Domino’s Franchise Cost Low Ticket to Make Millions (2024)
Find out all you need to know about how a Domino's Pizza franchise is a direct ticket to make millions on this article!
Written by
Tech VC
Published on
22 Jul 2022
Table of Contents:
How is Domino’s Franchise Positioned in the Pizzeria Industry?
How Much is a Domino's Franchise?
How much do Domino's franchise owners make?
Domino's Pizza Franchise Income Statement Key Insights
How many Domino's units have opened and closed?
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How have Domino’s franchises performed in the international market?
Pros and Cons of a Domino’s franchise
This article is based on the video featured above, originally recorded for Vetted Biz Youtube Channel.
This article is based on its 2022 FDD
Domino’s is an American multinational pizza and fast-food chain founded in 1960. President David Brandon and CEO Richard Allison are currently leading the company. It’s headquarters are in Ann Arbor, MI. Domino’s has stores in 92 countries which number more than 18,300. It has over 1,200 stores in the United Kingdom, 1,500+ in India, and almost 6,600 in the US.
In 1960, Tom Monaghan and his brother, James, took over the operation of DomiNick’s, an existing location of a small pizza restaurant chain. James quit the business after some time to focus on his postman job and sold his half to his brother. By 1965, Tom had purchased two additional pizzerias for a total of three locations in the same county. Monaghan wanted the stores to share the same branding, but the original owner forbade him from using the DomiNick’s name. Monaghan officially renamed the business Domino’s Pizza, Inc. in 1965 when an employee suggested that would be a nice name for the chain.
Contents
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How is Domino’s Franchise Positioned in the Pizzeria Industry?
The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 1.46 million people get employed in this industry. Food franchises make up to 36% of the total franchise establishments in the USA and it is expected to create 1.6million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x.
Domino’s competes in the Pizza market against big brand companies such asPizza Hut and Little Caesars. Its franchisees also compete against other nearby Domino’s locations.
If a pizza shop is doing in excess of $450,000 annually, the multiples will increase. Social media and reviews are important factors and can affect the value of goodwill of a pizzeria.
Qualities of a Pizzeria Owner
A new pizzeria owner needs to have knowledge of the regular restaurant stuff like delivery choices, packing of delivery food to show clean and safe transport and needs to embrace new technology. The bigger the part of the community the place is, the higher the price received by it—community pizzerias are well-liked. When purchasing an existing pizza shop, it is important to go through all purchases and expenses of the store.
During due diligence, all of these expenses will help to project future results. Pizza experience is important for a prospective pizza shop owner. Experience, along with marketing, are important skills to have in this business. A buyer should expect to work the business. Owners that run pizzerias are more successful than those who run absentee. Diversifying with some other pasta and sandwich items helps the overall business, as it’s hard to get regular patrons to eat pizza on a more than weekly cycle. With other offerings, you will increase the regular customer returns.
How Much is a Domino's Franchise?
The initial Domino’s Franchise Fee is between $0 and $10,000. You have to pay this upfront fee when opening a Domino’s franchise. Many Domino’s franchisees were working in a Domino’s restaurant in a management capacity before being awarded a franchise license.
Domino's Franchise Cost
The estimated total investment necessary to begin the operation of a Domino’s Franchise ranges from $156,450 to $682,500. The following costs are part of the upfront costs included in the initial investment for a Domino’s. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a Domino’s franchise in 2022.
| Type of Expenditure | Amount | To Whom Payment is Made |
|---|---|---|
| Initial Fee | $0 to $10,000 | Us |
| Leasehold Improvements | $25,000 to $300,000 | Landlord or other third party |
| Furniture, Fixtures and Equipment | $81,000 to $145,000 | DPD or other approved Supplier |
| Signage | $5,200 to $35,000 | Approved Suppliers |
| 3 Month’s Rent | $3,000 to $25,000 | Landlord |
| Security Depost | $1,000 to $10,000 | Landlord |
| Opening Inventory and Supplies | $2,750 to $6,500 | DPD or other approved Suppliers |
| Opening Advertising and Promotion | $0 to $3,000 | Us |
| Training Expenses | $1,000 to $3,000 | Us |
| Insurance | $25,000 to $65,000 | Insurance Company |
| Miscellaneous Opening Costs | $2,500 to $7,000 | Various Suppliers and Utilities |
| Additional Funds – 3 Months | $10,000 to $73,000 | Employees and various third parties |
| TOTAL ESTIMATED INITIAL INVESTMENT | $156,450 to $682,500 |
This is cheaper to open than both Little Caesars and the Food and Beverage industry average of $466,000.
Domino's Franchise Requirements
At this point in time, Domino’s is not involving people who have not worked at Domino’s before in their franchise business. to that end, in order to become a franchisee in the U.S., you must have at least one year of experience working as a Domino’s general manager or supervisor. There is very high emphasis from Domino’s’ end on making sure that franchisees truly understand the Domino’s brand and culture before running a business. This also provides them safeguard against the fact that some people might not wholeheartedly like a pizza business, leading to the closure of new stores, thus affecting the brand image negatively.
