Financing

Domino's adds more new franchisees as store profitability improves

The pizza delivery chain added the largest number of new operators in 15 years in 2023. All of them started as delivery drivers or other employees within the system.
Domino's
Domino's had more new franchisees in 2023 than any year in 15 years. | Photo courtesy of Domino's.

Few franchise systems convert employees into franchisees quite as well as Domino’s.

The Ann Arbor, Mich.-based pizza chain added 60 new franchisees in 2023. It was the largest number of new operators in the system in 15 years, CEO Russell Weiner told analysts on Monday.

But that might not be quite as impressive as this: Each of those 60 franchisees came from within the system, either as a delivery driver or another employee within the system.

It adds to the chain’s ability to turn workers into franchisees. Ninety-five percent of the chain’s franchisees started out either as a pizza maker or a delivery driver.

That says a lot about the state of the chain and its future, Weiner said. “They’re bullish about Domino’s Pizza, and they’re spending their money that way,” he said.

The reason for that bullishness could be rooted in profitability. Franchisees in the system generated stronger profits last year. Executives said profit per store was $162,000 in 2023, up $23,000 from the year before. Domino’s expects that profitability to improve again this year, to $170,000 per location.

The profitability came despite higher costs for insurance, for instance. And the higher profitability continues the brand’s recovery from its post-pandemic inflationary challenges, as food and labor costs soared.

“I think about a year ago, franchisee profitability was not in the best place,” Weiner said. “We had come off a big decline in franchisee profits in 2022.”

The company spent the first part of 2023 working to build those profits back up while improving delivery times and operations. Domino’s then spent the second half of last year on the company’s strategy, which included an improved loyalty program, which generated higher traffic last year, its “Emergency Pizza” promotion and more marketing of its quality, as well as a new Uber Eats deal.

Executives said franchisees are generating stronger profits even though the loyalty program upgrades the company made have proven popular and more customers are redeeming more items.

Customers can now get rewards for lower-priced items, Weiner said. Food cost for those lower-priced items is favorable enough, he said, that it’s improving profitability. It’s “a better program that’s more engaging to customers and more profitable for our franchisees,” Weiner said.

Franchisee profitability is a key metric in a franchise brand, as franchisees that are generating stronger profits are more likely to invest in their businesses, join the franchise or open new stores.

Thus, all these new franchisees and existing franchisees are opening more locations. Franchisees opened 165 new locations, after factoring in nine closures in 2023. Domino’s expects a higher number of new openings this year.

Domino’s has not stopped bringing in more franchisees, either. Weiner noted that the company already has 170 potential new franchisees that have graduated from the company’s franchise management school, the last step before they buy or build the store. Fifty are waiting on stores to open or be put up for sale.

“We’ve got young, up-and-comers within our system,” Weiner said. “It’s bigger than we’ve had in 15 years, which means they see a really positive future.”

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