What we think about Domino's Pizza (DPZ)
Domino's in Three Words: Pizza, Value, Convenience
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Background
Domino’s is the world’s largest pizza chain. Its 6,708 American and 13,300 international locations have been delighting hungry customers with baked dough, sauce, cheese, and toppings for 63 years.
99% of its locations are franchises. Domino’s lends the brand, sells the ingredients, and handles the marketing — while the franchise owner takes on all of the operations. American franchisees pay a 5.5% royalty of revenue to operate in a specific location and then an additional 6% of sales to fund national marketing campaigns like Super Bowl commercials. Domestic franchisees sign 10-year agreements and have traditionally had a 99% renewal rate. International franchisees pay an upfront license fee and a country-specific royalty rate that globally averaged around 3% of sales.
Domino’s also operates 285 company-owned stores, which it uses as test hubs to try out new products and marketing campaigns. Both franchises and company-owned stores averaged around $1.5 million in annual sales last year. Altogether, the company did $4.5 billion in revenue in fiscal 2022. Collectively, that is around 1.5 million pizzas served every day.
Two-thirds of Domino’s sales are delivery while the other third are for carryout. Customers generally psychologically lock-in on either convenience or price, with only around 20% of customers switching between delivery and carryout for the majority of their orders.