Domino’s Pizza Relies on its Supply Chain to Get It Right

In terms of revenue, the supply chain is Domino’s Pizza’s (DPZ) most important segment. In fiscal 2014, it contributed 63%, or $1.26 billion, toward the company’s total revenue.

Domino’s international master franchises have the right to operate a supply chain in their respective regions.

The supply chain segment consists of the following facilities:

• 16 food supply and dough manufacturing centers in the US
• seven dough manufacturing facilities in Alaska, Hawaii, and Canada
• one thin crust manufacturing center
• one vegetable processing center
• one equipment and supplies center
• more than 500 tractors and trailers

These facilities provide fresh dough, equipment, and supplies to franchised as well as company-owned stores in the US and Canada. Deliveries from this segment are huge. In 2014 alone, it made 571,000 deliveries.

Papa John’s (PZZA) has a similar segment that provides fresh dough to its restaurants. Big restaurant chains such as Pizza Hut’s parent, Yum! Brands (YUM), and McDonald’s (MCD) have arrangements with third-party suppliers to provide the food commodities and supplies to its franchises.

The Consumer Discretionary Select Sector SPDR Fund (XLY) invests about 10% of its portfolio in restaurant stocks, including some of those mentioned above.

According to the company, sourcing dough and ingredients from its supply chain division results in operational efficiency. It also ensures store managers are getting the right mix of pizza dough and quality ingredients.

In the next part of this series, we’ll discuss how unit growth is key to Domino’s revenue.