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Domino’s profits up for franchisees CEO reveals

Sarah Stowe

Domino's franchisees are profitable, latest half yearly resultsProfits are up, not just for the franchisor but franchisees in the Domino’s network. That’s the news from the Australian pizza chain which has just released its half year figures.

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.

CEO Don Meij emphasised the 87 percent of franchisees or store managers taking on new units this year as an endorsement of the Domino’s model which has come under attack from Fairfax Media.

Meij reiterated that franchisee profitability is a key focus and cited an improvement of 31.7 per cent on same store earnings.

He 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.”

Meij commented on concerns that the budget value $5 offer was not economically viable.

“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.”

The company’s figures show the average franchisee is making a profit of $137,000, he said.

“Sustainability and franchisee profitability is fundamental to the growth strategy of Domino’s,” said Meij, and the company expects record-breaking franchisee profitability this year.

Zero tolerance

However there have been cases of underperformance and breaches of employment obligations, Meij confirmed.

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 compliance audits.

“There is no reason, no excuse, and no tolerance for any Domino’s franchise that chooses not to pay its employees correctly or fails to meet expectations around ethics and governance,” said Meij. “Our franchisee profitability figures clearly show there is no reason, nor excuse, for this behaviour.”

The franchise chain said it has not found any link between the profitability of a franchise and breaches of employment obligations.

“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,” he said.

Domino’s has used a third party to audit payment compliance by franchisees and store managers and employment obligations.

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, that’s about 1.7 per cent of the Australian network).

“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.

Future proofing

“We intend to do spot checks on all our stores in near future. The majority of our franchise owners are doing the right thing.”

Meij said“I make no apologies for expecting the highest standards from our franchisees.”

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.”