Domino’s Pizza (DOM) doesn’t have plans to restructure its agreements with its franchisees anytime soon, despite a group of disgruntled franchisees threating to take action against the pizza maker. The structure of Domino’s franchisee agreement in the UK was on the agenda at this week’s capital markets day, but no changes will be made.
A representative for Domino’s said that chief executive David Page was “pretty clear” that there are no plans to change the agreement structure, whereby franchisees buy food supplies from Domino’s supply chain. Some franchisees feel that the company is not sharing the burden of recent cost increases associated with food price inflation, increased business rates and labour costs.
Shares in the pizza group sank in December after reports that the Domino’s Franchisee Association UK & Ireland, an organisation consisting of 11 of the biggest franchisees, was threatening to "declare war" to get a greater share of profits to help offset rising costs. Domino’s has dismissed the complaints, as a representative said the association only represents a small number of franchisees and the situation has been “blown out of proportion”.
One city analyst who attended the event said that although media reports suggest a standoff, there was “no suggestion that they’re considering a change to the franchisee structure”. The analyst said that Mr Page said threats of an ultimatum were “not the case”.
Disgruntled franchisees could prevent Domino’s from hitting its store opening targets. If the 11 biggest franchisees are displeased with the structure, it could be difficult for smaller and less experienced franchisees to fill the void. Ahead of the capital markets day management reiterated the potential for 1,600 stores across the UK. But the company narrowly missed its fourth-quarter target for new locations, opening 59 instead of 60, which had already been scaled down from a previous target of between 65 and 75.
Domino's has also struggled with its international expansion and system sales fell 2 per cent during the fourth quarter, compared with a 6.2 per cent increase in the UK and Ireland. Poor international performance was most pronounced in Norway, after integrating two acquisitions made in 2017 has proved "more complex and challenging than expected". It's now expected that the international division will make a loss of between £3m and £4m at the full-year.
