Domino’s dives as Aussie goes cold

Jun 25, 2019
AFR

They don’t call it fast food for nothing.

Just before 10am on Tuesday, Domino’s Pizza Enterprise told the ASX that despite reports it was the subject of a legal claim by former workers angry about being underpaid, it had not received a claim.

A few hours later came the second announcement entitled: Class action proceeding.

Domino’s drivers and store workers have launched a class action over wages and entitlements.  Darren England

The claim, filed by Phi Finney McDonald and funded by the simply named Therium Litigation Finance Atlas AFP IC, is on behalf of workers employed by Domino’s franchisees between June 2013 and January 2018.

It alleges that Domino’s misled franchisees by advising them to pay delivery drivers and store workers under a series of Domino’s specific industrial instruments, and not the Fast Food Industry Award.

This meant they missed out on entitlements including a 25 per cent loading for casual workers, penalty rates for working after hours and on holidays, and a laundry allowance.

Domino’s is defending the claim, and says it believes its advice to franchisees was right.

Confirmation of the class action sent Domino’s shares down around 6.9 per cent to a four-year low of $36.43. The stock has lost 54 per cent of its market value – or $3.8 billion – in the last two years.

Regardless of whether Domino’s can defend the claim, it’s more evidence of the pressure mounting on the franchising model, which doesn’t seem to sit well in a listed company environment any more.

Franchising is supposed to be a model built on mutual benefit – you grow, we grow. But in a listed setting the franchisor must balance the objectives of franchisees and shareholders; each dollar shared with store owners is a dollar that the company owners don’t get.

Increased demands on listed companies around compliance and transparency create further risks. When something goes wrong, does that franchisor accept all responsibility, or just part of it?

Of course, the legal action is also yet another potential problem for Domino’s Australian business, which is also seeing demand plateau, new store openings slow down and sales growth fall away.

While there’s no doubt Domino’s best growth options are in Japan and Europe, half of its earnings come from the ANZ region.

It seems no one in the market expects Domino’s will hit its 2019 full year target for at least $227 million in earnings before interest and tax; market consensus is for EBIT of $205 million.

Missing guidance for the third year in a row would be embarrassing enough. But the pressure on the Australian business clearly has investors worried about the outlook well beyond that.