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Domino's CEO Attributes Poor Growth To Delivery Apps As McDonald's Expands Third-Party Partners

Jayson Derrick

Domino's Pizza, Inc. (NYSE: DPZ) reported disappointing second-quarter metrics, including a miss on same-store sales. The reason? A surge in third-party delivery options that service restaurants.

What Happened

Delivery apps like UberEats are "creating some turbulence" in the food delivery market place, Domino's Pizza CEO Ritch Allison told CNBC's Jim Cramer Tuesday. The "turbulence" happens to be a byproduct of investors essentially subsidizing each food delivery and the dynamics may change once consumers "actually have to pay the full cost of delivery."

Coinciding with the CEO's comments, McDonald's Corp (NYSE: MCD) announced an expansion of its third-party delivery partners.

McDonald's exclusive partnership with UberEats came to an end Tuesday as DoorDash will begin delivering McDonald's items in Houston, Texas by the end of the month. DoorDash members will be able to order from McDonald's menu and receive unlimited free delivery on all orders of at least $12, according to CNBC.

Domino's isn't going to make any "foolish" changes to its business model in reaction to the competition, he said. In fact, the competition may be operating with a business model that isn't viable for the long-term. In reality, the cost to deliver food and market these third-party delivery platforms is "quite substantial" compared to the cost of actually preparing the food.

"I think we also have not yet seen what's going to happen with the supply of restaurants on these platforms as well," the CEO said.

Why It's Important

Commenting on Allison's remarks, Cramer said he is the first person to acknowledge on TV Domino's is up against competitors who are "playing with free money." The stock market is essentially financing Domino's competitors, which implies Domino's "can come back."

Domino's has been and will continue focusing on improving franchisees' profitability while also generating "great returns" for investors, Allison said. This can be accomplished by properly managing the approximate $1 million in daily cash flows and optimizing its footprint to speed up its own delivery times.

"We are going to remain focused on our-long term strategy," he said.

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