Industry News
The State of Today's Restaurant Consumer: Big Pizza, Q1 2024 Edition
By
Nico Wada
May 31, 2024

Restaurants have aggressively raised prices over the past two years in response to inflation. 

Data from Bikky shows that the average price of an entree has increased anywhere from 6% to 28% since January 2022. As consumers lap those price increases, restaurants are increasingly warning about the value equation for their brand—and the industry at large.

Even fast food companies, who’ve long promoted an image of affordability, no longer feel like a value to 80% of American consumers

The result is a more promotional environment, with greater competition over fewer consumer dollars. As McDonald’s CFO Ian Borden commented to analysts on a call after their Q1 2024 earnings, “Everybody is fighting for fewer consumers. We have to make sure we have that street fighting capability.” 

Amidst this industry backdrop, the major pizza players - Domino’s, Papa Johns, and Pizza Hut - are responding in various ways. From a more rewarding loyalty program to an aggressive marketing push to AI adoption, here's how these chains are trying to stay competitive in a tougher operating environment.

Domino’s uses value messaging and loyalty changes to grow share across all income cohorts

Domino’s got their fiscal year off to a strong start.

Total revenue for the first quarter of 2024 increased 5.9%, with both delivery and pickup orders increasing across all income cohorts. The chain also recorded a 5.6% year-over-year increase in same-store sales, outperforming analysts’ sales estimates for the second quarter in a row.

Growth with lower income consumers was particularly surprising, especially in light of the commentary from McDonald’s and many other large brands. CEO Russel Weiner attributes the boost in business to a two-pronged approach — one that emphasizes retaining value-oriented eaters with promotions, while gaining higher income customers by partnering with Uber Eats.

For those value-oriented eaters, carryout remains an attractive channel as it eliminates additional costs like tips and delivery fees. In the first quarter of 2024, carryout comps lifted 9.1% and sales from carryout now compose 52% of transactions. “If it were a company of its own,” Weiner said in an interview, “Domino’s carryout would be counted among the top 20 QSR brands in America.”

In a further effort to appeal to carryout and price-sensitive customers, Domino’s strategically relaunched its loyalty program last fall. Given the carryout segment tends to have a lower average ticket, Domino’s Rewards halved the minimum amount customers need to spend to start earning rewards points from $10 to $5.

Additionally, the former program consisted of just one reward: a free pizza once 60 points were accrued. Instead, redemption opportunities now begin at 20 points. These changes represent a creative approach to value: rather than straight-forward discounting, Domino’s is using its loyalty program as a lever to drive retention and engagement from value-conscious customers. 

The combination of these tweaks, value-oriented messaging, and promotions like “Emergency Pizza”, Domino’s Rewards has grown to 33 million active members, with 2 million new members. At a time when most brands are scaling back their loyalty programs and making it more difficult for customers to earn and redeem points, Domino’s is doing the opposite—and to great success. As Domino’s CFO Sandeep Reddy said recently, “The loyalty program has worked extremely well from a transaction perspective.” 

On the other end, Domino’s continues to gain share with higher-income consumers through its partnership with Uber Eats, the brand’s first entry into third-party delivery.  In the first quarter, about 1.4% of sales came through the aggregator, and Domino’s expects that figure to climb to 3% by the end of 2024. The partnership is also helping to boost awareness: 65% of customers ordering on Uber Eats are new to the brand, and the chain is seeing a higher percentage of single-user transactions on Uber than it’s seen on its own channels.

Domino’s strong first quarter results suggest the chain’s double-sided strategy of leveraging loyalty and promotions to retain price-conscious consumers while acquiring new guests through Uber Eats is working.

Papa Johns loses lower income guests and organic traffic, but banks on “Back to Better” to revive growth

In the first quarter of 2024, Papa Johns’ revenue missed expectations by the widest margin in more than 5 years, with North America same-store sales declining 2%. That being said, its third-party delivery channel performed well, with sales growing to 16% compared to 12% last year. 

