Domino's Pizza Enterprises: Running a Domino's Store | In Practise

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Domino's Pizza Enterprises: Running a Domino's Store

Former Domino's Pizza Franchisee

Why is this interview interesting?

  • The franchisee application process
  • The cost of acquiring a store and possible financing options
  • The most unique processes within the store that give Domino’s a competitive advantage
  • How Domino’s optimizes for delivery
  • Typical unit economics of a Domino’s store in Sydney
  • How Domino’s approach franchisees when splitting territories
  • The impact of penalty rates on Australian franchisee stores

Executive Bio

Paul van Eck

Former Domino's Pizza Franchisee

Paul van Eck is a former Domino’s franchisee of two stores in Sydney that generated $3m in annual sales. He purchased one store in 2015 and improved the weekly unit sales from $10k to over $22k after adopting ‘The Domino’s Way’ processes and guidelines. Paul sold both his stores in January 2020 after the penalty rate was introduced shortly after the purchase of the second store which pressured the economics of running the business. Read more

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Interview Transcript

Paul, can you provide some context to why you originally wanted to become a Domino's franchisee?

I was in corporate for in excess of 30 years, in pretty good jobs. I've been lucky along the way, they’re all mostly at C-level and I was kind of getting sick and tired of the routine, the grind and the traffic, all the rest of it and my son was just finishing a science degree. Of course, part time he worked at Domino's like a lot of students do and he talked to me about a local store that was just here coming up for sale, so we had a look at it and decided that we'd purchase it.

So I quit my corporate roles and he left with a science degree and went into pizza making, which you do of course, and that's how we started. That was the beginning of our five-year journey.

A son and father business then?

That's it. So originally, I had romantic ideas about building this family empire and my son would run it and I’d sit back as an active investor and all that. Well, that was quickly quashed when we actually hit the stores and started doing the business stage because being a Domino's franchisee is hard work.

What was the process of applying for a franchisee?

That’s pretty involved. The first step is you've got to approach Domino's obviously, and Domino's do a due diligence on you, to make sure that financially they think that you're capable of supporting the business. It doesn't matter so much what you've done or what you've come from. What matters a lot more is one, that you've got the finances, and two, that you've got the energy to be able to run a Domino's store. Now how do you dictate that you've got the energy? I was lucky because my son was with me so they took one look at him and because he was an existing Domino's employee with another franchise, we went straight to the front of the queue. Domino's is very internally focused, in other words if you've been through the system, if you're a driver or you're a service guy or a pizza cutter or you’re somewhere in the system and you've been in it for a few years, you are a prime candidate to become a franchisee.

What were the financial requirements that they looked at?

Domino's stores don't come cheap. They're a premium in the marketplace. I'm not sure about the UK and in Europe, but in Australia it's about $600,000 to buy a store. It depends on the sales so the way they measure it is 28 times what they call AWUS, which is the average weekly unit sales. When we bought it, we did about $12,000 a week, so take 28 times that, that's what it's worth. That's not what I bought it for but that's what it's worth on the market. So if you haven't got half a million dollars in your pocket, then you're probably not going to secure a store.

So that’s the price of purchasing a franchise?

28 times the average weekly sales. So if the average sales are $10,000 a week, it’s $280,000. But I've got to tell you, a Domino’s store that’s doing $10,000 a week is a very poor store and you're buying something that's loss-making and you've got to have a game plan in place to change that. The average store volume is probably about $22,000, $23,000 per week which means the buy price is over half a million dollars, heading towards $600,000. Then, of course, you're going to have a little bit for kick off capital. When you get in there you might want to have a kick start marketing campaign and so forth, so you need $600,000.

So yours was roughly, let’s say $350,000. What do they do to check into your finances? Do they say you need to have half a million Australian dollars?

You don't have to have half a million in cold cash, but you've got to have access to half a million. Whether that means mortgaging your house etc, you've got to prove to them that you've got that equity. If you're using your home, you're going to get that valued and so on and so forth. It's like buying a business. They're buying into you and they do their due diligence.

Did you remortgage your house or borrow from the bank?

No, I was fortunate enough to be able to sell some easily liquidated assets and shares and I had the money. When we bought our first store, I bought it for cash so there was no bank debt. I thought it was important to buy the first one debt free because that gets rid of a lot of stress for the owner and it means that you can learn, you can make mistakes, without having the pressures of a lot of debt of the business.

Do many of the franchisees in Australia typically borrow to purchase their first one?

I'm estimating now but I don't think I'd be far out if I said that it would be over 70% that would be borrowed monies.

Over 70% of the franchises?

Total franchisees, 70% would be sitting on borrowed monies. Domino’s is a great brand. As far as the banks go, it's a five-star brand. If you know anything about commercial lending, they'll lend generally between 50% and up to about 65% leverage. That means up to 65% of the value of the business, the bank will actually lend you; the rest you've got to put up yourself. Domino's is at the top of that tree at 65% so if I wanted to borrow the money and it was a half million bucks, roughly $300,000 of that would be put in by the bank. That's on a commercial loan that's secured against the business. If the business is trading profitably it's against the business; or if not then you've got to secure it against your mortgage.

So the banks really want to lend for Domino's because they know how good the units are?

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Domino's Pizza Enterprises: Running a Domino's Store

November 19, 2020

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