Domino's Pizza is fighting delivery apps with $50 million in free food
The relationship between restaurants and delivery apps has long been complicated. On the one hand, restaurants routinely rely on delivery apps to get food out to customers when they can't handle the volume themselves. And during the pandemic, when delivery orders surged, those apps came to many restaurants' rescues.
On the other hand, delivery apps are notorious for charging restaurants and customers alike hefty fees. And right now, those fees are something many restaurants can't afford.
Numerous dining establishments saw their revenue take a hit during the pandemic, especially early on, when many were forced to pivot to takeout and delivery only. At this point, restaurants can't afford to keep paying heavy commissions to delivery services – commissions that can easily account for up to 30% of a given food order.
But now, one restaurant chain is doing its part to sway customers away from delivery apps. And if its efforts prove successful, it may cause those apps to rethink their fee structures – and become better partners to the restaurants they work with.
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Free food galore
To promote what it calls its "straightforward delivery fee," Domino's Pizza (NYSE: DPZ) is giving away $50 million in free food to customers who place an online order between now and Nov. 21.
The delivery fees that third-party apps charge can be quite nebulous, leaving restaurants and customers on the hook for paying more than expected. Domino's, by contrast, thinks ordering food for delivery shouldn't involve guessing games, which is why it charges a single, easy-to-understand fee when customers place their orders.
Many of the chains' popular menu items will be up for grabs as part of the new Domino's campaign – from pizza to boneless chicken to dessert. Domino's says customers have a one in 14 chance of winning free food, and more than 200,000 items have already been given away.
Will delivery apps back down?
There have already been lawsuits filed against delivery apps for overcharging restaurants during the pandemic. And some of those delivery services may be more amenable to working with restaurants than others.
DoorDash, for example, unveiled a new pricing model for restaurants earlier this year. Dining establishments can pay lower commissions and leave customers to make up the difference, or they can pay higher commissions and get premium service and greater visibility. It may not be a perfect solution, but it reads like a compromise.
Meanwhile, if more chains like Domino's begin to take a stand against delivery apps – or, more precisely, the high, ambiguous fees they charge – it could prompt more of these services to rethink their pricing models. And that could work to benefit restaurants. If delivery apps were to become more reasonable, they could help restaurants secure a steady revenue stream and recover from the events of the past year.
That's something real estate investors are anxious to see happen. It's estimated that more than 10% of restaurants have closed their doors permanently in the wake of the pandemic, leaving commercial landlords with vacancies to fill. If restaurants and delivery apps can collaborate more effectively, it'll help ensure their staying power at a time when landlords can't afford any more business closures.
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