As the first national pizza chain to partner with third-party marketplaces in 2019, Papa Johns established strong integrated partnerships with Grubhub, Uber Eats, and DoorDash. This first-mover advantage helped expand its share of the market and drive greater transactions and sales. However, while third-party delivery remained a sales driver in the first quarter, lower-income guests shifting away from the brand led to a decline in organic delivery and flattish results in carryout sales.

The chain believes the weakness of sales through its own channels is largely responsible for the quarter’s same-store sales decline. Third-party apps may be crucial to pull in new and non-regular customers, but these providers can charge commission fees as high as 30%, significantly eating into already razor-thin profit margins. “Our objective long term is not to have our organic business decline while only experiencing growth through third-party aggregators,” said Thanawala. 

On the consumer side, unlike Domino’s emphasis on retaining budget-conscious consumers through value-driven pricing, Papa Johns has maintained a more cautious approach to discounts and promotions. “We are not the value player in pizza,” former CEO Rob Lynch said in an interview. The company’s interim CEO, Ravi Thanawala, also echoed this sentiment. “It is important that we maintain discipline in our limited time offers, pricing strategies, and product innovations for the long-term success of the business,” he said during Papa John’s Q1 earnings call

How does Papa Johns plan to lure more customers to order directly from its app and website? In January 2024, the brand unveiled its “Back to Better 2.0” initiative, outlining a series of marketing and digital investments to draw attention to its first-party channels. The centerpiece of the new strategy involves a shift in marketing dollars from local to national advertising — a move Papa Johns claims will “deliver significantly higher restaurant-level EBITDA margins during the first five years of operations” and “boost brand affinity.”

They expect the plan “will increase the productivity of their holistic marketing contributions by leveraging the scale national investments deliver.” Simultaneously, making local marketing spend optional for franchisees will provide an opportunity to “increase the overall profitability of their restaurants.”

According to an analyst at investment firm BTIG, Papa John’s move is a “proven industry strategy to yield a better return on investment.” Wingstop similarly transferred budget from local to national advertising in 2022, leading to an acceleration in same-store sales growth. Other elements of Papa John’s revamped marketing strategy include a brand refresh as well as appointing a new media agency capable of better ingesting all first-party purchase data to better targeting decisions. 

With more than 85% of transactions flowing through organic channels, the Back to Better 2.0 plan also outlines several digital improvements. This includes strategic updates to the Papa John’s website and app, such as expanded ordering capabilities, to improve purchase conversion and increase customer retention. In addition, Papa Johns announced an increased investment in consumer-facing tech, digital infrastructure and enhanced reporting to further its ability to deliver menu innovations, targeted marketing, and enhanced value in international markets.

While first-quarter results were sluggish, Thanawala stressed that this outcome shouldn’t be tied to the “Back to Better 2.0” plan. It remains to be seen whether or not Papa John’s recent investments can counter inflationary headwinds.

Pizza Hut lags due to tough comps and fluctuating consumer spending habits

Pizza Hut reported a 7% decline in same-store sales worldwide in the first quarter.

Analysts indicated that the drop is linked to the general reduction in discretionary spending echoed across the sector. "Yum Brands' difficult quarter underscores the challenges that the fast-food industry is facing, as lower-income consumers cut back on dining out," Insider Intelligence analyst Rachel Wolff observed.

The chain also faced tough comparisons to the year-ago period, when Pizza Hut reported 7% same-store sales growth, fueled by its new Melts offering, targeted at individual occasions. Despite what Pizza Hut CEO David Gibbs described as a “difficult operating environment,” executives at Pizza Hut parent company Yum Brands were upbeat during the brand’s first-quarter earnings call.

The focal point of that optimism? Technology.

Investments in “digital, technology, and innovation capabilities” became central to Yum Brand’s strategy in 2019 as a means to enhance customer experience and operational efficiency. Last year, the company spent $21 million, nearly 3% of total revenue and a 90% increase from the prior year, on initiatives from front-of-house kiosks to back-of-house automation tools.

