earnings before interest, tax, depreciation and amortization (EBITDA) basis for the nine months ending Sept. 30, up from a $323 million loss a year ago. Uber’s latest filing pointed to numerous issues with Uber Eats that are not expected to be resolved in the immediate future.

“Back in July or August I might have felt like this could go on for some indefinite period of time because there seemed to be — particularly in the private market — an appetite to drive growth with little regard to profitability,” Allison said. “I think there is less patience out there among investors today in December of 2019 than there was in July or August. But I don’t know when the shakeout ultimately comes.”

In August, Domino’s Pizza said it would not use third-party delivery apps and would instead continue to rely on its own employees to make deliveries from its 6,000 U.S. stores and most of its 11,000 international ones, as well as runs its own online-ordering app.

Domino’s said in October that it was looking to build more brick-and-mortar locations so that it can be closer to more real and potential customers, reducing its own delivery times.