Domino’s brings home the bacon

US pizza titan Domino’s Pizza prides itself on its tech-savvy ways. Its early embrace of everything from a real-time order tracker to emoji text ordering has helped keep sales growth piping hot in the ultracompetitive fast-casual food space.

But the rise of on-demand delivery services such as Uber Eats, Grubhub, Postmates and DoorDash is threatening to crash Domino’s pizza party. The apps have been a boon for diners who want to eat a broader array of food. Less so for Domino’s near-6,000 stores in the US.

Same-store sales at restaurants open for more than a year in the US rose just 2.4% during its latest quarter, Domino’s said on Tuesday. That is the slowest growth in at least 15 quarters.

Domino’s also tempered its sales outlook. It now expects US same-store sales to grow 2%-5% over the next two to three years, compared with the 3%-6% hike it previously forecast for the next three to five years.

Investors should not panic. Domino’s is right to stay off third-party food apps and stick to its own delivery fleets. With commission ranging from 13% to as much as 30% per order, these delivery services do not come cheap. Quality can also be hard to control.

Then there is the meal-delivery business itself. It is a crowded field and start-ups often offer rebates to lure in new diners. The aggressive discounting is unsustainable and Silicon Valley’s appetite for throwing cash at lossmaking tech companies is waning.

A 10% slide in the stock over the past year has pushed Domino’s forward earnings multiple down to about 27 times, a discount to rival Papa John’s and Pizza Hut owner Yum Brands. But a healthy cash flow means Domino’s can continue to invest for the long haul. It is in less danger of losing its slice of the pie than investors think. /London, October 9

© The Financial Times 2019