In late February, Domino’s Pizza (DPZ) reported its financial results for 2024, and the market responded positively. The pizza giant’s sales surpassed $19 billion, representing a healthy 6% year-over-year increase. A significant contributor to this success? A strategic partnership. In July 2023, Domino’s inked a deal with Uber Technologies (UBER). While this might seem like a minor move, it was significant. Domino’s had long managed its own deliveries and resisted partnerships with third-party services like Uber Eats. However, management eventually embraced the change, allowing orders through Uber Eats. 2024, therefore, marked the first full year of the partnership, and Domino’s experienced better-than-expected growth, partially attributed to the Uber deal.
Given this, the recent partnership between the restaurant technology company Toast (TOST) and Uber is worth noting. Toast provides payment-processing hardware and a software platform for restaurants to manage all aspects of their operations. The cloud-based Software as a Service (SaaS) platform includes modules for in-restaurant ordering, loyalty programs, and back-of-house functions. Crucially, it also addresses takeout and delivery needs, where Uber enters the equation.
Uber’s Role in Demand Aggregation
Uber Direct allows restaurants to utilize Uber’s delivery services while retaining their existing sales systems. In December, Toast expanded its integration with Uber Direct, enabling restaurants using Toast’s software to broaden their reach. Uber is often described as a “demand aggregator.” By the end of 2024, Uber’s platform boasted 171 million monthly active consumers. These users might be seeking a ride, but for those looking for food, the ordering process often begins with browsing the Uber app for options. In other words, consumer demand isn’t always directed to specific restaurants; instead, Uber aggregates that demand on its third-party platform. This is why Domino’s sought out the partnership. While preferring independence, the chain recognized the need to access the consumer demand concentrated on Uber. As a result, Domino’s may consider further partnerships with Uber competitors like DoorDash in 2025.
While the new partnership may not impact smaller businesses, Toast’s partnership with Uber could gain the company some of the larger restaurant chains’ business. Smaller businesses may not want to handle the complexities of takeout and delivery. However, larger chains commonly have delivery options. In an interesting development, Toast recently secured its largest restaurant deal to date on Feb. 18. Ascent Hospitality Management, which owns hundreds of restaurant locations, including the Perkins and Huddle House brands, has brought Toast’s technology to 500 restaurants. The newly improved Toast-Uber Direct integration increases the possibility of more integrations with other demand aggregators in the coming quarters, helping Toast attract larger customers.
What the Future Holds for Toast
While Uber’s role is important to note, Toast has been growing well without it. In 2024, Toast added 28,000 new restaurant locations to its platform, setting an annual record. It achieved this growth while allocating only 9% of its revenue to sales and marketing, a testament to efficiency for a high-growth company. Toast has acquired approximately 15% of the U.S. market share, and integrating with Uber and other third-party delivery platforms is a smart move.
In conclusion, Toast’s stock holds significant upside potential, driven by its impressive growth and market-share gains. As long as these trends endure, the business should continue to prosper and increase shareholder value. The integration with third-party delivery platforms has the potential to further accelerate growth by boosting demand and attracting larger customers. This strategy proved effective for Domino’s, and its impact is something Toast, despite being in a different sector, should benefit from.