According to Gibbs, tech deployments—such as Dragontail, an AI-based platform for managing the food preparation process from order through delivery—helped grow digital sales. In the first quarter, digital sales as a percentage of systemwide sales reached a record-breaking 55%, up from about 20% in 2019. "We now have $30 billion in annualized digital sales,” Gibbs announced, “which by itself would represent one of the largest companies in the world.”

In 2024, the fast food giant is rolling into a “second parallel phase” of its technology journey with an increased focus on maximizing its data assets and artificial intelligence. One of over 40 AI initiatives currently underway involves piloting AI in Yum’s proprietary SuperApp platform. In use at over 8,700 Pizza Hut locations globally, the app helps restaurant managers streamline their operations. 

For the customer, Yum's AI ambitions mean a more personalized experience.

The company has consolidated a majority of transaction-level sales data and other key operational and customer metrics across its brands into the “Yum Global Data Hub.” New AI-driven capabilities pull data from the hub and integrate it into other platforms, so that guests ordering on digital, for example, might receive personalized upsell recommendations based on their comprehensive customer profile.

Other customizations might include personalized promotions, targeted marketing, intelligent menu pricing recommendations, and more. “This cross-brand platform gives us unprecedented visibility into the ordering behaviors of millions of customers across our four brands,” said Yum CFO Chris Turner. For Yum, doubling down on AI has the payoff of stronger unit economics for franchisees, increased customer engagement, and record digital sales.

Conclusion

The restaurant value equation is top of mind for major brands - and each one is grappling with whether theirs makes sense for today’s consumer. Regardless of price moves though, brands continue to invest in digital, data, and delivery as a means for navigating a more challenging operational environment.

Thankfully, Bikky enables brands without the same resources as the industry’s largest to achieve similar outcomes to Papa John’s investment in analytics, or Domino’s ability to understand the incrementality of their promotional efforts.

By pulling together their customer data across all in-store and off-premise channels, brands like Dave’s Hot Chicken, MOD Pizza, Bojangles, and Groucho’s Deli get the same visibility into what’s driving traffic, frequency, and sales.

To learn more about how Bikky can help your brand, click here.

The State of Today's Restaurant Consumer: Big Pizza, Q1 2024 Edition

Posted
May 31, 2024
Nico Wada

Restaurants have aggressively raised prices over the past two years in response to inflation. 

Data from Bikky shows that the average price of an entree has increased anywhere from 6% to 28% since January 2022. As consumers lap those price increases, restaurants are increasingly warning about the value equation for their brand—and the industry at large.

Even fast food companies, who’ve long promoted an image of affordability, no longer feel like a value to 80% of American consumers

The result is a more promotional environment, with greater competition over fewer consumer dollars. As McDonald’s CFO Ian Borden commented to analysts on a call after their Q1 2024 earnings, “Everybody is fighting for fewer consumers. We have to make sure we have that street fighting capability.” 

Amidst this industry backdrop, the major pizza players - Domino’s, Papa Johns, and Pizza Hut - are responding in various ways. From a more rewarding loyalty program to an aggressive marketing push to AI adoption, here's how these chains are trying to stay competitive in a tougher operating environment.

Domino’s uses value messaging and loyalty changes to grow share across all income cohorts

Domino’s got their fiscal year off to a strong start.

Total revenue for the first quarter of 2024 increased 5.9%, with both delivery and pickup orders increasing across all income cohorts. The chain also recorded a 5.6% year-over-year increase in same-store sales, outperforming analysts’ sales estimates for the second quarter in a row.

Growth with lower income consumers was particularly surprising, especially in light of the commentary from McDonald’s and many other large brands. CEO Russel Weiner attributes the boost in business to a two-pronged approach — one that emphasizes retaining value-oriented eaters with promotions, while gaining higher income customers by partnering with Uber Eats.

For those value-oriented eaters, carryout remains an attractive channel as it eliminates additional costs like tips and delivery fees. In the first quarter of 2024, carryout comps lifted 9.1% and sales from carryout now compose 52% of transactions. “If it were a company of its own,” Weiner said in an interview, “Domino’s carryout would be counted among the top 20 QSR brands in America.”

