Papa John's (PZZA) and Domino's Pizza (DPZ) are jostling to get a slice of consumers' cravings.
The two rivals are competing on value propositions, innovation, third-party platforms, and marketing plans to win over Americans looking for a savory deal.
Longtime value-player Domino's is looking to expand its customer base across income levels with what CEO Russell Weiner called a "barbell customer strategy" at the ICR conference this week. The two-pronged approach emphasizes retaining value-oriented eaters with promotions like Mix & Match while gaining higher-income customers by partnering with Uber Eats.
Papa John's is upping its investment in North America as well, part of its Back to Better 2.0 plan announced at the conference.
The long-term strategy aims to grow same-store sales and volume by shifting marketing dollars from local to national advertising, a move that will eliminate the requirement for franchisees to spend on local marketing.
Instead, franchisees will increase their national marketing fund contribution from 5% to 6% of revenue, a "proven" industry strategy that gets a better return on investment, BTIG analyst Peter Saleh told Yahoo Finance.
"National advertising is very powerful," Saleh told Yahoo Finance. "If you saw Wingstop, ... they actually shifted dollars from local to national, and that's when you saw their same-store sales really start to accelerate."
Taco Bell (YUM) and Domino's have adjusted their marketing spend toward national in the past as well. Papa John's CEO Rob Lynch said this is an opportunity for franchisees to lower costs and pick up 200 basis points in margins at the restaurant level.
Both pizza chains are focusing on innovation, albeit in different ways.
"We need to scale up the number of new products we do every year, and we're going to do that," Weiner said, "but you can do innovation in technology, and you can be innovative in promotion."
One example is giving a free "emergency pizza" with an order, which customers can only claim by downloading the Rewards app and getting the pizza within a month.
Weiner said customers who come back to claim their free pizza often added more, especially if they opt for delivery. Citi analyst Jon Tower called the promo "a unique way to brand an essentially buy one get one free offer" and "an effective customer acquisition tool" in a note to clients.
On the other hand, Papa John's leaning into its DNA of premium products.
"Their strategy is to innovate [the menu]," Saleh said, by creating offerings that attract new customers and keep old ones coming back. At the end of 2023, it launched Cheesy Calzone Epic Stuffed Crust Pizza.
"We are not the value player in pizza," Lynch said in an exclusive interview with Yahoo Finance. "We focus on promoting premium product innovation, that's what we've always done. But it doesn't mean that we still don't offer great value for our customers."
Third-party delivery apps are key to expanding reach as well. Papa John's, which joined third-party platforms four-and-a-half years ago, isn't intimidated by Domino's foray into the space, which started in July 2023.
"We continue to be great in the aggregators, gain share, grow our business with them at a disproportionate rate," Lynch told Yahoo Finance. "We've had big players like Pizza Hut and Little Caesars come into the aggregators in the past, and ... our businesses continue to grow."
For Domino's, 65% of customers ordering on Uber Eats are new to the restaurant, said Weiner. He emphasized that the current partnership has a one-year minimum for exclusivity.
Its CFO Sandeep Reddy said the company expects to take a third of the third-party pizza delivery market share, creating a billion-dollar driver for the chain.
Domino's also negotiated control over the partnership to maintain pricing power.
"If Uber Eats wanted to discount [pizzas] significantly to drive traffic from Domino's to Uber Eats' website, Domino's will say no, and the discount won't happen," Saleh explained, adding that other brands don't have that agreement.
In Q3, Domino's Pizza posted a US same-store sales decline of 0.6%, while Papa John's domestic-owned locations saw 5.9% same-store sales growth. Its North American franchised restaurants saw a 2.2% jump.
Yet, shares of Domino's Pizza are outpacing that of Papa John's.
Bernstein analyst Danilo Gargiulo upgraded Domino's stock on Tuesday; it's also Saleh's top pick, as it takes share from national chains like Pizza Hut (YUM), in addition to regional and local chains.
In a note to clients, Saleh said Domino's has "multiple catalysts" to drive US same-store sales, benefiting from global development, loyalty changes, and the Uber Eats partnership.
"The recent turn in delivery sales trends, expectations for an outsized sales gain ... the customer technology refresh, and the potential for earnings upside keeps the stock as our Top Pick," Saleh wrote.
Meanwhile, shares of Papa John's received two downgrades from Stifel analyst Chris O'Cull and Oppenheimer last week, who cited tougher environments in the US that would make it hard to unlock sales growth. The conference didn't change O'Cull's mind.
"We struggle to recall a domestic franchise system that accelerated development with financial incentives alone," he wrote in a note to clients. "Most franchise systems accelerate development when comparable same-store sales drive a material improvement in unit economics."
He believes any jump in same-store sales will not exceed 2% this year, "especially in the face of greater promotional activity in the category."
The international market is also a concern for Papa John's, as it looks to turn around and resell its UK business within 2024. Other analysts believe Papa John's has a clear runway ahead, though.
Jefferies analyst Andy Barish, who has a Hold rating on its shares, wrote in a note to clients that "management is prudently setting the path ahead to drive the next phase of growth, beginning with optimization in the UK, followed by a more disciplined approach to expansion/scaling across regions" like Asia and Latin America.
But in a note to clients, Wedbush analyst Nick Setyan, who has an Outperform rating on shares, believes its current valuation is based on an "overly pessimistic assessment of its near, medium, and longer-term growth algorithm." Setyan believes its "step-up" in national marketing will boost North American same-store sales.
The company is also incentivizing the creation of new stores, including waiving marketing fund contributions for five years for stores built this year. The move, among others, will "likely accelerate development," wrote Setyan.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma.
TIPS? Drop her a note at bdipalma@yahoofinance.com.
