“I would prefer all of our franchisees lived up to our expected standards, and I am disappointed some individuals have tried to take advantage of our business, and team members.”
Those are the words of Don Meij, Domino’s CEO, who this morning revealed the company’s half yearly results against a backdrop of allegations of franchisees underpaying staff and visa fraud.
Overall the company saw a lift in network sales of 26.8 per cent bringing group revenue to $539.4m.
In Australia and New Zealand, same store sales growth of 17.2 per cent took revenue to $150.1m for the financial first half year 2017. Across both countries, 27 new stores were opened in this period.
Meij reiterated that franchisee profitability is a key focus and cited an improvement of 31.7 per cent on same store EBITDA. The average franchisee is making a profit of $137,000 and Domino’s expects record-breaking franchisee profitability this year.
However these figures constrast with Fairfax Media allegations that franchisees are underpaying staff and offering payment for visas.
Addressing the issue of industrial relations, CEO Don Meij said “We work collaboratively with the Fair Work Ombudsman and our compliance program has been independently audited by Ernst & Young and, as a result, we are confident that our compliance program is industry-leading.
“Due to our investment in proactive compliance we have identified some franchisees who have wilfully breached their obligations to their team members,” he said.
Domino’s has used a third party to audit payment compliance by franchisees and store managers and employment obligations.
“We intend to do spot checks on all our stores in near future. The majority of our franchise owners are doing the right thing.”
The company has conducted 456 store spot checks, completed third party audits of 102 stores, with 42 ongoing, and investigated 88 individual complaints – 25 of these ongoing.
As a result, $4.5m was recovered in unpaid superannuation and wages owed to staff by franchisees (about 0.8 per cent of labour costs in the network, and about 1.7 per cent of the Australian network).
“We’re embarrassed by these actions,” said Meij. And he warned “We will remove franchisees from the system.”
Over the last three years four franchisees operating a total of seven stores had their agreements terminated for wilful breaches of their employment obligations; a further 22 chose to leave the system after the compliance audits.
“I would prefer all of our franchisees lived up to our expected standards, and I am disappointed some individuals have tried to take advantage of our business, and team members. But I am proud that our proactive team has uncovered this wrongdoing and corrected it.
“I make no apologies for expecting the highest standards from our franchisees,” he said.
“Our franchisee profitability figures clearly show there is no reason, nor excuse, for this behaviour. The findings from our compliance program demonstrate no correlation between store profitability and underpayment of wages.”
Over the next five years, the company is focused on multi-unit expansion with the average franchisees operating five stores. Thirty five stores will be opened this year.
Meij indicated the break-even of the Domino’s business can vary quite dramatically. It can be sales of $15-21,000 but in some areas, particularly regional, break-even can be as low as $10,000.
With suggestions that the budget value pizza cannot make money for franchisees, Meij said “The $5 pizza is a profitable pizza in its own right but sells in an average order of just over $17 which is profitable for our franchisees.”
Most informed franchisees understand the model and are expanding said Meij but he confirmed that 21 franchisees did receive operational and financial assistance with their business.
“Sustainability and franchisee profitability is fundamental to the growth strategy of Domino’s.”