In a further effort to appeal to carryout and price-sensitive customers, Domino’s strategically relaunched its loyalty program last fall. Given the carryout segment tends to have a lower average ticket, Domino’s Rewards halved the minimum amount customers need to spend to start earning rewards points from $10 to $5.

Additionally, the former program consisted of just one reward: a free pizza once 60 points were accrued. Instead, redemption opportunities now begin at 20 points. These changes represent a creative approach to value: rather than straight-forward discounting, Domino’s is using its loyalty program as a lever to drive retention and engagement from value-conscious customers. 

The combination of these tweaks, value-oriented messaging, and promotions like “Emergency Pizza”, Domino’s Rewards has grown to 33 million active members, with 2 million new members. At a time when most brands are scaling back their loyalty programs and making it more difficult for customers to earn and redeem points, Domino’s is doing the opposite—and to great success. As Domino’s CFO Sandeep Reddy said recently, “The loyalty program has worked extremely well from a transaction perspective.” 

On the other end, Domino’s continues to gain share with higher-income consumers through its partnership with Uber Eats, the brand’s first entry into third-party delivery.  In the first quarter, about 1.4% of sales came through the aggregator, and Domino’s expects that figure to climb to 3% by the end of 2024. The partnership is also helping to boost awareness: 65% of customers ordering on Uber Eats are new to the brand, and the chain is seeing a higher percentage of single-user transactions on Uber than it’s seen on its own channels.

Domino’s strong first quarter results suggest the chain’s double-sided strategy of leveraging loyalty and promotions to retain price-conscious consumers while acquiring new guests through Uber Eats is working.

Papa Johns loses lower income guests and organic traffic, but banks on “Back to Better” to revive growth

In the first quarter of 2024, Papa Johns’ revenue missed expectations by the widest margin in more than 5 years, with North America same-store sales declining 2%. That being said, its third-party delivery channel performed well, with sales growing to 16% compared to 12% last year. 

As the first national pizza chain to partner with third-party marketplaces in 2019, Papa Johns established strong integrated partnerships with Grubhub, Uber Eats, and DoorDash. This first-mover advantage helped expand its share of the market and drive greater transactions and sales. However, while third-party delivery remained a sales driver in the first quarter, lower-income guests shifting away from the brand led to a decline in organic delivery and flattish results in carryout sales.

The chain believes the weakness of sales through its own channels is largely responsible for the quarter’s same-store sales decline. Third-party apps may be crucial to pull in new and non-regular customers, but these providers can charge commission fees as high as 30%, significantly eating into already razor-thin profit margins. “Our objective long term is not to have our organic business decline while only experiencing growth through third-party aggregators,” said Thanawala. 

On the consumer side, unlike Domino’s emphasis on retaining budget-conscious consumers through value-driven pricing, Papa Johns has maintained a more cautious approach to discounts and promotions. “We are not the value player in pizza,” former CEO Rob Lynch said in an interview. The company’s interim CEO, Ravi Thanawala, also echoed this sentiment. “It is important that we maintain discipline in our limited time offers, pricing strategies, and product innovations for the long-term success of the business,” he said during Papa John’s Q1 earnings call

How does Papa Johns plan to lure more customers to order directly from its app and website? In January 2024, the brand unveiled its “Back to Better 2.0” initiative, outlining a series of marketing and digital investments to draw attention to its first-party channels. The centerpiece of the new strategy involves a shift in marketing dollars from local to national advertising — a move Papa Johns claims will “deliver significantly higher restaurant-level EBITDA margins during the first five years of operations” and “boost brand affinity.”

They expect the plan “will increase the productivity of their holistic marketing contributions by leveraging the scale national investments deliver.” Simultaneously, making local marketing spend optional for franchisees will provide an opportunity to “increase the overall profitability of their restaurants.”

According to an analyst at investment firm BTIG, Papa John’s move is a “proven industry strategy to yield a better return on investment.” Wingstop similarly transferred budget from local to national advertising in 2022, leading to an acceleration in same-store sales growth. Other elements of Papa John’s revamped marketing strategy include a brand refresh as well as appointing a new media agency capable of better ingesting all first-party purchase data to better targeting decisions. 

