Domino’s Pizza at War With Its Franchisees
The relationship between the number one home delivered pizza company in France and a great number of its Restaurant Managers grouped in an Association remains tense, regardless of some recent signs of appeasement.
The atmosphere is not always festive. In spite of an agreement reached at the end of November, the relationship remains more than tense between Domino’s Pizza (DPF), France’s number one take-away and home-delivered pizza company, and the Pepperoni association, which gathers together 180 of the country’s 203 franchise DPF restaurants. For ten months now, the franchisee and the franchisors have been at war, with the franchisors very much up in arms against the parent company to which they automatically pay over 40% of their turnover sales in the form of royalties and various fees. And in spite of a first few signs of appeasement, numerous disagreements remain between them.
“We believe in our product, we believe in the brand. For my part, I have been linked to it for nearly 20 years! But it had become urgent to find solutions together with DPF… because otherwise we were heading straight for the wall!”. So says Kamel Boulhalid, the President of Pepperoni. For him, the most important Domino’s Pizza franchisee, with his 1163 salaried personnel in 40 restaurants (the French restaurants employ more than 3,600, with an average of approximately 18 persons per restaurant) “it was vital to find a new equitable and sustainable financial equilibrium between the franchisees and DPF. There must be a system in place whereby the franchisees have some chance to make a 3 to 4% margin. The Pepperoni Association will keep a watchful eye on the maintenance of some equilibrium between the franchisor and the franchisees.
Others are less upbeat than Kamel Boulhalid. “It is high time for action. We must cease to feed that ogre DPF”, a rebellious franchisee calls out. “My circumstances are desperate. I will soon have to file for bankruptcy, or I will be bought out cheaply, like several before me. How much is my life worth? Will I attempt suicide, like those two other Franchise managers? Domino’s Pizza France only impoverishes its franchisees to eventually buy them out”, as another franchisee views it. As a matter of fact, in the last few months, DPF has indeed bought back collapsing franchise restaurants in Béziers, Castres, Fréjus, Issy-les-Moulineaux, Lens ou Liévin.
But what is it that bonds these franchisees to the DPF “ogre”? It is a Franchise Agreement that le Nouvel Observateur has been able to consult. It stipulates (in eighteen clauses and over more than fifty pages) that all food components – called “the food” in DPF jargon – as well as all the equipment, must be purchased exclusively from DPF. “”Every aspect of the business is dictated to us: not only the food purchase and selling price, but also how to make pizza, how to dress, how to greet customers. Sometimes I feel as if I have joined a sect”, observes a disillusioned franchisee, smiling sadly. Yet another asks himself, “Am I so stupid as to believe that all will be well when the competition has disappeared?!”
The competition has for years taken its grievances before the Courts, denouncing what could be viewed as Domino’s Pizza France’s “strategy”, namely to facilitate the indebtedness of the franchisees by permitting them not to pay what they owe to DPF as and when their bills fall due. This strategy allows for savings in the short and middle term for the DPF franchisees. But in actual fact it allows the eradication of the competition since the competitors cannot afford to sell at a loss, which in any case is illegal. On the other hand, in the long run, one outcome is the inextricable financial dependency on DPF of the franchisee. This dependency reaches such a level that it may translate in the franchisee being obliged to open a new restaurant … in exchange for some “debt forgiveness” and an undertaking on their part “not to engage in any litigation against DPF (…) as well as to refrain from denigrating the network or the brand”. A franchise manager so indebted for over 1 Million Euros exclaims: “At no time would I have imagined that my adversary would be DPF!”
In April 2011, the General Directorate for Competition, Consumers and the Suppression of Frauds (Direction générale de la Concurrence, de la Consommation et de la Répression des Fraudes (“DGCCRF”)) duly established reports over the DPF network and issued a dozen fines for DPF’s “failures to respect the regulations in relation to billing”, as well as for “non-respect of the observation of payment times”. But the Stock Exchange price of DPF remains unaffected by these warnings and these actual practical defects. In fact, quite the contrary since the Stock Exchange price makes steady progress. “It feels like an injustice to be so ill-used by DPF which only aims to shine on the Stock Exchange when in the meantime they are literally leaving us for dead”, says virulently Gilles Bourbiguot, who heads the Domino’s Pizza franchises in Toulouse. This accomplished car sportsman is presently facing DPF in the Courts, before the 19th Chamber. He adds, “the DPF system is very effective even if it consists in manipulating prime franchisees into investing in an unprofitable model. But DPF in effect voids our contract with them by manipulating us into financial and stock-market transactions that are quite beyond us”. Just like Gilles Bourbiguot, half a dozen franchisees are now before the court, hoping that the 19th Chamber will validate and assert their rights.
When interviewed by le Nouvel Observateur, Mélanie Farcot-Gigon, the President of Domino’s Pizza France, was emphatic: “the franchisees are what make the enterprise strong, we have many exchanges and we are real partners”. If we are to believe her, what her predecessor wrote in 2004 is still valid today: “(dear franchisees), we will accomplish what others have never achieved: we will be the best. In a few years time we will look back with a smile on our face”.
Journalist at Le Nouvel Observateur
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