The new generation of high-growth franchises reveals an intriguing duality: pizza chains remain stable and time-tested (though still evolving with the times), but new categories like coffee and beverage chains are emerging as opportunities ripe for investment. So, the World Coffee Portal report showed that in the U.S. alone 44 new coffee brands grew beyond five locations in the past year.
How can franchisees evaluate the differing potential of these two franchise markets? Each offers a distinct path to success, with its own set of challenges and opportunities.
The Wide Range of Startup Costs
The financial commitment required to enter the pizza or coffee franchise market varies widely, reflecting the diversity of brand positioning and business models within each sector.
Initial investments can range from moderate to substantial. Franchise fees of traditional pizza franchises like Domino’s or Papa Johns vary with reports between $5,000 and $25,000 but the total investment can escalate quickly when considering building costs that can reach up to $1 million depending on the store type. Launch costs are then followed by ongoing fees which include a 5.5 percent royalty fee (6 percent for Pizza Hut ) and a 4-6 percent national advertising fee. Franchises like Dodo Pizza offer a middle ground with a $5,000 franchise fee, 5 percent royalty, and an average construction cost of $250,000.
Coffee franchises present a similarly varied landscape. Dunkin’, a titan in the coffee and donut space, demands a significant commitment, with total initial investment reports ranging from $437,500 to $1,787,700. This includes a franchise fee between $40,000 and $90,000, along with ongoing royalty and marketing fees totaling 10.9 percent. In contrast, smaller chains like Beans & Brews offer a more accessible entry point, with initial investments ranging from $276,000 to $439,000 and a franchise fee of $30,000. Drinkit, from the Dodo Brands stable has an initial franchise fee of $14,000 with royalties ranging from 6-8 percent.
The Operational Differences of Pizza and Coffee
The operational focus for pizza franchises often centers on supply chain management, delivery logistics, and maintaining consistent quality across high-volume production. Labor management in pizza franchises can be complex, requiring operators to balance in-store staff with delivery drivers and adapt to fluctuating demand patterns. Since most orders are for takeout or delivery, less attention can be given to the in-store dining experience and location’s traffic ability.
For pizza franchises, key performance indicators include average ticket size, online order percentage, customer acquisition cost versus lifetime value and unit cost percentage. For instance, the average ticket at Dodo Pizza sits at $18.
Coffee franchises, on the other hand, thrive on a model of habitual consumption, turning customers into daily visitors. The challenge lies in managing high-frequency and lower-ticket transactions efficiently. Speed of service is critical—just one to two minutes to deliver a drink—as well as training to maximize consistency across hundreds or thousands of drink combinations. So at DrinkIt, which is Dodo Brands coffee franchise, the average ticket hovers around $7 and drinks preparation time takes about two minutes.
In the coffee world, labor management often focuses on peak-hour efficiency and customer service skills. The supply chain for coffee shops, while still complex, typically involves a narrower range of perishable items compared to pizza operations. And since a much larger portion of orders occur and are enjoyed in-store, personable customer service skills are more meaningful for the hiring process.
Because of the unique operational model, coffee businesses track a different set of core metrics. These include transaction count (higher volume is necessary to compensate for lower average ticket size), customer retention rate (critical due to the habitual nature of coffee consumption), speed of service (especially important during morning rush hours), attachment rate (measuring success in upselling food items with coffee orders), and daypart sales distribution.
Which Concept Fits Into An Existing Strategy?
For franchisees with existing quick-service concepts, both pizza and coffee present interesting diversification opportunities, each with its own strategic advantages:
For franchisees that already operate quick-service restaurants especially burgers or chicken concepts and are familiar with food preparation, marketing, and delivery, launching a pizza franchise may seem like jumping into familiar operational waters. Though many of the operational processes of pizza chains are similar to other concepts, they give operators a chance to diversify customer bases and reach new markets. There’s likely a potential synergy in supply chain management, as some ingredients and suppliers may overlap with existing food concepts.
Adding a coffee franchise to an existing food concept may not benefit from those same synergies, but may be better suited to increase sales to the same customer base throughout the day. McDonald’s proved the model with the McCafé product line, and more recently the CosMc’s concept. Coffee can extend operating hours and capture additional dayparts, particularly morning traffic.
There Is No Clear Profitability Leader
Profitability estimates for both coffee and pizza chains tend to range from 12-18 percent net, with P&L structures differing significantly between the two due to operational factors mentioned above. The most profitable choice for a new franchise extension ultimately depends on how well it aligns with the franchisee’s existing operations and background, market position, and growth strategy.
Pizza chains offer higher ticket sizes, strong delivery potential, and opportunity to reach new customer segments. While coffee franchises provide frequent visits, daypart versatility, and a new way to serve existing customers. Both sectors offer promising opportunities for growth, provided franchisees can navigate their unique challenges and capitalize on their respective strengths.
David Sweeney and Ilya Kholodnov are in charge of international franchise development at Dodo Brands.