hasilp89 Posted March 9, 2021 Share Posted March 9, 2021 The delivery advantage due to density would be one competitive advantage I would be concerned about, because the delivery players like UeberEats etc are not going away, Those guys play the scaling game too and when you look at Uebers presentation, it‘s all about route density. So in that way, the Domino‘s delivery advantage is going to diminish. Pickup is interesting and I think here they could have an edge, as they do a superb job with their app to make this easy and transparent for the customer. I had Domino‘s pizza only once and that was during the pandemic when I picked on up on my way home from work and the ordering process was very well done (contactless pickup). The pizza itself is nothing to rave about, but it’s not cardboard either. this is a good point and something i've been thinking about a lot more recently with the success of Doordash in the suburbs. Mgmt has discussed on calls and is very clear they will not need third parties. I break it down into two areas 1. What does it do for the restaurant owner. When I look at the store level economics of a pizzeria that uses 3rd party delivery vs dominos I don't see how that pizzeria can compete. They are giving up margin to the 3rd party while DPZ is earning best in class store level ROIC's with an existing delivery system that is better than what 3rd parties offer. Additionally DPZ gets to retain customer data which I think there is value to. I'm in the hotel business and compare it to how heavily different franchises (hilton/marriott/IHG/Hyatt) depend on OTA's vs. booking direct. Booking direct is tremendously more valuable and the brands that have that direct connection benefit greatly. DPZ relies on no third parties, the local pizzeria has to. So from that perspective i don't see it as a deadly threat. 2. What does it do to demand. This is where the jury is still out. Does this give customers more selection maybe resulting in them trying a different pizza or meal when they are looking for delivery. My thoughts currently - delivering pizza and having it remain delicious is hard. Eg. I pick up from our local brick oven spot and it doesn't taste as good at home as it does in the restaurant - a doordash delivery would only lengthen that out of the oven time to my plate resulting in a lower quality pizza/experience. Dominos has figured this out because its product was born out of delivery and the need to have the mixture of dough, cheese and sauce taste just as good 15-30 minutes out of the oven. Link to comment Share on other sites More sharing options...
deleuze68 Posted March 9, 2021 Share Posted March 9, 2021 Agree with the above. I'd like to add a couple of additional thoughts based on my pizza ordering experience over the cold Canadian winter; 1) Domino's comes quicker as when the pizza is ready it is delivered direct. Too many times the food delivery services are either late picking up an order, make a couple of stops along the way, or decide to walk 2 kilometers instead of cycling/driving 2) Domino's comes hotter due to quicker delivery + proper packaging. Insulated bags designed for pizza delivery make a huge difference. Even when a food delivery service uses an insulated bag the driver invariably pulls it out of the bag before entering my building, never right at the door to my unit. I don't know if the above can be fixed but as of now I no longer order pizza other than Domino's/Pizza Nova as I want my pizza within 30 minutes and I want it hot. Will just have to wait until restaurants re-open for the really good stuff. Link to comment Share on other sites More sharing options...
KCLarkin Posted March 9, 2021 Share Posted March 9, 2021 The delivery advantage due to density would be one competitive advantage I would be concerned about, because the delivery players like UeberEats etc are not going away, Those guys play the scaling game too and when you look at Uebers presentation, it‘s all about route density. So in that way, the Domino‘s delivery advantage is going to diminish. Pickup is interesting and I think here they could have an edge, as they do a superb job with their app to make this easy and transparent for the customer. I had Domino‘s pizza only once and that was during the pandemic when I picked on up on my way home from work and the ordering process was very well done (contactless pickup). The pizza itself is nothing to rave about, but it’s not cardboard either. The aggregator business is really the opposite of Domino's. It destroys value for almost everyone in the value chain. It works now because investors are subsidizing that value destruction. This is well-covered in the podcast I posted earlier and also the Domino's earnings calls. Consider the economics of a sit-down restaurant: - low margins - most profit is from alcohol and desserts - high cost real estate So you start with a low margin business with poor ROIC and then add a middle man with a 20-30% take rate. In the short term, your revenue might increase but over time this model will drive capital out of the business. Link to comment Share on other sites More sharing options...
