Australians eat a million Domino’s pizzas every week. But, when you lift the lid, many of its people are struggling to make a crust. So how does this stockmarket juggernaut really operate?
It took Domino’s store manager Azrael Yin three years to pluck up the courage to inform head office that one of its biggest franchisees was exploiting workers. When he finally did, nobody seemed to care.
Yin’s message was simple enough. His boss, franchisee Pamir Dehsabzi, had told him to keep labour costs below 27 per cent of sales by any means.
It meant he often had to go into the store’s payroll system and “trim” the number of hours it recorded as worked by its staff and reduce their pay accordingly.
“If this week [there were] bad sales, labour blows out to 33 per cent of sales, so I receive a call to make it 27 per cent. Then I deduct my own time as well as the other workers,” he told Fairfax Media.
Nine months after complaining to Domino’s head office, Yin is still waiting for a response. Meanwhile, Dehsabzi is held up as a Domino’s success story.
This is the reality of life inside the Domino’s juggernaut. Yin is one of hundreds, possibly thousands, of Domino’s workers and franchisees trying to scratch a living out of the nation’s appetite for ever cheaper pizza.
A six-month investigation by Fairfax Media into Domino’s and its franchisees has uncovered widespread underpayment of wages, the deliberate underpayment of penalties using a delivery scam and the illegal sale of sponsorships of migrants for as much as $150,000.
Part of the explanation, say a procession of insiders, is that franchisees are also hurting.
“I remember I had to use my wife to do deliveries with my two kids in the back of the car,” says Nirmal Patel, who ran the Domino’s store in Mount Colah, a suburb of northern Sydney, for two years from 2012.
The stress of making ends meet took its toll and he realised after just six months the business he had bought into was not viable.
“I lost my trust and faith in Domino’s; they think only about the corporate people.”
“I thought I would stay in the system long enough to recoup my costs first, but the longer I stayed in the system the worse it got.”
Nirmal says he never underpaid employees himself but can’t blame those franchisees who did.
“If I’m cheating my workers and driving a Ferrari, that’s wrong. If I’m driving around in a beat-up old car, who’s really cheating the system?” he says.
His store was bought by Iranian migrant Kamran Talebi who also lasted only two years before selling out.
“It was the worst time in my life,” Talebi said.
“And this is coming from a guy who escaped from a fundamentalist and religious dictatorship, that has seen a lot in his life.”
For Talebi, it’s simple maths: “Since September 2014, the cost of food, labour, rent and fixed costs are on the rise, whilst the prices of pizzas are on decline; we can now buy pizza at the 1990s prices. At the same time, Domino’s profit is doubling. Hence, we have clients winning by purchasing cheap food, Domino’s profit skyrocketing. So, nobody is left to pay for this but the franchisees.”
Franchisees “wearing it”
Domino’s has been hailed as a success story since it was listed on the ASX in 2005 at $2.20. In just over a decade, shares have surged more than 2500 per cent to $60, making it one of the best performers on the market and a lot of people wealthy.
Chief executive Don Meij started out as a delivery driver in 1987 for Domino’s precursor Silvio’s Dial-a-Pizza. Today he owns almost 3 per cent worth, more than $140 million.
Meij was installed as general manager of Domino’s in 1993 by majority shareholder Jack Cowin, who had spent $400,000 on a 50 per cent stake in Silvio’s Dial-a-Pizza in 1985.
Today, Cowin, who is a director of Fairfax Media, is Domino’s chairman and its biggest shareholder, holding a 26 per cent stake, valued at around $1.4 billion, through a family trust.
Fairfax’s investigation shows that the Domino’s business model is based on franchisees growing sales, not profit, with head office taking a royalty from every sale as Australians chomp through one million of its pizzas every week. Stores are bought and sold on a multiple of these sales, not on profit.
For franchisees, it means when labour, food or rent costs increase, or Domino’s introduces a new fee or charge, the franchisees have to wear it.
More stores in the network means more sales are generated, and that results in more profits for head office.
In response to a list of questions, Domino’s denied systemic underpayment of wages, saying it was “embarrassed where an employee has not been paid their appropriate entitlements, whether deliberately or accidentally” and rejected claims that some of its franchisees were getting a rough deal.
It said the average profitability of a franchisee ranges between $138,000 and $145,000 a year.
Domino’s revealed that the break-even level for a store ranges from $15,000 to $21,000 for average weekly sales but said it had “many stores which operate profitably below this level of weekly sales, because of locally relevant business models, particularly in regional areas of the country.”
By this measure hundreds of franchisees appear to be struggling.
Internal figures obtained by Fairfax Media reveal during a week in January almost 190 stores made less than $21,000 a week in sales, accounting for as much as 30 per cent of the national network. Twenty one franchisees are receiving financial support, according to Meij.
Another set of figures for using NSW sales data covering six different weeks from October last year to January shows around 21 per cent of stores made on average less than $21,000 in sales a week. About 4 per cent earned less than $15,000, according to the NSW sales data.
Domino’s insists stores are healthy and that store profitability has increased over the past four years and “the number of currently unprofitable stores has decreased, to 3 per cent.”
“The figures you have received are materially incorrect,” Meij says. Domino’s declined to provide more detailed figures citing the company’s looming half year results.
It’s true the network also has its fans. David Hutchinson, an elected member of Domino’s Franchise Advisory Committee, has two stores in the ACT and they make a “really good” profit because he does “whatever Domino’s tells me to do”.
