How Domino's really makes its dough
The pizza company's supply-chain business generated 56 percent of its revenue last year.
Domino's Pizza (DPZ) this week reported a 7.4 percent revenue boost in 2013, a jump of about $123.8 million -- and most of it didn't come from selling more pizzas. No, Domino's primary business is actually selling more pizza ingredients -- dough, cheese, toppings -- to its franchisees and company-owned stores.
Domino's supply-chain business, which extends from ingredients to restaurant equipment, generated 56 percent of its revenue last year, or about $1 billion. The rest came from retail sales at 390 U.S. company-owned stores (19 percent), royalty fees paid by nearly 4,600 U.S. franchise locations (12 percent), and international supply chain and restaurants (13 percent).
To motivate restaurant owners to buy from the company, Domino's shares the profit from its supply-chain sales with restaurants that purchase all their food from this service.
It's not the only pizza chain with this model. Papa John's (PZZA) ingredients business, which it calls "domestic commissary," represents 40 percent of sales.
Obviously, increased orders from restaurants can boost supply-chain revenue, but so can fluctuations in commodities. Domino's passes along any change in commodity costs to its restaurant customers, with a fixed dollar margin. Pricier commodities mean higher food costs for restaurants, even though the fixed markup doesn't yield higher profits.
Take the recent spike in cheese prices: Domino's said in its annual report that higher cheese prices lifted supply-chain revenue by approximately $8.6 million last year, or about 7 percent of the company's overall $123.8 million increase.
Retail prices, however, don't rise with commodities -- not immediately, anyway. "The industry is far too competitive for that," and typically, increases in one commodity are offset by decreases in others, said Domino's spokesman Tim McIntyre in an e-mail. Other factors help maintain margins, too. The operating margin at company-owned Domino's restaurants was hurt by food costs last year, although that pain was offset by higher same-store sales and lower labor, occupancy and insurance expenses. In the end, store operating margins increased slightly despite that pricier cheese.
Cheese prices are expected to decline through 2014, according to Papa John's (see chart below), and Domino's expects food costs to be flat to slightly lower than last year. So don't expect commodity prices to boost pizza revenue again in 2014.
More from Businessweek
- Higher prices for pizza? Blame cheese
- Kraft wants to sell you a protein trinity: Meat, cheese, nuts
- McDonald's teases extended breakfast hours -- again
"Domino's primary business is actually selling more pizza ingredients -- dough, cheese, toppings -- to its franchisees and company-owned stores."
Or as they say in cosmetics multilevel marketing, "Let's put some lipstick on this pig!"
Do you realize you really can make $2000 per week trading? I would have never believed it until I saw it for myself or I started doing it. And that's exactly what happened to me because now I'm making that much money. You just need to know the right place to learn and where I went to is a website called Traders Superstore, you should be able to find them on Google or just search for them. Their support is the best I've ever seen on any website before and they helped me to learn to trade, and it was nowhere near as hard as I thought it would be.
Copyright © 2014 Microsoft. All rights reserved.
[BRIEFING.COM] The headlines generally favored Tuesday being another good day for the stock market. Instead, it was just a mixed day with modest point changes on either side of the unchanged mark for the major indices.
For the most part, the stock market was a sideshow. The main trading events were seen in the commodity and Treasury markets, both of which saw some decent-sized losses within their respective complex.
Dollar strength was at the heart of the weakness in ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'