Domino's says rapid store expansion means more money for its delivery drivers

Key Points
  • Domino's is expanding its locations quickly, and more stores mean more money for those who deliver its pizzas.
  • In the third quarter, Domino's opened 232 net new stores.
  • The restaurant industry has one of the worst employee retention rates, so the opportunity for better and more consistent tips can be a deciding factor for drivers.
A Domino's Pizza delivery driver
Jason Alden | Bloomberg | Getty Images

The labor market may be tight, but that's not stopping delivery drivers from joining up with Domino's.

Domino's has become the dominant player in the pizza industry thanks to its technological prowess, a popular loyalty program and improvements to its pizzas. Its strong sales growth has allowed it to quickly expand. More stores mean more money for those that courier its pies, CEO Ritch Allison said during an earnings conference call Tuesday.

"You know I think labor is tight in any business in the U.S. today, and we're certainly no exception to that," Allison said. "The fact that our drivers are so busy, it helps us. When we take a look at what the driver can make at Domino's Pizza relative to delivering or driving for some other businesses, it's very, very attractive."

In the third quarter, Domino's opened 232 net new stores.

The idea is to add more Domino's stores so that drivers have less territory they need to cover. Their runs become shorter, allowing them to make more deliveries in an hour and earn more tips. Better and more consistent tips can be a deciding factor for drivers to stay with a company like Domino's rather than leaving for a rival, he said.

The restaurant industry has one of the worst employee retention rates. A whopping 72.5 percent of people left their food service or hospitality gigs in 2017, according to the Bureau of Labor Statistics.

Partially it's just the nature of the industry, with many jobs filled by teens and college students just getting into the labor force. They tend to be part-time or seasonal hires, and only intend to stay with the company for a short time before moving on to another career.

And since restaurants are always hiring, jumping from one brand to another for better pay or benefits isn't uncommon. The trouble is each time an employee leaves restaurants have to hire and train someone new to take their place, costing time and money.

Allison also touted recent programs, which drove more traffic than traditional limited-time offers. One program, called HotSpots, allows customers to get delivery at places such as parks, beaches and stadium parking lots. Another, Paving for Pizza, is a partnership with towns and cities in the U.S. to fix potholes.

Domino's shares fell nearly 5 percent on Tuesday after sales fell short of expectations. Same-store sales rose 6.3 percent in the quarter.

Allison was quick to quell any notions that Domino's was automatically picking up market share from the beleaguered Papa John's, which has struggled to regain sales after its founder made a racially charged comment.

"We are in a very fragmented category, and if we have a competitor donating share it doesn't simply fall in our pocket; we've got to earn it," Allison said.

Papa John's had a relatively small share within the category and therefore its impact to the space isn't quite as great as people have assumed, he said.

For Domino's, the focus will always be on its own strategy and not on the "short-term ups and downs of any specific competitor," Allison said.

Programming Note: For more on Domino's, watch CEO Ritch Allison's interview on "Mad Money" tonight at 6 p.m. ET.