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Financing

Domino’s franchisee profits improve with strong sales, but labor looms

CEO Ritch Allison said the labor environment for the company’s operators is as bad as it’s been in a long time.
Domino's sales
Photograph: Shutterstock

Domino’s franchisees finished 2020 in the best financial position they’ve ever been. The pizza chain’s strong sales during the year helped them generate $177,000 in per-store EBITDDA, or earnings before interest, taxes, depreciation and amortization—far more than the company expected and a record for the chain.

Not a single franchisee-owned location closed in the first three months of the year, as same-store sales were rising 13.4% in the U.S. It’s remarkably rare for a chain with more than 6,000 locations to go three months without closing at least one of them. Domino’s did close one corporate store in the period.

“That $177,000 in store-level EBITDA really puts our system in an incredible position of strength,” CEO Ritch Allison told investors on Thursday. “And when you see it, you’re not surprised that we had only one store closed in the U.S. throughout the entire quarter.”

It will be especially important in the coming months as the industry, and including Domino’s, faces a major shortage of labor. The shortage has driven up wages and has made it harder for restaurants to attract workers. It has also created some supply chain issues as distributors struggle to find drivers and suppliers struggle to staff up to meet demand.

“The combination of COVID, strong sales, the broader economy reopening and the high level of government stimulus is creating one of the most difficult staffing environments that we’ve seen in a long time,” Allison said. “This puts pressure on our operators to meet demand while continuing to deliver great service to their customers.”

The biggest problem for the chain is drivers. With so many companies out there hiring drivers—including third-party delivery services, ride-sharing services and traditional delivery companies like distributors—finding people to bring pizzas to homes has proven difficult.

“The real pinch point in the business is drivers,” Allison said.

Many of the strategies the company is undertaking are designed to make that process more efficient and ensure that drivers are doing more driving and less other work.

“A good bit of the work we’re trying to do around tech and around the store operating model is basically to keep drivers moving 100% of the time with the long-term goal that they never get out of their cars, are delivering pizzas constantly as opposed to other tasks and activities,” Allison said.

Domino’s also said that its “fortressing” strategy, its strategy to build more stores in specific markets to improve delivery times and increase carryout business, can help with the lack of drivers by improving the number of deliveries per employee.

And Allison believes that the company’s long-term opportunity for drivers—that they can one day become franchisees—could get more people into the business. “A big part of what makes Domino’s different is that being a driver at a Domino’s or a pizza maker inside the store is an opportunity to become an entrepreneur over time,” Allison said. “A big part of our job and our franchisees’ jobs also is to sell the opportunity going forward because 90% of them started as drivers or insiders.”

For now, however, franchisees’ profits are soaring. The chain’s first-quarter same-store sales result was its 40th straight positive quarterly number in the U.S.—10 full years. Executives are increasingly confident they can continue that streak even as it runs up against tougher comparisons in the next two quarters.

“We’ve got some pretty strong laps ahead of us,” Allison said. “But we’re really focused on continuing to make the investments to drive long-term growth in the business. And as I look out across the rest of the year, we are really in an enviable position.”

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