Minutes into Don Meij's investor presentation the Domino's share price tanked 8 per cent. By the close of trade it had fallen 14 per cent, wiping hundreds of millions of dollars off its market value.
The reason? The market is rapidly losing confidence in the company, its operating model and its cashflow. This was despite it serving up another record profit and record sales.
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Consumer advocate Michael Fraser on the Domino's pizza franchisees.
The brutal reality is investors are concerned that wage fraud is systemic and the numbers released for franchisee profitability don't quite stack up.
After days of insisting that only four franchisees had been terminated over three years for wage fraud, Domino's admitted that 22 franchisees had left the system over underpayment issues following 102 store audits.
Assuming that a typical franchisee then has 1.8 stores, that means something like 40 per cent of the stores it has audited had payroll compliance issues. That's a high strike rate in anyone's books. It could be even higher than that as some franchisees who have been quietly ushered out of the Domino's network had more than two stores.
Such an alarmingly high rate should be a call to arms for the regulator to take action. Additionally, Domino's should take a leaf out of Caltex's book and audit all of its franchised stores.
It should also reveal the number of workers it knows have been underpaid in the course of its audits. Fairfax Media has repeatedly asked Domino's to release this figure, but it refuses. The best it will say is that it has "recovered" $4.5 million from franchisees.
But "recovered" doesn't necessarily mean they have been contacted or paid back.
![Domino's CEO Don Meij delivered another profit upgrade – only this time it wasn't big enough.](/web/20170217204629im_/http://www.theage.com.au/content/dam/images/g/u/8/8/x/j/image.related.articleLeadwide.620x349.gudszk.png/1487146479758.jpg)
Fairfax Media knows that Domino's "recovered" $200,000 from franchisee Rohit Malhotra but is yet to pay back those workers.
This sort of behaviour raises a lot of questions about companies managing underpayment issues internally. In Domino's case it has tried to sweep it under the carpet.
A number of franchisees have complained that the franchise model is too hard and pushes many to cut corners, such as short-changing workers.
Domino's said average profitability for a store is between $138,000 and $145,000, but averages across a network of more than 600 stores can be meaningless.
Indeed, Deutsche Bank noted that in 2004 the average profitability of a store was $119,000, which "doesn't seem like a lot of growth in 12 or 13 years on a per store basis". It's time for Domino's to face up to its problems.
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