With more than 85% of transactions flowing through organic channels, the Back to Better 2.0 plan also outlines several digital improvements. This includes strategic updates to the Papa John’s website and app, such as expanded ordering capabilities, to improve purchase conversion and increase customer retention. In addition, Papa Johns announced an increased investment in consumer-facing tech, digital infrastructure and enhanced reporting to further its ability to deliver menu innovations, targeted marketing, and enhanced value in international markets.

While first-quarter results were sluggish, Thanawala stressed that this outcome shouldn’t be tied to the “Back to Better 2.0” plan. It remains to be seen whether or not Papa John’s recent investments can counter inflationary headwinds.

Pizza Hut lags due to tough comps and fluctuating consumer spending habits

Pizza Hut reported a 7% decline in same-store sales worldwide in the first quarter.

Analysts indicated that the drop is linked to the general reduction in discretionary spending echoed across the sector. "Yum Brands' difficult quarter underscores the challenges that the fast-food industry is facing, as lower-income consumers cut back on dining out," Insider Intelligence analyst Rachel Wolff observed.

The chain also faced tough comparisons to the year-ago period, when Pizza Hut reported 7% same-store sales growth, fueled by its new Melts offering, targeted at individual occasions. Despite what Pizza Hut CEO David Gibbs described as a “difficult operating environment,” executives at Pizza Hut parent company Yum Brands were upbeat during the brand’s first-quarter earnings call.

The focal point of that optimism? Technology.

Investments in “digital, technology, and innovation capabilities” became central to Yum Brand’s strategy in 2019 as a means to enhance customer experience and operational efficiency. Last year, the company spent $21 million, nearly 3% of total revenue and a 90% increase from the prior year, on initiatives from front-of-house kiosks to back-of-house automation tools.

According to Gibbs, tech deployments—such as Dragontail, an AI-based platform for managing the food preparation process from order through delivery—helped grow digital sales. In the first quarter, digital sales as a percentage of systemwide sales reached a record-breaking 55%, up from about 20% in 2019. "We now have $30 billion in annualized digital sales,” Gibbs announced, “which by itself would represent one of the largest companies in the world.”

In 2024, the fast food giant is rolling into a “second parallel phase” of its technology journey with an increased focus on maximizing its data assets and artificial intelligence. One of over 40 AI initiatives currently underway involves piloting AI in Yum’s proprietary SuperApp platform. In use at over 8,700 Pizza Hut locations globally, the app helps restaurant managers streamline their operations. 

For the customer, Yum's AI ambitions mean a more personalized experience.

The company has consolidated a majority of transaction-level sales data and other key operational and customer metrics across its brands into the “Yum Global Data Hub.” New AI-driven capabilities pull data from the hub and integrate it into other platforms, so that guests ordering on digital, for example, might receive personalized upsell recommendations based on their comprehensive customer profile.

Other customizations might include personalized promotions, targeted marketing, intelligent menu pricing recommendations, and more. “This cross-brand platform gives us unprecedented visibility into the ordering behaviors of millions of customers across our four brands,” said Yum CFO Chris Turner. For Yum, doubling down on AI has the payoff of stronger unit economics for franchisees, increased customer engagement, and record digital sales.

Conclusion

The restaurant value equation is top of mind for major brands - and each one is grappling with whether theirs makes sense for today’s consumer. Regardless of price moves though, brands continue to invest in digital, data, and delivery as a means for navigating a more challenging operational environment.

Thankfully, Bikky enables brands without the same resources as the industry’s largest to achieve similar outcomes to Papa John’s investment in analytics, or Domino’s ability to understand the incrementality of their promotional efforts.

By pulling together their customer data across all in-store and off-premise channels, brands like Dave’s Hot Chicken, MOD Pizza, Bojangles, and Groucho’s Deli get the same visibility into what’s driving traffic, frequency, and sales.

To learn more about how Bikky can help your brand, click here.