An excessively simple depiction of the supply chain for Domino’s Pizza might acknowledge that store operators purchase raw material (dough, sauce, toppings) from suppliers, assemble and cook those items, then sell them to consumers. But even if that general chain of events is accurate, such simplicity fails to represent the true complexity of the supply chain that the restaurant brand uses—and thus the underlying sources of its greatest profits.

In particular, the corporate brand owns only about 1 percent of all of the approximately 20,000 Domino’s locations currently in operation; the rest are run by franchisees. The franchise fees go directly to the corporate entity, which represents clear revenue. Thus, it makes more from its franchises than it does from selling pizzas.

Even more than either of those two lines of revenue though, Domino’s relies on income earned from sales through its supply chain operations—an estimated $2.7 billion according to a recent annual report. That figure is remarkable not just because it so far outpaces the approximately $400 million that Domino’s brings in through pizza sales but also because of the challenges associated with earning profits from supply chain operations.

The items that the franchisees need to craft pies for their consumers are relatively basic, including many commodities. Arguably, they could get those items nearly anywhere. But the vast majority of franchisees buy their raw materials from Domino’s itself. The corporate arm has established a well-oiled machine, designed explicitly to get dough, cheese, and pepperoni precisely where they are needed at exactly the time each store needs them.

It also runs dedicated production and distribution facilities, spread across the United States, that produce precisely the type and recipes of dough that the restaurants serve. By maintaining a massive fleet of trucks, Domino’s ensures that it can supply all its locations promptly, while also guaranteeing a high standard of consistent quality. The efficient supply chain enables it to earn higher profits—which is also turns around and shares with the franchisees, such that in a way, they can earn some of their costs back.

As a result of these appeals, franchisees prefer to buy from Domino’s, and they also prefer to reenter continued franchising contracts. Whereas for most franchises, turnover is a constant challenge, Domino’s enjoys a 99 percent renewal rate from its franchisees.

Discussion Questions

1. Could other pizza chains or franchise operators copy Domino’s supply chain–based success? Why or why not?
2. Should Domino’s seek to better balance its revenues from retail sales of pizza with those from its supply chain?

Source: John Quast, “People Think Domino’s Makes Money by Selling Pizza, but 60% of Its Revenue Comes from Something Else Entirely, The Motley Fool, December 21, 2023