The Age releases special investigation into poor profits by franchisees and underpayment of wages at Dominoes Pizza.

Date: 11-02-2017

The Age  has released a special report into Domino’s Pizza and how the pressure that they put on franchisees results in underpayment of wages for employees.

This is an important story, because many in the industry see Dominoes as the price leader and see pressure to provide meals for customers at prices which are unsustainable.

Dominos pizza underpaying wages
The report highlights pressure on franchisees, managers and staff at Domino’s Pizza

 

Just yesterday I was talking to a Thai Restaurant Owner in Sydney and he said their biggest problem was lack of profitability which forced them to underpay staff.  The level of underpaying of staff entitlements is significant, and it needs to be addressed, and these practices make it difficult for all Restaurant owners to be profitable.  The continual stress of not being able to pay staff correctly and making a barely survivable wage is a story that is all to common in the industry.

Domino’s has the benefit of being able to invest in technology, and has been able to deliver driver tracking, online ordering and experiment with alternative methods of delivery.  For independent Restaurant Owners, they avoid marketing and franchise fees and are free to make investments in equipment when they want to, rather than when they are told to, but they are then forced to rely on third parties for some of the tech required to operate a restaurant.  A good example is online ordering and the issues with companies like Menulog’s high commissions and marketing practices are well known.

It is a great article because it highlights the pressures on business owners to try and make ends meet.  To have your wife running Pizza deliveries with a 2 year old baby in the car shows the level of pressure on business owners to make ends meet.  Trying to keep wages below 27% of revenue in a business where you sell Pizza for $4.95 would be incredibly difficult.

The flow on effect to other Restaurants is massive.  Domino’s sells 1 million Pizzas a week and the pricing pressure in the take away and delivery market is huge.

Domino's Pizza market cap
The company is valued at $5.69 billion dollars.

The valuation of the company is based on their increasing profits.  Don Meij, the CEO, has done a great job of growing the size of the company, and their innovations in the Delivery Space are leading the way in some respects on a global basis, including the first drone delivery of a Pizza which was done in Auckland, but a serious look needs to be taken at the level of profitability of the individual franchisees and the long term sustainability of the business model.  Selling a franchise to an owner who will burn out in 2 years isn’t fair, it’s not good for the industry, it’s certainly not good for the employees and in the long term it isn’t good for consumers.

 

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