Yeah this is a valid point, but in the article it mentions that DMP has said the average stores performs at +$100,000/w and anything less is a minority.
'Star' Domino's franchisee alleges misleading and deceptive conduct
By
Sue Mitchell13 Dec 2018 — 11:00 PM
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When
Domino's Pizza sold a store in Surfers Paradise to award-winning franchisee Tim Yervantian four years ago for almost $900,000, the pizza giant told him it would make $100,000 a week in sales.
Last week the store made $34,000 in sales and it is barely breaking even, while Mr Yervantian's second store nearby, for which he paid more than $650,000, clocked up sales of $17,000 and is losing money, mainly because it has to sell $4.95 pizzas at a loss.
Mr Yervantian and his company PSI Pizza are now suing Domino's in the Federal Court, alleging misleading and deceptive conduct, unconscionable behaviour, misuse of market power and breaching the franchise code of conduct by failing to act in good faith.
Domino's franchisee Tim Yervantian in happier times. Supplied
Mr Yervantian is believed to be the first Domino's franchisee to take legal action against the Australian company and his case could open the floodgates to similar claims from franchisees who say they are struggling to survive as stores are "split" and as labour, food and energy costs rise.
In a statement of claim filed on Wednesday, Mr Yervantian is seeking losses and damages of more than $6 million, alleging Domino's misrepresented likely sales and the condition of the Surfers Paradise store and made false and misleading statements about a second or "split" store it planned to open in his territory.
Mr Yervantian also alleged Domino's failed to disclose plans to force franchisees to sell pizzas below cost at $4.95 – a move that decimated earnings and forced him to make major renovations to his first store.
He also alleged Domino's forced him to buy food from the franchisor but marked up prices by about 18 per cent, rather than using its buying power to supply franchisees at competitive prices, in breach of his sub-franchise agreement.
Mr Yervantian tried to sell the Surfers Paradise stores less than a year after signing sub-franchisee agreements and gave Domino's the names of 11 prospective buyers, but he alleges Domino's failed to act diligently or in good faith to promote the stores and used audits to pressure and 'punish' him.
Senate inquiry
Mr Yervantian's story mirrors those of Kamran Talebi and Devanshi Panchal, two
former Domino's franchisees who made public submissions to the Senate inquiry into the franchise code of conduct.
Mr Yervantian was an award-winning franchisee and store manager before things started to turn sour in 2014. Supplied
Mr Talebi, for example, accused Domino's of using questionable recruitment tactics, unfair pressure to split stores, charging high fees for services and stock, lacking accountability for technology pushed onto franchisees, and unfair sale processes.
Ms Panchal told the inquiry she was forced to sell her Domino's store at a loss after a three-year "nightmare" which took a toll on her health.
Mr Yervantian's four-year fight with the company has also taken a toll on his health and his $6.1 million claim includes medical expenses as well as losses of $3.27 million from selling $4.95 pizzas and $1.8 million for the decline in the value of his two pizza stores.
Mr Yervantian started working at Domino's as a 'wobble boy' holding advertising signs in 1998, when he was still in high school.
After working at a Domino's store owned by Don Meij, who is now Domino's chief executive, Mr Yervantian worked his way up the ranks to store manager and regional manager before buying his first store, at Coolum, in 2012.
He was a star franchisee and runner-up for international manager of the year, while Coolum soon became the fastest-growing store in Australia before Mr Yervantian sold in 2015 and it was subsequently "split".
His troubles started in June 2014, when he bought a former company-owned store in the heart of Surfers Paradise for $896,260 plus stock after being told it was a flagship store making sales of $100,000 a week.
"The Surfers Paradise store required extensive renovation due to rotting infrastructure, food safety and OH&S issues," the statement of claim said.
Soon after Mr Yervantian bought the Surfers Paradise store, Domino's launched $4.95 pizza in an attempt to take market share from Pizza Hut. The cheap pizza not only crunched profit margins, but forced Mr Yervantian to remodel his kitchen, which was set up for dine-in customers.
Mr Yervantian alleges that by failing to disclose the new price point it breached or failed to comply with the franchising code of conduct.
Split territory
Seven months after buying the Surfers Paradise store, Mr Yervantian was told Domino's planned to split his territory and open a second store nearby. Mr Yervantian had first right of refusal and if he refused Domino's would open the second store with a different sub-franchisee.
He alleges Domino's made false and misleading statements about the location, timing and format of the second or 'split' store, which cost him $651,030 and ate into the profits of the Surfers Paradise store.
The statement of claim also alleges Domino's misused its market power for the purposes of eliminating or substantially damaging a competitor, preventing the entry of a person into the market and/or deterring or preventing a person from engaging in competitive conduct.
Domino's declined to comment on Thursday, saying it had not been served with any papers from the Federal Court in relation to a franchisee dispute.
Domino's has previously claimed that struggling franchisees are a minority and the average store earns $133,700.
Matt Wheatley, president of the newly formed Australian Association of Franchisees, said franchising as a business model was on 'life support' and urgent changes were needed for the sector to survive.
The AAF, which succeeds the Franchisee Federation of Australia, has called on the parliamentary joint committee to make recommendations that will modernise franchising regulation and provide the balanced obligations and shared responsibilities to enable partnerships to flourish.
(20min delay)
