Domino’s Pizza is a popular and widely recognized American multinational pizza restaurant chain that operates in over 85 countries and has over 20,000 locations worldwide. Despite its reputation as a pizza delivery and takeout restaurant, you may be surprised to learn that the company generates significant revenue from its supply chain business.
Most of Domino’s Pizza’s revenue comes from selling food and equipment to its franchisees, who then use these resources to operate their restaurants and sell pizza to customers. By maintaining tight control over its supply chain, Domino’s can ensure consistent quality and timely delivery of its products, which has helped it become one of the most successful pizza chains in the world.
Over the past 12 months, the group founded by Tom Monaghan and James Monaghan has seen an interesting trend. While the company generated less than $400 million in pizza sales, its supply chain business generated an impressive $2.7 billion trailing 12-month supply chain revenues, accounting for approximately 60% of its total revenues.
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Interestingly, Domino’s is no longer just a pizza company. Its focus on building a robust and efficient supply chain has helped transform it into a supply chain company that also happens to sell pizza.
This unique approach has enabled the company to differentiate itself from its competitors and capture significant market share. With its streamlined supply chain, Domino’s has delivered pizzas faster and more reliably than its competitors, which has helped it build a loyal customer base.
Domino’s has an interesting business model in that it owns only 1% of its locations, while independent franchisees own the rest. Domino’s has developed a clever strategy to ensure that its franchisees choose their supply chain over sourcing their supplies.
The company shares the profits of the supply chain with its franchisees, incentivizing them to choose its supply chain. This has resulted in high levels of supply chain adoption in its US and Canadian stores.
By offering a supply chain that is reliable and cost-effective, Domino’s has been able to gain the trust of its franchisees. This has helped the company maintain consistent food quality across all locations, as all franchisees use the same ingredients and supplies.
Domino’s operates a fleet of over 1,000 tractors and trailers that deliver food, supplies, and equipment to its company-owned and franchised stores. The company also has several facilities that produce its pizza dough. This allows the pizza restaurant to maintain quality and consistency across all its locations because all its supplies come from the same place. This business model allows the company founded in 1960 to take advantage of economies of scale, resulting in lower costs and higher profits.
Franchise fees and royalties contribute significantly to the company’s revenue. In 2022, 99% of franchisees renewed their contracts, demonstrating the lucrative opportunity that Domino’s offers. This high retention rate bodes well for the company’s plans to open more than 1,100 new franchised locations annually through 2028.
With this growth strategy in place, Domino’s expects its operating income to grow at a compound annual growth rate of at least 8% through 2028. The international company is also repurchasing shares and paying a growing dividend, providing additional value to investors. Considering these factors, investors could see a total return of 50% or more over the next four years.