Dive Brief:
- Domino's Pizza will build two more "supply chain centers" in the U.S. over the next two years, CEO & Director Richard Allison said in an earnings call last week.
- The new centers are a bid to increase capacity amid a 50% increase in volumes over the last five years, and will be built in addition to the facility opening in Edison, New Jersey later this year. The company told Supply Chain Dive it would not disclose the planned locations for the new centers.
- Beyond the new facilities, Allison said the company will also invest in enhancing capacity in its existing centers. As a result, CFO Jeffrey Lawrence said Domino's had raised its gross capital spending guidance by at least $20 million, to an estimate of $115 million to $120 million for the full year of 2018.
Dive Insight:
Supply chain networks are planned with growth in mind, so when volumes begin to exceed expectations, the time may be ripe for new investments.
Domino's 50% growth comes from the U.S. business alone. In the next 10 years, Allison said, he envisions the company could reach an 8,000-store footprint. With some restaurants today requiring three deliveries a week, a stagnant supply chain network can become more of a crutch than an asset when demand outgrows capacity.
"We are now at a point where you start to get inefficiencies and diseconomies of scale in some of these centers when you get capacity up past a certain point," Allison told investors.
Domino's supply chain centers are key to meeting demand, acting as both a warehouse and distribution center for the company — "but with a difference; we also produce all of our pizza dough fresh in our supply chain centers," Tim McIntyre, Executive Vice President of Communication, Investor Relations & Legislative Affairs at Domino's told Supply Chain Dive via e-mail.
The company did not provide too many more details on the two new warehouses it is planning to launch in the next 18 to 24 months. However, Lawrence teased the "cost will be materially less than the New Jersey build." The strategy, he added, is to be closer "to the customers in these 2 or 3 new spots" and deploy new technology to help overcome the costs of building the new facilities.
It has been more than a decade since Domino's last opened a new supply chain center.
"These are centers we knew we were going to have to build, probably over time," Lawrence said in the earnings call. "But as we did almost 12% ... retail sales growth again in the second quarter for the U.S. business and most of that again is volume and traffic-driven, it simply accelerates what we knew what we had to do already."
