How a Domino’s franchise earns most of its revenue is fairly obvious: it sells great tasting pizzas to consumers. How Domino’s makes most of its revenue as a corporation, however, is another story. Before you invest in a triple net property franchise, it’s important to analyze both the financial situation of the franchise and the financial landscape of the company, as one inevitably impacts each other.
The Domino’s corporation has a unique way of earning most of its revenue: it sells pizza ingredients and goods to Domino’s franchisees. Considering that a Domino’s franchise can’t operate without these resources, one of the criteria for projecting its income is analyzing its monthly revenue in relation to the monthly cost of supplies, particularly concerning the history of price changes for supplies.
HOW THE NUMBERS BREAK DOWN
Domino’s franchises spend about 27% of their sales revenue on supply expenses. An additional 9.5% goes to rent and utilities, 28% is spent on labor, and about 3% goes toward insurance outlays. After a franchise pays royalties and ad contributions, about 80% of its revenue has gone toward expenses. That leaves the average domestic franchise with an annual net income of about $156,000.
That is a healthy profit margin for a Domino’s franchisee, but a big part of maintaining the bottom line depends on corporate headquarters keeping the price of ingredients roughly the same. Based on numbers Domino’s recently released, the average pizza from one of its domestic franchises costs about $12.50, and roughly $3.50 of that amount goes toward dough and toppings.
A spike in the price of ingredients would necessitate a spike in pizza prices, which would be tough to justify to consumers unless a franchise was rolling out a better product. Before Dominos triple net real estate is purchased, a triple net property broker should perform a careful analysis of the franchise and corporation’s interrelated financials to project the future income of the latter.
A UNIQUE REVENUE STRATEGY
Domino’s practice of earning most of its revenue from supplying goods to its own franchises is somewhat rare among restaurants of its financial stature, but it is hard to argue with the results. In 2012, the company earned $942.2 million—56% of the $1.68 billion total sales—from supply chain revenue. For franchisees, this means the company has every reason to provide excellent corporate backing.
If you are interested in triple net properties that pizza chains occupy, Domino’s franchises are often solid investments. For assistance finding a Domino’s property that meets your requirements, call Westwood Net Lease Advisors. With our proprietary database of on-market and off-market properties, coupled with our expertise in the NNN market, we will help you make the best investment.
