Gas prices, tighter budgets mean fewer Domino's orders

Staying in and ordering pizza is becoming something of a luxury for a lot of Americans.

On Monday, Domino’s Pizza reported slower than expected sales growth. Customers got order-shy in March, the company said, just as gas prices spiked because of the war in the Middle East.

Pizza delivery, though nice to have, is not a necessity. And as consumers tightened their budgets in March, Domino’s offered deals and discounts to try and keep orders flowing.

The company’s CEO Russell Weiner said in a call with analysts Monday that the pizza giant will keep that strategy going while gas prices remain elevated.

“Starting as soon as May, you’re going to see things on the calendar or in media from Domino’s that weren’t on our calendar to start the year,” he said.

Sara Senatore, a Bank of America senior research analyst who specializes in restaurants, said lower-income consumers feel the impact of higher gas prices most acutely, so it stands to reason that fast food restaurants are feeling a consumer pullback.

“Broadly speaking, fast food skews lower income,” she said. “You’re just going to see a lot of value competition, and I think that will be true for the traditional QSRs.”

QSRs refer to quick-service restaurants. But Senatore said that dynamic is also being seen all the way up to casual diners, which include restaurants like Chili’s or Olive Garden.

“So it's happening up and down the price spectrum,” she said.

It could even go further up as the impact of higher tax refunds tapers off, said Matt Schulz, chief consumer finance analyst at LendingTree.

“We're at that point now,” Schulz said. “Gas prices aren’t rising to the degree that they were a few weeks ago, but they’re still really, really high. And it’s a big deal for folks. There’s no question about it.”

A March LendingTree survey found that 62% of respondents were worried about higher gas prices. Schulz said he expects changes in summer travel plans and a decline in savings rates.

And while Domino’s plans to offer discounts to counter that worry, Brian Harbour — an equity analyst for U.S. restaurants and food distributors at Morgan Stanley — said not all chains will be able to do the same. That’s because higher gas prices mean higher costs.

“And obviously that's something that could flow through to the consumer,” Harbour said. “It would stand to reason that higher oil prices do flow through to a lot of other commodities.”

In this case, commodities refer to the raw ingredients that go into and onto your pizza.

If chains are squeezed on costs and demand, more could go out of business. Domino’s executives predicted more store closures among their competitors.