Domino's Pizza not rattled by gas prices as profit rises
Gasoline prices are well above $4 a gallon, but Ann Arbor Township-based Domino's Pizza is not concerned.
Domino's Pizza CEO Patrick Doyle said customers are not changing their buying habits based on higher gas prices.
Photo courtesy of Domino's
Customers, he said, have not pulled back on spending.
"We have not seen really any change from a consumer behavior standpoint, so that’s not showing up in our business — at least from where gas prices are today," he said on a conference call. "We haven’t seen that in the business."
Domino's reimburses delivery employees for mileage, so gas prices have an impact on that level. But that cost is funneled through delivery charges, which are controlled by franchisees.
The company has 427 company-owned U.S. stores and 4,482 franchised stores in the U.S., which means that franchisees would decide whether to increase delivery charges.
Doyle suggested that further increases in gas prices might lead to higher delivery charges at corporate stores. He rejected the idea of a fuel surcharge.
"We certainly don’t see doing a separate surcharge on top of the delivery charge. That’s what the delivery charge covers," he said. "It’s possible we could take an increase there if gas prices continue to move up from here, and that’s a likely place where we would do it."
Meanwhile, the verdict on the new core pizza recipe from Domino's is in, and the response is delectable.
Domino's reported strong sales results for the first quarter of 2011 — an indication that high interest in the company's new recipe during 2010 was not a fluke and that customers have embraced the new product.
Sales at Domino's U.S. stores open at least a year fell 1.4 percent in the first quarter, but that was a positive result, because the company spent significantly a year ago to promote its new recipe. At 11:52 a.m., company's stock (NYSE: DPZ) was up 7.6 percent to $20.66.
Domino's profit rose 10.6 percent to $27.1 million as sales at foreign stores open at least a year rose 8.3 percent. It was the 69th straight quarter Domino's posted same-store sales growth at its international stores, a consistently strong performing segment for the company. The company now has 4,470 foreign stores.
"I might sound like a broken record," Doyle told investors this morning in a conference call, but "I believe this quarter’s financial results proves once again that the Domino’s business model works."
Contrary to reports of a possibly steep rise in food prices this year, Doyle said Domino's believes it will be able to manage commodity costs. He said Domino's is projecting that its food expenses will rise 3 percent to 5 percent in 2011.
"We’re pretty comfortable with where commodities have been," he said. "It’s been in line with our expectations."
Doyle also said that about 25 percent of Domino's orders are placed online. He also hinted that the company would likely introduce a mobile app for ordering.
Without revealing details, he also said the company's revamped chicken products had been warmly received. He said most customers order the chicken as an "add-on" to other products.
"Overall we were very, very pleased with how chicken performed," Doyle said.
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
Craig Lounsbury
Fri, May 6, 2011 : 2:35 a.m.
So it appears from the former pizza guys that weighed in under my first post a headline variation might say.... "Domino's Pizza Drivers Absorb Brunt of High Gas Prices" then the sub headline could read... "Management Pockets Delivery Fees."
Ash
Fri, May 6, 2011 : 3:18 p.m.
I agree with the new headline. Another instance of taking advantage of the person who can least afford it. And yes, I always assumed that the delivery charge was in lieu of a tip to the driver and that the driver got to keep it.
Buster W.
Fri, May 6, 2011 : 2:56 a.m.
Correct. Not only does it appear that drivers absorb the brunt of gas prices, but drivers' gratuities also suffer because most customers probably think the driver keeps the delivery surcharge (as Dark Dichotomy noted). Double whammy!!
a2phiggy
Thu, May 5, 2011 : 7:47 p.m.
As far as I'm concerned, this article is simply an advertisement for Domino's. If you are interested in the impact of gas prices on anyone's profits or earnings, why are you talking with the CEO? You need to talk with the drivers - the people who PAY for the gas. Exhibit 1,832 why this site is becoming irrelevant to those of us who live in A2.
dading dont delete me bro
Thu, May 5, 2011 : 7 p.m.
funny there's a papa john's ad at the top of this story... hehehe
TooT
Thu, May 5, 2011 : 6:43 p.m.
I don't see how their profits are rising. A couple months ago I called the Cross St. store to have a pizza delivered. After over an hour I called back and the guy said "dude...we are like really busy!" So I lessened their work load and cancelled my order. Mr. Pizza had no problem delivering to me. I haven't called them since. But I bet Patrick Doyle doesn't give a rat's butt about this kind of service.
Phil Lozen
Fri, May 6, 2011 : 1:19 p.m.
Hi TooT, Phil from Domino's social team here. I'm very sorry you had such a bad experience. Patrick saw this comment and wanted to be sure we responded to you. All of us at Domino's care very much when we let a customer down as we clearly have here. We'd love to know more about what happened in your experience so we can make this right. Can you reach out to our customer care team here: <a href="http://bit.ly/dpz_care" rel='nofollow'>http://bit.ly/dpz_care</a> so that we can get in touch with you? Again, very sorry.
xmo
Thu, May 5, 2011 : 5:26 p.m.
