As restrictions remained in place across much of the country banning restaurants, pizza delivery reached nearly $20 billion in 2021. Rising demand has become a challenge, however, as labor shortages- workers have taken hold throughout the restaurant industry. For large pizza chains, this labor shortage has specifically translated into a shortage of drivers and an inability to meet increased delivery demand. But Daddy Johns (PZZA 0.01%) was able to overcome this hurdle and outpace its rivals, through forward thinking.

The restaurant industry workforce remains about 700,000 below pre-pandemic numbers, according to the U.S. Bureau of Labor Statistics. This trend became particularly clear during the first quarter 2022 earnings calls. Pizza Hut saw a 6% drop in same-store sales. Executives attributed the loss to “capacity constraints” mainly due to a shortage of delivery drivers. Dominoes (DPZ -0.40%) Executives noted that they “have a lot of work to do to restore growth” in the delivery channel, pointing to efforts – such as outsourcing its call centers – to help stores be more efficient when they are understaffed.

But Papa John’s was positive in the quarter. It’s no coincidence that Papa John’s was an early adopter of global third-party partnerships, while its peers stuck to their own pilots. These third-party networks have allowed the chain to better respond to delivery orders during peak hours.

Papa John’s benefits from early adoption

Although the parent company of Pizza Hut Yum! Brands (YUM 1.86%) signed a deal with Grubhub in 2019, the chain continued to use its own delivery drivers for orders placed through the Grubhub app. That same year, former Domino CEO Ritch Allison said, “A random third party won’t deliver our pizza.”

Conversely, Papa John’s has long leveraged its third-party delivery partnerships, dating back to 2019, to increase capacity. The benefits of this strategy became apparent in late 2020, when consumers relied almost exclusively on delivery for out-of-home dining.

In November 2020, CEO Rob Lynch said, “Frankly, our #1 bottleneck is drivers. And adding significant numbers of drivers through models like DoorDash (DASH 5.46%) helps us a lot. It helps us manage our labor, but also helps us manage our throughput, because they can show up and take delivery.”

This continues to be the case. Fast forward five quarterly conference calls, and Papa Johns executives said third-party delivery orders are “incremental, profitable [and] otherwise may have been dissatisfied.”

Pizza chains are starting to rethink their delivery models

Therein lies the advantage of Papa Johns right now. Without enough drivers to bring customers their delivery orders, Domino’s and Pizza Hut are leaving sales on the table. Additionally, not having sufficient delivery capacity could lead to longer wait times or inaccurate orders, which could damage their reputation.

Pizza Hut and Domino’s have indicated a change in their business to address their shortage of drivers. Pizza Hut adds third-party delivery companies during peak hours and adds its presence in their markets to expand customer reach, for example. Domino’s said it is carrying out a “thorough analysis of the work of drivers”, noting that nothing is ruled out, including partnerships with third-party delivery companies.

There’s probably a sense of urgency for Domino’s to find some sort of solution. In February 2020, Domino’s controlled 50% of the pizza delivery market. Without sufficient staff, this number could decrease, and quickly.

Competition with third-party delivery companies

It’s worth noting that while third-party partnerships could help Papa Johns outperform its peers, executives said sales could be even higher if it had even more staff. According to an equity research firm BTIG, pizza companies appear to be losing competition for delivery drivers to third-party companies that offer more scheduling flexibility and, in some cases, higher wages.

In other words, pizza chains need to rethink their entire delivery model to compete for labor and maintain or increase sales through the channel. Domino’s outgoing CEO Ritch Allison said the company is considering planning, including shorter shifts and greater flexibility. Papa Johns invests in technology to help its drivers be more productive and earn more money.

These potential solutions made it clear that third-party delivery was a game-changer for restaurateurs. To keep up with demand and labor, pizza chains will need to rethink their approach to the very delivery channel they’ve forged.