Owning a Domino's Franchise Requires Ongoing Fees
Royalty: 5.5% of the Store’s weekly Royalty Sales (Royalty Sales are the total receipts from all sales of pizza, beverages, and other products or services authorized for sale at the store or at any approved off-site location.)
Advertising Fund: 4% of Store’s weekly Royalty Sales
Advertising Cooperatives: 1-4% of Store’s weekly Royalty Sales
Annual Software Enhancement Fee: $674.01 per store per year, after the first year
Technology Transaction Fee: $.295 per digital order
Credit Card Processing Fee: $.0475 per transaction
Spanish Language Call Center Program Fee: $3.00 per call
While the royalty fee and advertising fund fees are standard for the Food and Beverage industries, the other fees are likely to quickly pile up, making the ongoing running expense of your store higher than of competitors offering similar products in the market.
How much do Domino's franchise owners make?
2021 Domino's Average Unit Volume (AUV): $1,304,012
| Initial investment (midpoint) | %Profit margin of average franchise sales | Estimated Profits | Time to recoup investment |
|---|---|---|---|
| $419,475 | 10% | $130,401 | 5.75 years |
| $419,475 | 15% | $195,601 | 4.5 years |
| $419,475 | 20% | $260,802 | 4 years |
Based on the net AUV for Domino’s franchise locations, at an average of a 15% profit margin it will take around 4.5 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 15% profit margin which would elongate getting a return on your investment.
Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Pizza stores; the extent of market penetration and brand awareness that Domino’s stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Domino's Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Domino’sfranchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.
Under $1 Million Net Sales
- Estimated Selling Price = Net Sales * 0.31
$1 Million – $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.34
Over $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.86
When you go to sell a Domino’s franchise based on the median multiple of .34 and Average Unit Volume (AUV) in 2021 of $1,304,012, it would sell for $443,364. This is higher than the midpoint investment of $419,475.
As an owner of multiple Domino’s franchised locations, you do have the ability to make greater profit. Pizzeria owners with over $5 million in AUV have a median multiple of 0.86. If you had 5 Domino’s franchises, amounting to $5,768,865 in sales, selling your multiunit franchise system would amount to $5,802,853. This is almost thrice the estimated initial investment of $2,097,375. However, this will not always work because it might cost you more to build a franchised store in your location, its brand name recognition, and community structure. You also might have different multiples for your stores depending on revenue, volume, footfall, location, and many other factors.
That said, the more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.
Domino's (Franchisor) Income Statement
Domino’s Pizza LLC and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
| For years ended: | JAN 2, 2022 | JAN 3, 2021 | DEC 29, 2019 |
|---|---|---|---|
| Revenues: | |||
| Franchise royalties and fees | $432,314 | $412,885 | $345,547 |
| Total revenues | $435,314 | 412,885 | 345,547 |
| Operating expenses: | |||
| Depreciation and amortization | 707 | 617 | 571 |
| Management fee | 31,337 | 30,039 | 27,714 |
| Other | 396 | 567 | 700 |
| Total operating expenses | 32,440 | 31,223 | 28,985 |
| Income from operations | 402,874 | 381,662 | 316,562 |
| Interest (expense) income, net | (1) | 22 | 91 |
| Income before provision for income taxes | 402,873 | 381,684 | 316,653 |
| Provision for income taxes | 412 | 369 | 64 |
| Net income | 402,461 | 381,315 | 316,589 |
Domino's Pizza Franchise Income Statement Key Insights
Domino’s is a very profitable business for the franchisor with consistent solid profits. It ended the 2021 Financial Year with retained earnings of $402.46 million. Compared to $316.58 million in 2019, they saw an increase of 11.3% from 2019 to 2021. This is a good indication of high growth as a company overall.
How many Domino's units have opened and closed?
System-wide Outlet Summary
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2018 | 6 | 8 | +2 |
| 2019 | 8 | 24 | +16 | |
| 2020 | 24 | 57 | +33 | |
| Company-Owned | 2018 | 5 | 5 | 0 |
| 2019 | 5 | 7 | +2 | |
| 2020 | 7 | 9 | 2+ | |
| Total Outlets | 2018 | 11 | 13 | +2 |
| 2019 | 13 | 31 | +18 | |
| 2020 | 31 | 66 | +35 |
Over the last three years, the company has continued rapidly expanding. Between 2019 and 2021, Domino’s saw its outlets grow from 5,904 to 6,597. This came at a time when the number of company-owned stores went down by 48 in 2019 before going up by 20 and 13 in 2020 and 2021, respectively. At the same time, the number of franchised outlets went up from 5514 to 6222, seeing 301 stores open in 2019, 215 in 2020, and 195 in 2021. Overall, the number of stores grew by 11.73% between 2019 and 2021.
What are alternatives to a Domino’s Franchise?