KCLarkin Posted March 9, 2021 Share Posted March 9, 2021 It's easy to forget now, but the pandemic saved many of these aggregators. The investor subsidy warfare was taking its toll and the industry was preparing to consolidate and rationalize. It will be interesting to see how things shakeout after reopening, but I wouldn't be long an aggregator right now. Post consolidation, these will probably be good investments. Link to comment Share on other sites More sharing options...
coc Posted March 9, 2021 Share Posted March 9, 2021 I agree, the aggregator model is a terrible one that induces a tragedy of the commons type effect where all have to play the game and no one wins. Link to comment Share on other sites More sharing options...
cmlber Posted March 9, 2021 Share Posted March 9, 2021 It's easy to forget now, but the pandemic saved many of these aggregators. The investor subsidy warfare was taking its toll and the industry was preparing to consolidate and rationalize. It will be interesting to see how things shakeout after reopening, but I wouldn't be long an aggregator right now. Post consolidation, these will probably be good investments. KC, how do you see the aggregator threat playing out over the next 3-5 years? Just comparing pricing of Papa Johns / Pizza Hut / Marco's on their website vs Doordash, it looks like the customer ends up paying 15-40% more as a result of ordering through Doordash. Even Chipotle who has the as much bargaining power as any brand on Dash you end up paying 10% more ordering delivery through Dash vs direct through Chipotle, on top of the 15% more you pay for delivery from Chipotle direct vs in-store pickup. Seems like eventually once the aggregators consolidate and eliminate discounts the market for 3rd-party delivery will shrink. The pandemic has been a huge boost for them since people are less likely to compare delivery vs pickup/dine-in pricing. Last night I ordered Papa Johns from their website and through Doordash, and Doordash came in 35mins whereas Papa Johns direct came in over an hour. Maybe this is a one off experience, but it seems like giving up control of delivery to Dash was a shortsighted move and that will just mean less delivery density ordering direct from Papa and therefore longer and more variable delivery times which should benefit DPZ over time. They also give up control of the experience. The Dash order got here quicker, but they brought me chicken wings that weren't mine, so somewhere out there someone is pissed they didn't get their wings... Link to comment Share on other sites More sharing options...
KCLarkin Posted March 9, 2021 Share Posted March 9, 2021 KC, how do you see the aggregator threat playing out over the next 3-5 years? Just comparing pricing of Papa Johns / Pizza Hut / Marco's on their website vs Doordash, it looks like the customer ends up paying 15-40% more as a result of ordering through Doordash. Even Chipotle who has the as much bargaining power as any brand on Dash you end up paying 10% more ordering delivery through Dash vs direct through Chipotle, on top of the 15% more you pay for delivery from Chipotle direct vs in-store pickup. Seems like eventually once the aggregators consolidate and eliminate discounts the market for 3rd-party delivery will shrink. The pandemic has been a huge boost for them since people are less likely to compare delivery vs pickup/dine-in pricing. The situation is unstable and really depends on investor preferences. The market has a clear preference for growth right now, so I'd expect the aggregators to aggressively buy market share. I could imagine a situation where these services lose share after the pandemic and then act even more aggressively. Either way, it will be a modest headwind over the next 3-5 years but won't materially change Domino's strategic position. Link to comment Share on other sites More sharing options...
DooDiligence Posted March 10, 2021 Share Posted March 10, 2021 Looking at adding here @ 13 billion market cap I think it looks attractive. Really like the way Young Hamilton Blog breaks the business down. If you have not read it, would encourage you to do so. https://yhamiltonblog.substack.com/p/agb-202011-dominos-pizza-dpz Another good writeup, thanks. Link to comment Share on other sites More sharing options...
