A prominent Perth-based Domino’s franchisee is taking the pizza giant and its boss Don Meij to court over its $5 pizzas and delivery boundary changes, claiming the company misled him and abused its market power.
In a statement of claim filed in the Federal Court last month, award-winning franchisee Frederick White said he is seeking a total of $3 million in damages from the company for causing a significant profit drop at his three Perth stores.
A franchisee since 1998, Mr White claims Domino’s failed to inform him of the negative effects of its $5 pizzas, saying the business did not communicate the increased workload, store set-up, and its impact on sales.
In 2014, Domino’s announced it would begin selling a range of its pizzas at the low price point, which stretched the already-thin margins of many franchisees who struggled to turn a profit on the discount pies.
An earlier investigation by The Age and The Sydney Morning Herald alleged many franchisees were instead forced to cut corners to survive, including underpaying workers and other kinds of exploitation. In 2018, the Fair Work Ombudsman completed a two-year investigation into the company, finding “ongoing systemic issues” within the company’s franchisees. In response, Domino’s launched Operations 360 to identify issues within its 800-strong store network.
The franchisee also claims the company imposed an “unreasonably high” mark-up on the food supplies franchises were required to purchase through Domino’s, claiming an increase of 18 per cent.
Domino’s also prevented franchisees from sourcing supplies elsewhere, Mr White claims.
In addition to his pricing disputes, Mr White is also taking issue with Domino’s “fortressing” strategy, where the company re-aligns existing delivery boundaries to allow room for a new store in an already serviced area.
Upon renewing his franchise agreement for his Balcatta store in Perth’s north, Mr White was told the delivery territory would be split and he claims Domino’s told him the new region was “ideal for a Domino’s outlet”.
He claims the business said both his existing store and the new store would make increased sales of $30,000 per week based on the number of houses in each region. Based on this information, Mr White spent $620,000 opening a new store in the region.
However, the operation of the new store caused profits at Mr White’s other two stores to decrease. He sold the franchise agreement for the new store last year in an attempt to recoup losses.
The franchisee is claiming loss, injury and damages, including anxiety and depression, of about $3 million.
Mr White’s claims are similar to those of Domino’s franchisee Tim Yervantian, who sued the pizza giant for $6.1 million in 2018, before settling last year for an undisclosed sum.
In a statement to the market after it closed on Monday, Domino’s said it was “disappointed but not surprised” by Mr White’s legal action, acknowledged the dispute had been going on for some time and rejected his allegations.
“While [Domino’s] is disappointed that the franchisee has chosen this path of litigation, from the information available to it, [Domino’s] considers the franchisee’s claims to be without merit, and in fairness to our investors and franchisee network it is important that we defend the claims,” the company said.
Despite being the second case of its kind in as many years, the company said it did not expect the claims to be financially material. Domino’s shares rose 3.2 per cent to $55.55 on Tuesday.
Domino’s chief executive Don Meij had praised Mr White in the past as a “huge asset”, saying in a 2015 Facebook post the franchisee had previously been named Domino’s South Pacific manager of the year.
Mr White is being represented by Peter Snelgar of CJM Lawyers, who also represented Mr Yervantian.
Source: Thanks smh.com