Yeah! a company has made a profit! More money for the poor, school children and senior citizens! Oh, I forgot women also! I guess President Obama's robust recovery has a poster child!
ThaKillaBee
Thu, May 5, 2011 : 5:17 p.m.
Most businesses are required to reimburse employees at the IRS mileage rate, which has remained unchanged as of yet. That would explain why it hasn't affected their profits.
ThaKillaBee
Thu, May 5, 2011 : 6:27 p.m.
Probably. But that would start to effect profits.
Craig Lounsbury
Thu, May 5, 2011 : 5:20 p.m.
they are required to reimburse at least the IRS rate? Could they not reimburse more if they wanted to?
Tom Joad
Thu, May 5, 2011 : 5:06 p.m.
laughable...Dominos isn't delivering cross country
Craig Lounsbury
Thu, May 5, 2011 : 5:22 p.m.
I'm not sure I get your point? They are delivering all night long a product with a fairly small profit margin I would think.
runbum03
Thu, May 5, 2011 : 4:25 p.m.
Business should be up as consumers want to save gas and time. With better software, deliveries can be made more efficient and profitable. It's a WIN/WIN situation for all.
Craig Lounsbury
Thu, May 5, 2011 : 4:17 p.m.
"Domino's Pizza CEO Patrick Doyle told investors this morning that he was not concerned about the impact of gas prices on the company's profit, ..." "Domino's reimburses delivery employees for mileage, so gas prices have an impact on that level. " Unless Dominos is increasing the mileage reimbursement then do i assume the delivery guy paying for his own gas is the one getting squeezed? Or am I misunderstanding?
Dark Dichotomy
Thu, May 5, 2011 : 11:12 p.m.
I recently worked for Domino's in Ann Arbor for 3 years. First off, I was paid 27 cents per mile. Even though you can claim 51 cents per mile on your taxes if your employer does not reimburse you, you cannot make that claim if you are paid, that meant that I could not claim a tax credit and was paid 1/2 what the government thinks it should be. The rate is adjusted as prices rise and fall but it takes a long time before they will decide to increase it and the increase never seemed to be enough. People think the drivers get the delivery charge but they don't and then they have to wear out and service thier own cars, as well as pay for gas out of their own pocket. Also in Ann Arbor the drivers are paid less than minimum wage while they are driving because they are a tipped emplyee, like a waitress. My rate was a few dollars an hour under minimum wage. We did not get a base comission like they pay at Cottage Inn or other pizza places. Generally drivers work until their car wears out or is damaged, if they can't get another one they are replaced.
Craig Lounsbury
Thu, May 5, 2011 : 7:44 p.m.
From your description It seems like, if Domino's has a similar model the drivers are absorbing the brunt of higher gas prices.
Buster W.
Thu, May 5, 2011 : 7:02 p.m.
Probably 50/50 in the late 80's and probably 80/20 own car in early 90's. The trend has obviously continued b/c I don't recall the last time I saw a company car from any company.
Craig Lounsbury
Thu, May 5, 2011 : 6:43 p.m.
would a driver at Cottage typically use his own car or a company car? I haven't delivered pizza's since 1975
Buster W.
Thu, May 5, 2011 : 5:59 p.m.
Craig: Yes, typically minimum wage.
Craig Lounsbury
Thu, May 5, 2011 : 5:24 p.m.
"Drivers received 6% of all gross sales delivered.' Buster, i assume that was on top of an hourly wage of some sort?
Buster W.
Thu, May 5, 2011 : 5:12 p.m.
I worked for Cottage Inn for many years. Drivers received 6% of all gross sales delivered.
Buster W.
Thu, May 5, 2011 : 4:36 p.m.
Craig, I was thinking the exact same thing. Someone correct me if I'm wrong, but I believe many franchisees now charge a $2 delivery charge to offset increasing gas prices. However, I most drivers use their own cars and don't see a cent of the delivery charge. I would like to get a driver's opinion on this topic.
oneofsix
Thu, May 5, 2011 : 4:32 p.m.
Most businesses go by the standard reimbursable rates set by the IRS branch of the government. Here is this years stated rates: Beginning on Jan. 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be: * 51 cents per mile for business miles driven * 19 cents per mile driven for medical or moving purposes * 14 cents per mile driven in service of charitable organizations The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. Revenue Procedure 2010-51 contains additional details regarding the standard mileage rates. source: <a href="http://www.irs.gov/newsroom/article/0,,id=232017,00.html" rel='nofollow'>http://www.irs.gov/newsroom/article/0,,id=232017,00.html</a>