KCLarkin Posted March 12, 2021 Share Posted March 12, 2021 This is a pretty good bull-case for DoorDash: https://secretcapital.substack.com/p/doordash-re-inventing-last-mile-logistics He makes the claim that DD has eroded Domino's moat, though he doesn't answer the key questions: 1. How many pizza occasions will be substituted by other food types. AKA will the overall pizza market shrink. 2. How will DD impact relative market share within the pizza category. As discussed above, I think (1) will be a modest headwind as long as the delivery cos are subsidizing delivery. I'm doubtful that DD will impact (2) significantly. Link to comment Share on other sites More sharing options...
hasilp89 Posted March 12, 2021 Share Posted March 12, 2021 This is a pretty good bull-case for DoorDash: https://secretcapital.substack.com/p/doordash-re-inventing-last-mile-logistics He makes the claim that DD has eroded Domino's moat, though he doesn't answer the key questions: 1. How many pizza occasions will be substituted by other food types. AKA will the overall pizza market shrink. 2. How will DD impact relative market share within the pizza category. As discussed above, I think (1) will be a modest headwind as long as the delivery cos are subsidizing delivery. I'm doubtful that DD will impact (2) significantly. bold statement by him. guess i should make the time to read it but my quick search shows he may be uninformed... "The famous pizza retailer isn’t known for its great pizza " ??? Link to comment Share on other sites More sharing options...
KCLarkin Posted March 12, 2021 Share Posted March 12, 2021 bold statement by him. guess i should make the time to read it but my quick search shows he may be uninformed... He is uninformed. He is just some young kid. But it is well-written summary of the bull case for DD, especially relative to the other aggregators. Always good to know who you are betting against. Link to comment Share on other sites More sharing options...
peridotcapital Posted March 12, 2021 Share Posted March 12, 2021 This is a pretty good bull-case for DoorDash: https://secretcapital.substack.com/p/doordash-re-inventing-last-mile-logistics He makes the claim that DD has eroded Domino's moat, though he doesn't answer the key questions: 1. How many pizza occasions will be substituted by other food types. AKA will the overall pizza market shrink. 2. How will DD impact relative market share within the pizza category. As discussed above, I think (1) will be a modest headwind as long as the delivery cos are subsidizing delivery. I'm doubtful that DD will impact (2) significantly. Haha... 90% EBITDA margins on DashPass orders!!?? Even at $15/month, DASH's revenue per order is around $3, so we are supposed to think they only have 30 cents of non-driver operating expenses per order? $8.4 billion of company EBITDA in 2025 is nuts, as is a 25x multiple. In 2020 EBITDA was negative $300M on $3B of revenue. And they don't even discuss how DASH's commission rates are higher than the operating margins for the retailers and restaurants they are serving "8 days a week." This is not a high margin business if you are both the middleman and labor provider. Link to comment Share on other sites More sharing options...
KCLarkin Posted March 12, 2021 Share Posted March 12, 2021 Chris Mayer, author of 100 Baggers, with a good bull case for DOM.ln. The UK master franchisee is more of a value play, but looks pretty compelling at 5% FCF yield. https://www.woodlockhousefamilycapital.com/post/change-forgetting-pizza-happiness Not sure why he wouldn’t just pay a bit more for DPZ though. Link to comment Share on other sites More sharing options...
KCLarkin Posted May 3, 2021 Share Posted May 3, 2021 Two interesting bits of news from Q1: 1. Franchise EBITDA hit a crazy 177k per store in the U.S. in 2020. Prior estimates were 158k. This means that DPZ will continue to attract capital for new stores. 2. $1B accelerated buyback. Link to comment Share on other sites More sharing options...
LC Posted May 3, 2021 Share Posted May 3, 2021 Another case of "should have bought more" a month ago Link to comment Share on other sites More sharing options...
hasilp89 Posted May 12, 2021 Share Posted May 12, 2021 https://www.cnbc.com/2021/05/12/bill-ackman-reveals-6percent-stake-in-dominos-pizza-shares-jump.html Billy boy getting in on the fun. Link to comment Share on other sites More sharing options...
DooDiligence Posted May 20, 2021 Share Posted May 20, 2021 Thoughts on the recent CFO departure? Is it Ackman? Link to comment Share on other sites More sharing options...
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