How to reinvent franchising with tech and transparency

Dodo Pizza’s headquarters is starting a new round of negotiations with investors. We’re growing globally (for instance, Dodo Pizza opened in China in June) and need a few more millions to feed our expansion. As part of this process, our small American branch, which now consists of only one pizzeria in Oxford, was asked to outline a long-term plan for the US market.

Before even opening our first pizza place, we declared that our goal was to open 400 stores in 7 years. Now it’s time to get into the details and figure out how our business might grow year by year.

I’m pretty aware that to some people, we look a bit ridiculous when talking about future millions in revenue, since right now we only have one pizzeria and it hasn’t reached the break-even point yet. But still, we decided to share the plan on our blog.

Since we have already grown from 0 to more than 100 pizzerias globally, we have some understanding of how to build a pizza chain from the ground up. So I guess our plan could be useful for other entrepreneurs—and that’s saying nothing of the fact that in a few years, it will be such fun to go back to this post and compare the pizzeria’s real progress with our initial expectations.

The first step on this long road: make Dodo Pizza Oxford profitable before the year ends. We have some pretty crazy ideas that might help us accomplish that mission.

We’ll update you very soon. Check the blog later—or simply subscribe to our newsletter.

[big_small_image image=“13848”]

Year 2016

Break-even point: August 2016. Average monthly sales at the end of the year: $62,000. EBITDA margin: 13%.

Year 2017

Opening of the first commissary. Initial investments needed: $90,000–95,000. Monthly rent of the production facilities: $1,500–2,000. The first commissary will serve the area within 80–100 miles. Usually, one commissary can serve up to 25 stores (delivery interval 2 days). The corporate chain will be growing from the south of the country (MS, AL, AR, TN, GA). Serving dough and ingredients from the commissary will bring the EBITDA margin of the store in Oxford up to 15–16% (if investments counted separately) due to a decrease in LC. By the end of the year 2017, the company will have 3 corporate stores with two new openings—Tupelo, MS and Memphis, TN (carryout + delivery, initial investments $180,000 per store). Sales figures and the EBITDA margin can be counted as similar to the store in Oxford, MS.

Year 2018

Still growing through the corporate chain. Total number of stores by the end of the year: 8. Average yearly turnover of one store: $480,000. Total yearly turnover of the corporate chain: $3,500,000. Yearly salary estimate of the corporate management crew (not counting the stores’ crew: included in LC estimate) for 2018:

Year 2019

Launching franchising in the US. First three franchisees would work royalty-free. Later on, initial franchisee fee is $25,000. Total initial investments would range between $200,000 and $350,000 depending on the type of the store (carryout + delivery, dine-in, etc.). Ongoing royalty fee is 2% for the first year going up to 5% as well as an additional 3–8% to be applied toward national marketing efforts. To purchase a franchise, interested parties must have a net worth of at least $500,000 with at least half of that amount in liquid assets. By the end of the year, total number of corporate stores: 12. Total number of franchising stores: 3 (royalty-free). Total yearly turnover of the corporate chain: $5,500,000. Total yearly turnover of the franchising chain: $800,000.

Year 2020

Growing both corporate and franchising chains. By the end of the year, total number of corporate stores: 21. Total number of franchising stores: 12. Total yearly turnover of the corporate chain: $12,700,000. Total yearly turnover of the franchising chain: $7,800,000. Progressive royalty fee starting at 2% for the first year going up to 8%. 3–5% paid toward national marketing efforts would start in the second year of operations. From then on, the yearly sales growth of the corporate chain is 20–25% and for the franchising chain 50–65%. The EBITDA margin of the corporate chain is 13–15%. The EBITDA margin of franchising is 80–85%. Commissary sales should be counted separately, as 25 stores can be served from one location. The EBITDA margin of the commissary is 3–5%. Half of the marketing budget is usually allocated toward local activities and promotions despite being called “national.”

In 2026, Dodo Pizza is projected to be among the top five pizza chains in the US with over 500 stores successfully operating in the market.