Professor Lorelle Frazer has been using the class action, now before the courts in Australia, to push Griffith University’s courses on due diligence for intending franchisees. But would any amount of due diligence have made a difference in this case?

 


Pizza wars have broken out in Australia, just as they have in New Zealand, with both the market leaders, Dominos and Pizza Hut, dropping their “classic” pizzas to below $5.

 

But already, the wars have had their first casualty, with a group of Pizza Hut franchisees crying foul and taking out a class action against their franchisor, Yum! Brands of the USA.


 


“The last 12 months, I can simply describe as a nightmare.”


So said a former franchisee on Australian current affairs programme The 7.30 Report. “We put nearly four years work into our business. We worked hard. We were prepared to do whatever we needed to do to get it up. All of that's been destroyed.”

 


What forced her to close her family’s Pizza Hut store in Perth, says Lyn Bayakly, was Yum! Brands’ insistence about twelve months ago on franchisees around the country halving the price of a range of pizzas.

 

“We were losing up to about $5,000 a week. Yeah, and they knew that. They had those figures.”

 

The 7.30 Report invited franchising expert Professor Lorelle Frazer to weigh in on the cause of the conflict.

 

“Our research continually demonstrates the importance of ensuring that franchisee and franchisor expectations are aligned,” said Professor Frazer, who is Director of Griffith University’s Asia-Pacific Centre for Franchising Excellence. “This can only be done through due diligence and transparency from all parties.”


 

But wait a minute.


Didn’t Lyn Bayakly say that the price cuts had been forced on her a year ago? How could the due diligence she did four years ago, before she bought her Pizza Hut franchise, have predicted that would happen?

 

We’ve read a number of reports on the class action and many of the franchisees involved are seasoned Pizza Hut operators.

 

So while we agree with Professor Frazer about the need for thorough due diligence on the part of both franchisees and franchisors, we think there are other factors at the heart of this conflict. In fact, we don’t believe this is really a franchising issue at all.

 

The question in our minds is:


 

If Pizza Hut and Domino’s are in the same industry, why aren’t Domino’s taking a class action against their franchisor?

 

It turns out Domino’s franchisees are doing just fine, thank you very much. While Yum! Brands reported that Pizza Hut’s overall revenues and operating profits in Australia had dived nearly 1% and a staggering 22% respectively, Domino’s numbers had soared.

 

In fact, Domino’s revenues, same-store sales and profitability were up so much that one fast-food industry reporter wondered if the two pizza restaurant giants are indeed operating within the same industry.


 

So what accounts for the massive difference in performance?

 

“I think it has really boiled down to convenience and the ability for Domino’s to really capitalise on the move toward online and mobile,” said Stephen Anderson, a restaurant industry analyst with Miller Tabak.

 

We put Domino’s success down to its smaller store footprint, greater scale, more innovative technology, and winning the hearts and loyalty of its target markets – families and young adults.


 

A quick Google search revealed these interesting facts:

 

  • Domino’s franchisees pay higher franchise fees than do Pizza Hut franchisees – 7% as opposed to 6%
  • Around the world, Pizza Hut pizzas tend to win in value-for-money comparisons with Domino’s, but lose in taste tests
  • The same battle between the two pizza giants is taking place in the United States, where you see headlines like this one from the Washington Post


 

 

 

  

Pizza Hut has conceded it has dropped the ball, but is determined to come back fighting.

 

Perhaps they could do what Australia’s third largest pizza chain, Eagle Boys, did in response to the Pizza Wars – stay right out of them.

 

Or perhaps they could follow the lead of New Zealand’s third largest pizza chain, Hell Pizza – and put their prices up.

 

Whatever they do, they should probably pull this from the home page of their Australian franchise recruitment website…

 

There has never been a more exciting time to be part of Yum! Restaurants International in Australia. Discover the benefits of becoming a Pizza Hut Franchisee.


 

Exciting times, for sure, but not in the way Pizza Hut intends.

 

One strategy we don’t recommend that Pizza Hut tries in Australia is the “Don’t Go Hell Pizza” Google Adwords campaign they apparently used in New Zealand. This was the response “Mr Hut” got from the “Hell Legal Department” to the ad pinned to the corner of the letter…







 




Article by Robin La Pere, No Ordinary Business and Franchise Consultants

Contact me at robin@noordinary.co.nz.





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Robin La Pere of No Ordinary Consultants has been a franchise manager, franchisor, and in recent years, a franchise consultant. He offers a wealth of knowledge in franchising strategy, best practice, development, management, recruiting - and, yes, due diligence.