Delivery Apps Devour Profits of National Pizza Chains
High commission fees and increased competition from local eateries on third-party platforms are squeezing margins for major pizza brands.
National pizza chains are facing significant financial challenges as third-party delivery apps like DoorDash and Uber Eats absorb profits and provide consumers with an unprecedented variety of dining options. The reliance on these platforms, coupled with escalating commission fees that can reach 30 percent of an order's value, is collapsing profit margins for once-dominant brands.
Shifting Market Dynamics
Historically, major pizza chains like Domino's, Pizza Hut, and Papa Johns held a strong position in the takeout and delivery market due to their brand recognition and established infrastructure. However, the widespread adoption of delivery apps over the past decade has fundamentally altered this landscape. These platforms now offer consumers a vast array of choices, from tacos and sushi to high-quality local pizzas, diminishing the exclusive appeal of national pizza brands.
Total sales at quick-service pizza chains, including Pizza Hut, Little Caesars, and Papa Johns, saw a slight decline of 0.3 percent last year, according to restaurant data firm Technomic. This follows minimal growth in previous years. While Domino's reported a 4.8 percent sales increase, six of the top 10 pizza chains experienced negative sales, notably Pizza Hut and Papa Johns.
Impact of Third-Party Commissions
The profitability of national pizza chains is being significantly impacted by commission fees charged by delivery apps. When orders are placed through these third-party services, restaurants often pay commissions of up to 30 percent of the order value. While these platforms can generate more sales, the lower profit on each order is unsustainable for many.
Rave Restaurant Group, which operates Pizza Inn and Pie Five Pizza Co. locations, ceased its partnership with Uber Eats due to price increases that pushed commission rates as high as 30 percent. Uber Eats stated these increases are necessary to offset rising operating costs and invest in its platform, noting that marketplace fees for some U.S. restaurants had not been updated in about a decade.
In response, some companies are incentivizing direct orders through their websites with discounts, while others have increased menu prices on third-party apps, passing the cost to consumers. However, this has not fully offset the pressure from increased competition.
Pizza Hut and Papa Johns Face Restructuring
Pizza Hut, in particular, has leaned heavily on third-party delivery platforms. By late 2022, 90 percent of its U.S. locations partnered with services like DoorDash and Uber Eats. Despite a brief sales bump, U.S. same-store sales fell five percent last year. The chain announced plans to close 250 underperforming restaurants as part of a restructuring. Recently, Pizza Hut's parent company, Yum Brands, reached an agreement to sell the chain to private equity, burdened by declining sales and the costs of maintaining its locations.
Papa Johns is experiencing similar difficulties. The company reported a decline in North American same-store sales as customers increasingly opted for third-party delivery apps. In early 2024, sales through these marketplaces rose to 16 percent of the total. This shift contributed to a two percent decline in North American same-store sales for Papa Johns, with a slightly lower average ticket price.
Broader Industry Trends
Industry experts suggest that delivery apps have been a net negative for the major pizza chains, which once dominated the delivery market. "Pizza chains essentially were the only game in town when consumers wanted the convenience of delivery, but now they can get nearly anything delivered to their doorstep thanks to third-party apps," said Kevin Schimpf, Senior Director of Industry Research at Technomic. He added that even high order volumes from third-party platforms are insufficient to counteract the intensified competition.
Jonathan Maze, editor-in-chief of Restaurant Business, also points to financial strain among lower-income consumers. He noted that while third-party apps can be more expensive, they attract higher-end consumers who continue to spend. This dynamic leaves national chains competing against a wider array of options available on these platforms.
Gregg Majewski, CEO of Craveworthy Brands, argues that delivery apps level the playing field, allowing local restaurants to compete directly with national chains for the same customers. This shifts the focus back to the quality of the food, the customer experience, and the brand itself, often benefiting local pizzerias that can offer unique or high-quality options. The appeal of new and different offerings on delivery apps also contributes to the success of smaller, local establishments.