What’s fueling the critical shortage of drivers in the pizza industry?
During the first weeks and months of the pandemic, the quick-serve pizza giants shared a common tailwind. Their roots in delivery and digital ordering have given them a significant edge in the field. There was also a less definable and more nebulous trend at work – the notion that consumers flocked to comfort foods when routines broke down. And one place that took them was pizza. Customers knew how to order it, where to get it, and what to expect from the experience.
More than two years later, it looks like the biggest chains in the category are once again sharing a boat. Only now is it a driver shortage on topics that once seemed irrelevant, like Domino rethinking its combative stance on third-party delivery.
Beyond expanding reach through aggregator networks, pizza chains are focusing on core fixes to ease the burden. Papa Johns is working to make recruiting more efficient, streamline payroll and empower drivers to be more productive so they can take extra deliveries and spend less time in stores. He also unveiled “PapaCall” last August, where the company introduced artificial intelligence to its call center. Pizza Hut said it is also putting more emphasis on call centers. At the beginning of the second quarter, the chain completed the integration of delivery as a service into its point of sale. It’s about layering delivery as a service – over the next two to three quarters – which basically means sales flowing through the website and apps, but then execution, alongside working with aggregators.
Domino’s also expects between 2,500 and 3,000 stores to use call centers in some capacity before the end of the year.
All will take a closer look at deferral: Domino’s deferral compositions increased 11.3%, year-over-year, in the first quarter.
And the impact of the driver shortage has been easy to spot. In the first quarter, Domino’s said, due to staffing issues, store hours were reduced, phones went unanswered and online orders were restricted. In total, the number of lost operating hours combined is equivalent to shutting down the entire US system for six days. Domino’s comparable store sales decreased 3.5% during the period. Notably, delivery comps were down 10.7%.
Pizza Hut’s same-store sales fell 6% at the start of the year. CFO Chris Turner told investors at the time that a franchisee who used a third party was about 4 points ahead of the system.
Papa Johns remained in the green at 1.9% against a round of 26.2% the previous year. This is due to a few factors, but mostly a premium product strategy and the company’s history with aggregator assisted delivery – something it started three years ago and spent about nine months developing the integration to connect their point of sale to third-party ordering systems.
Without debate, however, pizza chains will continue to innovate around delivery setbacks. Automation and AI to make things easier for others. Fewer phones ringing and more pizzas made. But the technology will expand to a point. Like the quick service workforce in every segment, figuring out what employees want and making things easier has become as critical as paying them more.
BTIG analyst Peter Saleh, in an effort to better understand the driver shortage for pizza brands, surveyed 5,000 people across the United States to identify nearly 300 delivery drivers who have been active (last 30 days ) on ride-sharing platforms like Uber and Lyft. The goal is to ask what it will take to bring them back to restaurants.
Saleh said his initial thesis was for increased mobility, personal and corporate travel after Omicron shifted drivers away from food delivery to more lucrative ride-sharing jobs. “While we continue to believe that our thesis is correct,” he said, “we have found that drivers are still looking for more flexibility in terms of working days and hours and that rising prices gasoline prevents some drivers from choosing food delivery.”
In many ways, the results were not that different from the demands made by a larger labor pool about a year ago.
As the graph below shows, the competition on the road is not weakening. Restaurants have witnessed this pre-COVID and it has come back strong, especially on Friday and Saturday nights (when pizzerias have the highest order volume). Amid the pandemic, pizza chains have seen their sales models change, with weekday business surging past historic levels. This was especially true at lunch due to remote working and less rigid schedules. Weekend sales, however, slowed a bit as consumers rerouted their purchases to accommodate reduced mobility and working from home.
Saleh said that after Omicron in January/February, people started to shift their shopping habits back to the traditional weekend dinner and late at night, which added to the shortage of drivers given that it is also the peak hour for carpooling and food delivery in general – a category that has exploded during the crisis (it has more than tripled globally since 2017). Statista estimates that online food delivery revenue will reach $24 billion by 2023.
“We believe that this standardization is one of the main causes of the shortage of drivers; consumer mobility has increased during evenings and weekends, and consumer shopping habits have also migrated around this time,” Saleh said.
Plus, he added, subscription services like DoorDash’s “Dashpass,” where consumers pay $9.99 a month for free shipping on orders above the minimum bucket size, help occupy third-party drivers. At the same time, the offer has won the loyalty of the aggregator’s customers.
Saleh said the strategy is differentiated from what is offered by first-party delivery by large pizza chains and independents. It reduces the cost of delivery for large quick service users who typically account for the bulk of sales.
Saleh noted that the top 5% of customers typically mix 30% of revenue, and the top 20% of consumers generate about 60% of sales.
Thus, large chains operating a self-delivery model, he suggested, will either need to supplement with third-party aggregators, implement a subscription service, modify their model to offer more flexible working hours and /or increase fuel reimbursements if they want to compete more efficiently for drivers.
What to offer
In Saleh’s study, flexibility, in terms of days/hours worked, was highest among drivers when choosing a platform to work for. Forty-four percent said greater flexibility was a driving factor, overtaking all-inclusive pay, which came in second place (40% of drivers). Based on third-party research and analysis by Jack Fuller, Saleh said, UberEats delivery drivers earn about $15 per hour, about $5 less than their rideshare counterparts. Simply, food delivery on the high end is less appealing than carpooling, let alone, Saleh said, for brands that demand more rigid schedules.
The numbers were more pronounced among younger drivers in the 18-24 year old cohort. There, 56% said flexibility was their top priority. “…this suggests that restaurant concepts with their own delivery network will either need to supplement with aggregator partnerships or change their driver business model to resemble the flexibility of ride-sharing platforms,” Saleh said. “In our view, this would translate to many more drivers per location, working fewer hours per day.”
With older workers, the survey found they simply preferred delivering food to working inside the restaurant’s collapsible boxes, answering phones or doing other tasks. Forty-four percent of drivers aged 50 to 64 said the main reason they chose carpooling over food delivery was because they didn’t want to clock in at restaurants. Saleh thinks this is an opportunity for chains like Papa Johns and Domino’s to offer positions for drivers strictly to deliver food without having to support the crew as well.
The last point of the investigation concerned the rise in fuel prices. Nearly 40 percent (39) of respondents said gas prices prevented them from taking food delivery jobs. About a third of rideshare drivers said they used to deliver food, but have since switched to transporting people.
Saleh said alternatives with higher hourly pay, more flexible schedules and rising prices at the pump all limit the availability of drivers for self-delivery concepts like the “Big 3” of the pizza business. .
Given the undercurrent of lasting COVID-related change, it’s unlikely brands can simply wait. “Restaurants that rely on self-service delivery will need to introduce more flexible hours, increase hourly pay and/or implement a fuel surcharge to become more competitive in this scarce market for drivers.