EDITOR NOTE: You can pretty much guess who the winners and losers are in the restaurant business amid the pandemic. The winners are the restaurants that can provide you and your neighbors with a fast, cheap, and deliverable meal. Those restaurants tend to be unburdened by inefficiencies that are a necessary component to many larger restaurants. When dealing with crises, particularly of an unprecedented nature, complex systems tend to fall while simpler ones retain their robustness. This principle crosses all domains (hint: complex digital monetary systems vs physical cash, gold and silver).
The iron fist that is COVID-19 slamming down on the weakest of America’s restaurants paves the way for a future of tasty profits for fast-food pizza giants like Domino’s Pizza (DPZ) and Papa John’s (PZZA) that have vast delivery networks, robust balance sheets, family friendly food and seamless ordering technology.
And potentially, savory gains for investors.
“I think you’ve been seeing Domino’s and the quick-serve guys taking market share in this environment. If you have more access to delivery or are better at delivery, your sales have been extraordinary well. You saw it out of Papa John’s. You’re seeing it out of others, including Wingstop. Sales are double digit [percentage] type. They are taking share from the smaller operators who don’t have a delivery platform and/or access to a drive-thru,” explained BTIG restaurant analyst Peter Saleh on Yahoo Finance’s The First Trade.
Domino’s is the first major restaurant chain to report second quarter earnings on Thursday — and the financials certainly underscore Saleh’s thesis.
The company’s U.S. same-store sales exploded 16.1%. In the first quarter, U.S. same-store sales only rose 1.6%. Earnings per share surged to $2.99 from $2.19 a year ago.
Domino’s shares fell 1% on the news, likely reflecting news of its long-time CFO retiring rather than investors being letdown by the quarter.
Meanwhile, Papa John’s delivered mind-blowing same-store sales growth in a preliminary second quarter update on June 30. The company said North America same-store sales popped 28% in the quarter.
With scores of restaurants still closed amid the pandemic — many for good — the established pizza players are clearly winning on the back of convenience and affordability.
“Digital growth is where it’s happening these days,” Saleh said. “They’re [Domino’s] winning essentially on price. They’re using their cost advantage to reinvest in value and are taking share quarter in, and quarter out.”
The share grab could be just beginning, too.
There have been eight bankruptcies of outright restaurant chains or operators of franchises since early April, Yahoo Finance reports. With each passing month, the filings have become prominent as restaurants struggle with tepid traffic, mountains of debt and sky-high rent after being allowed to reopen by states. The latest two high-profile names to file for bankruptcy include children’s fun house Chuck E. Cheese and Wendy’s and Pizza Hut franchisee NPC International.