Understand the problems that pizzerias face in the US with the lack of delivery people

Pizzerias have always been experts when it comes to delivery, flexing with remote deliveries and robot delivery cars. But now they are facing a problem: not enough couriers.

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

“The delivery team could remain a significant challenge in the short term,” he said, pointing to a drop in deliveries in the last quarter of 2021 compared to a year earlier.

He was right – and the problem continued this year. In the first three months of 2022, delivery to Domino’s U.S. stores that have been open for at least a year dropped 10.7% compared to the year-ago period, Allison said in a call with analysts in April, noting that he is “disappointed ” with the delivery results.

Overall, sales at these stores dropped 3.6% over this period, in part due to staffing issues.

Difficulty finding and keeping employees has hurt business in a number of industries, but the restaurant industry has been particularly hard hit, 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. Same-store sales for the brand in the United States were down 6% in the first quarter due to “our delivery channel, where capacity constraints limited our ability to meet demand,” said Yum Brands CEO David Gibbs during a liaising with analysts discussing the results.

“This was driven by staffing challenges, particularly the lack of delivery drivers that were felt across the industry.”

Slow service is bad for business, and not just because of lost sales — a few late pizzas from Domino’s can 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 job 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, about 20.8 million were restored. And the job market appears to be cooling this year, making hiring difficult.

Meanwhile, demand for delivery is on the rise. 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 predict it will continue.

Driver shortages can also become a vicious cycle, noted Andrew Charles, a restaurant analyst at Cowen.

“Drivers take the job because they want to tip. If there are fewer deliveries to make… it gets in the way of trying to get delivery drivers,” he said. “I don’t think this is a very easy solution.”

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

Call centers and delivery providers

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

The company is “facing some pretty serious staffing shortfalls,” Charles said. “So anything they can do to help alleviate this is being considered.” He estimated that about 10% to 15% of Domino’s orders in the US are placed over the phone.

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

In addition to exploring call centers, Domino’s is also working to make the jobs easier for employees, including using technology that will make hiring and training better, a spokesperson told CNN Business .

So far, Domino’s has stayed away from third-party delivery providers like DoorDash, Uber Eats or Grubhub that charge a commission fee — but “nothing is off the table,” Weiner said. Pizza Hut is also taking several steps to help fix its delivery issues.

“The team is prioritizing restaurant operations, including focusing on improving staffing levels, restoring operating hours, increasing online order availability, and more efficiently leveraging the use of our overflow call centers,” he said. David Gibbs, CEO of Yum Brands, during an analyst call in May.

But Pizza Hut is also using third-party delivery drivers to “grow our own delivery drivers,” he said.

Gibbs hopes a technology acquisition will help improve the situation.

Last year, the company completed the purchase of Dragontail, which has an AI-enabled platform designed to make restaurant operations more efficient, including reducing disruptions due to a lack of drivers. The brand is testing the platform in more than 100 of its thousands of stores across the US to try to update the delivery network.

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

The Pope Johns Solution

Papa Johns also faced staff shortages, but “we feel really good about staffing,” CEO Robert Lynch said during a call with analysts in May discussing first-quarter results. In North America, sales at Papa Johns stores that have been open for at least a year grew 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 who are talking about hiring staff” as a big issue, he said.

“We have premium prices. We don’t need as many transactions and therefore are less impacted by the staffing challenges we are all seeing.” In other words, it doesn’t matter so much to Papa Johns how many customers buy its pizza, because each pie is priced higher than its main competitors charge.

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