Marco’s Pizza
Marco’s Pizza franchise is an authentic Italian restaurant chain that serves chicken wings, pizza, cheesy bread, sandwiches, desserts, salads, and beverages. The Marco’s Pizza Italian chain was started by an Italian immigrant named Pasquale also known as “Pat” Giammarco in 1978. The first store opened in Oregon, Ohio on Starr Avenue. Pasquale was born in Sulmona, Italy but grew up in the U.S. in Michigan. He worked in his family’s pizzeria and his father even made the famous sauce that is in all of Marco’s Pizza locations.
The Co-CEO and president is Tony Libardi, who has held these titles since January 2021. Stephen Seyferth is the other CEO who has held this position since December 2019. The Vice President and CFO are Jeffrey Rager from February 2019.
The financials seem positive, and Marco’s Pizza franchise is not a failing business. From the data, your franchise will most likely stay in business, and that’s one of the most important factors in owning a future business.
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Papa John’s is a quick-service restaurant devoted primarily to the sale of pizza and other related food products. The majority of these restaurants are franchised, and operators of Papa John’s are considered independent contractors. Bam Inc. originally founded in 1984, an Indiana corporation that operated a restaurant and tavern. In 1985, it was acquired by Schnatter & Ehringer Inc. In 1989, Schnatter & Ehringer Inc. changed their name to Papa John’s International, Inc., but is referred to as PJ Indiana in the FDD. By 1991, PJ Indiana was merged with Papa John’s, changing their corporate location from Indiana to Delaware. As a result of the merger, PJ Indiana ceased to exist.
The toll of the 2018 controversy has been significant on franchisees, according to one article published in 2019 by Restaurant Business. The pizza market is extremely competitive, with the determining factor for consumer loyalty being priced. If franchisees are already struggling due to a low volume of sales, offering discounted prices to compete with other names in the industry could be even more damaging.
However, Papa John’s in 2019 instituted new management by naming Robert Lynch CEO and Jim Norberg Chief of Restaurant Operation. Its new management will need a couple of years to see if they can gain customer and franchisee loyalty back.
Pizza Hut
Pizza Hut franchise opened its first store in Wichita, Kansas in 1958. After its founders, brothers Dan and Frank Carney, borrowed $600 from their mother to finance their pizza dreams. Because their restaurant’s sign only had room for eight letters, the Carney brothers decided to name their concept “Pizza Hut”. A restaurant concept that created food they proudly served and delivered at a fast pace. Franchising began one year later. By 1971 Pizza Hut became the No.1 pizza restaurant chain in the world in both sales and number of restaurants.
Investing in a Pizza Hut franchise is an interesting opportunity, especially post COVID-19 pandemic. The entry investment of $367,000 is suitable for individuals looking to make their way into the QSR industry. The prospects for growth and success within the industry and the Pizza Hut brand itself are extensive. Several markets continue to be available as they move forward with growing their presence across the country. If you have extensive management experience and plan to open 5 to 10+ Pizza Huts, it is worth evaluating as a franchise! Opening just one is hard to justify, given the resale value and lengthy payback period.
How have Domino’s franchises performed in the international market?
Revenues from Domino’s’ international franchise operations increased by $48.3 million, or 19.3%, in 2021 due primarily to higher same-store sales growth and an increase in the average number of international franchised stores open during the period resulting from net store growth. The reopening and resumption of normal store hours and operating procedures at international franchised stores that had been temporarily closed or affected by changes in operating procedures and store hours for portions of 2020 as a result of the pandemic also contributed to the increase in revenues.
Pros and Cons of a Domino’s franchise
Pros
- Brand recognition: Domino’s is recognized throughout the US and has a positive image attached to the brand. It is the largest pizza chain in the world and benefits from that market penetration
- Opening cost: Compared to the industry benchmark and other pizza franchises, Domino’s costs are much lower
Cons
- Minimum qualification: You cannot own a franchise unless you have been with the company for a year
- Territory protection: Domino’s provides no territory protection from other franchises so nearby Domino’s franchise might eat into your revenue
How has Domino’s stock (DPZ) performed in the markets?
The graph above compares the cumulative return on the common stock of Domino’s Pizza (DPZ) for the five years between 2016 and 2021, with the cumulative total return on the Standard & Poor’s 500 Index (the S&P 500) and the industry benchmark group, the Standard & Poor’s 400 Restaurant Index (the S&P 400 Restaurant Index).
Domino’s stock has not only outperformed the S&P 500 but also the S&P 400 Restaurant Index. Not just this, but Domino’s stock help strong through the pandemic and has posted consistent growth through the years.
Conclusion
Domino’s offers people the opportunity to be a part of a business that has good returns and isn’t likely to die soon. However, Domino’s has a strict requirement of having been with the company in a certain role or higher for a year, which you need to fulfill in order to own a Domino’s franchise.
Be sure to talk to at least 3 to 5 other Domino’s franchise owners to get an idea of the business and what the experience of owning a franchise is like.
While this may be the business for you, make sure to also check out other businesses offered on Vetted Biz and in the Food and Beverage Industry. Also, check out our analyses of Mellow Mushroom, Pizza Hut, and Little Caesars.
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