Can loyalty programs save pizza chains’ own delivery business? Todd Penegor thinks so.
We spoke with the CEO of Papa Johns for this week’s episode of the podcast. And any time I speak with the chief executive of a pizza chain, I ask them about the future of their own delivery services.
The reason is simple: Pizza chains have been losing that business to third-party aggregators over the past few years, which is why their sales have largely stagnated.
Papa Johns was at the forefront of the fast-food business’s use of third-party delivery and was the first among major pizza chains to do so. Those sales have replaced a large portion of the delivery sales through the chain’s own channels, using its own drivers.
As third-party delivery takes more of that business, however, it becomes a question of whether pizza chains will be able to maintain enough of that business themselves to justify the cost of providing that service.
Operating a delivery business is expensive. Companies must pay drivers, reimburse them for use of their vehicles (or pay for their own vehicles) and then pay for insurance.
As the business declines, pizza chains will have a tougher time attracting drivers, which will make it more difficult for them to operate their own delivery services. That will use them to use pizza chains’ “white label” services more often.
If it falls further, franchisees—and the chains themselves—may start questioning whether the cost is worth it at all. That’s already happening at some Pizza Hut locations, and I’ve said before that it would not remotely be surprising if one or more major current pizza delivery chains abandons self-delivery altogether within five years.
Penegor believes getting more business to its drivers is crucial. “We’ve got to make sure that we’re driving enough business to our drivers so it’s relevant to them so they feel like they’re making a good living,” Penegor said.
He also said the company needs to improve technology so first-party orders are steered toward the chain’s own drivers, rather than to third-party aggregators.
Ultimately, he said, loyalty will be what keeps those customers using Papa Johns’ own delivery channels.
“If we can get folks into our loyalty program, the lifetime value of that customer is exponential,” Penegor said. “If we can get them not just to come in for the first time and get them in the second, but if we can get them through the funnel, if they make a third or fourth purchase, we know we have them.”
It’s not an insignificant issue. Pizza chains have more control over the customer relationship when they’re the ones providing the delivery. They employ and train the drivers, provide incentives when they do well and fire them if they mess up. They have no such control over aggregators’ drivers, which can be a massive source of frustration for operators.
They also have more control over marketing when the customers go to them directly, rather than through a third party. So there are some real benefits to having their own delivery system, even as aggregators muscle in on that business.
“Our drivers really know the communities that they serve and they really have that personal touch because they know a lot of the folks are a frequent customer,” Penegor said. “That’s an important element today, to make sure you have that hospitality and the overall delivery experience that sets you apart.”
Papa Johns recently upgraded its loyalty program, enabling customers to redeem points for purchases at an earlier time, which has helped drive frequency and is a big reason Papa Johns’ sales have improved this year.
“In the old days, it was a $75 purchase before you got $15 off,” Penegor said. “Now it’s $2 of $10. Every time you make a purchase, you see real hard, cold cash show up in your loyalty program. And the great news is we’re not bouncing you back to breadsticks or something you don’t want. We’re giving you cash.”
Consumers love third-party delivery, to the point that they are willing to pay more to use those apps—even when ordering from Papa Johns, or Domino’s or Pizza Hut is just as easy and cheaper.
But consumers also love loyalty programs—39% of restaurant visits now have a loyalty component, according to Circana. We’ll see which they love more.
“Over time,” Penegor said, “first party and third party are going to have to coexist. The best experience should always be in first party. But the overall category will continue to grow in third party.”