Revenue Model of Domino's Pizza

A Brief Description of the Revenue Model of Domino's Pizza

Brief Overview of the pizza segment in US QSR industry.

 Domino's Pizza leads the Pizza segment in the US QSR industry. In 2018, the US QSR industry was estimated to be worth 299.6 Billion US dollars. The pizza segment itself is estimated to be worth 36.5 Billion US dollars in 2018.  The US QSR industry is large and fragmented. Pizza segment was worth 32.8  Billion US dollars in 2008. Its size grew to 36.5 BIllion US dollars in 2018. It is the second largest segment in the entire QSR industry. In US, the Pizza segment is comprised mainly of delivery, dine in and carry out services. Domino's competes with other brands in the delivery and carry out segments. Apart from being the market leader in the delivery segment, Domino's Pizza is also among the largest three chains in the carry out segment.

In 2018, the entire delivery segment had net sales of around $9.8 Bilion US dollars which was around 27% of the entire US QSR pizza segment. However, it was still lower compared to the level of sales in 2008 when the US QSR pizza segment had net sales of 10.3 Billion US dollars. From then net sales in the US QSR pizza segment fell to 9.7 Billion US dollars in 2012 and rose again to 9.8 Billion US dollars in 2018. In the US QSR pizza category, the three leading brands including Domino's pizza account for close to 56% of the net sales. Regional Pizza brands and indpendent chains account for the rest of the Pizza sales. The carry out segment on the contrary has seen faster growth having grown from 14.1 Billion dollars to 17.1  Billion dollars from 2008 to 2018. The international pizza delivery segment is not as developed as the US pizza segment. The demand for Pizza is growing around the world. However, the emphasis on customer experience and consumer convenience have also grown in the meantime. 

Domino's Business and competition:

 Based on the level of retail sales globally, Domino's is the world's largest pizza company. Founded in 1980, Domino's has grown into a leading international pizza brand with more than 15,900 locations in more than 85 countries in the world.  Globally, the entire Domino's system (including franchised and company owned restaurants) sells more than 3 million pizzas daily.  Pizza is the second largest category in the US QSR industry. In 2018, Domino's had 5,486 franchise stores in US  operated by 793 independent franchisees. The number of international franchise stores in the same period was 10,038. The total number of Domino's stores throughout the gobe had grown to 15,914. The company expects the total number of stores in the Domino's system around the world to have grown above 25,000 by the year 2025. Over the past five years, the company has added more than 5000 stores globally. 

Among the primary competitors of Domino's are Pizza Hut, Papa John's and Little Caeasar's Pizza in the US market. In the internatinal market, apart from Pizza Hut and Papa John's, there are other national and local Pizza brands that compete with Domino's Pizza. The largest franchisee of Domino's based on the number of retail units in 2018 was 'Domino’s Pizza Enterprises' which alone operated 2,383 stores in 7 internationa markets.  Domino's menu basically includes pizza products in varying sizes and crust types. Toppings vary from market to market and culture to culture. The company also adds specialty items based upon local taste in specific markets. 

Sources of Revenue:

The main source of revenue for Domino's is its supply chain which accounts for the highest part of its entire revenue. Apart from that, the royalty and fees received from its franchisees are the second largest source of income for the brand. Domino's also operates a limited number of stores in the US market. Supply chain of Domino's caters to certain Domino's franchisees and company operated stores in US and Canada.  In 2018, the sppply chain segment of Domino's accounted for around 57% of its revenue. It generated nearly 1.94 Billion US dollars in revenue.  Rest of the sources including royalties and fees from the US and international franchisees as well as sales in the company operated stores generated nearly 1.5 Billion US dollars in revenues. Domino's supply chain operates 19 regional dough manufacturing and food supply chain centers in US and 5 dough manufacturing and food supply chain centers in Canada. 

Performance in 2018:

In 2018, franchised and corporate stores of Domino's generated $13.5 billion in global retail sales. Retail sales in US were around 6.5 Billion dollars and approximately 7 Billion dollars internationally. Its domestic and international retail sales each grew by around 600 millions in 2018 over the previous year. In just past five years, global retail sales of the company have grown by around $5.5 billions. 

Company owned stores in US achieved a sales of 514.8 million in 2018 compared to 494.8 millions in 2017. Royalties and fees from the US franchisees reached 391.5 millions compared to 351.4 millions last year. Revenues earned from the royalties and fees received from the international franchisees were 224.7 millions in 2018 compared to 206.7 million last year. Total revenues of the brand reached 3,432.9 millions in 2018 as compared to 2,788 millions last year.

Conclusion:

 Domino's is a leading Pizza brand with strong international presence. Its revenue has also risen sharply in the last five years. By 2025, the company expects systemwide number of restaurants to have grown above 25,000 stores.  The main focus of the company is upon quality and customer convenience. This has led to strong brand equity in the US and international markets apart from high sales, customer loyalty and overall popularity. Demand for Pizza around the world is growing and it presents an attractive opportunity for Domino's.

Sources:

Domino's Pizza Annual Report 2018.