“I love my job and I love my franchiser,” he said.
Hutchinson says underpayment of wages has been discussed at the committee “because there are people doing the wrong thing”. He says that is detrimental to the brand.
“Domino’s is trying to get rid of the people doing it.”
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Domino’s Pizza share price.![]()
“Dictatorial” system
Consumer advocate Michael Fraser played a key role in Fairfax Media’s expose of rampant underpayment of workers at convenience store giant 7-Eleven in 2015 and has been monitoring Domino’s ever since.
He recently visited 70 stores across the country after receiving a number of calls from workers and franchisees.
He and his colleague Maddison Johnstone described the trip as both “illuminating” and “shocking”.
“Franchisees were very stressed and some were bleeding money in the tens or hundreds of thousands of dollars,” he says. “It became apparent to me that franchisees weren’t making money unless they were cutting corners and/or receiving benefits from head office.”
Fraser’s assessment is shared by Allan Fels who the federal government appointed to head a taskforce looking at the treatment of migrant workers after 7-Eleven removed him from his role running a compensation scheme for its employees.
“On the face of it Domino’s resembles the original 7-Eleven arrangements in the sense that it makes it seemingly impossible for a number of franchisees to survive without underpayment,” Fels says.
He says the “Domino’s situation” highlights the urgent need for new laws making franchisers more accountable and which the Coalition promised to deliver at the last election.
Fraser says, in some ways, Domino’s is worse than 7-Eleven.
“With 7-Eleven, many franchisees said they knew they would have to underpay to make money. However with Domino’s, I think they sell stores to unsophisticated buyers who genuinely believe Domino’s is a highly profitable business. Then when they don’t make money, Domino’s blame them for just being bad at business,” he said.
Fairfax Media too has spoken to a number of current and former franchisees who described a system that is “dictatorial”, where Domino’s calls the shots and wields its power to make more and more financial demands of its franchisees.
They warned that things would only get tougher, as competition intensifies with rival Pizza Hut revitalising its brand and offering half-price pizza during the month of February. At the same time they will have to battle rising labour costs with the impending rollout of a new enterprise agreement, and food costs continue to rise. Food and labour represent more than half the costs of running a store.
Some franchisees accuse Domino’s of unfairly pushing some smaller franchisees out of the system and giving special treatment to certain multi-franchisees, including offering them stores at prices below market rate.
Franchises are traditionally sold for 26 to 28 times average weekly sales, but some stores are being sold well below that.
Keeping purchase prices low ensures a constant pipeline of prospective buyers. For some who are terminated or managed out, it isn’t a good deal but Domino’s says it has never forced franchisees to sign business agreements.
Sometimes these stores end up in the hands of “favoured franchisees”.
The Fair Work Ombudsman recently instigated its own inquiries into the franchise network, conducting a number of “site visits” at stores across the country. It is compiling a report following the expiry of a two-year compliance deed it entered with Domino’s in September 2014.
During that time Fair Work says it received just eight complaints that Domino’s resolved internally.
However, Fairfax Media has compiled a database comprising hundreds of workers who claim to have been underpaid, as well as external audits commissioned by Domino’s that also allege underpayment.
Domino’s said many instances of underpayment were just “simple misunderstandings” and warned against conflating “deliberate and accidental employee underpayments”.
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But a series of external audits of a range of stores over the past 18 months that were commissioned by Domino’s and seen by Fairfax, allege “a strong likelihood of unlawful and fraudulent behaviour”, including shift hours manipulated by the franchisee, failure to provide payslips, shifts worked by employees deleted, the underpayment of super contributions, not paying overtime, not paying the correct hourly rate, employees not paid through payroll, employees with records of time worked but no record they were paid, delivery allowance not paid, deliveries manipulated and workers breaching their visa conditions.
The audits included stores across NSW, Queensland, Victoria and South Australia. Fairfax Media has confirmed some of these franchises were not terminated despite underpayment of wages and likely fraudulent behaviour. Domino’s refused to say whether any of these stores had been reported to the regulator or police.
The company says over the past three years it has conducted 450 spot checks of franchisees and some have been followed up with external audits. It says since 2015 four franchisees operating seven stores have been terminated for wage fraud. It refused to answer how many stores spot-checked or audited were found to be underpaying staff. It also refused to say how many workers it had found were underpaid or the aggregate amount in dollars.
“Not every spot-check results in an audit, nor is a spot-check a finding of fault,” it says. “Not all instances of underpayment are wilful, but all are addressed.”
It says it had not seen any connection between franchise profitability and the deliberate underpayment of wages.
“This behaviour does not discriminate, and is driven by greed.”
Capturing the “after school” market
Using a variety of sources, Fairfax Media has established how a franchise store’s financials break down.
Alongside a store’s purchase price, which can range from less than $300,000 to more than $1.5 million and stamp duty, there’s a $60,000 franchise fee for the right to use the Domino’s brand, a $20,000 training fee for a six-week course and a $5500 administration fee for the preparation of documents.
Each store pays a 7 per cent royalty on gross sales each month and a maximum of 6 per cent of sales to an advertising fund and an additional local store marketing fee, an e-store management fee and Domino’s phone number charge. An estimated 50 per cent pay a weekly book-keeping service fee of $165 plus GST.
Domino’s also makes money from the raw food it sells to franchisees.
It also charges for other services. In October last year, franchisees were told they had to buy from Domino’s an $18,500 thick shake machine – roughly one week’s sales for a break-even store – to try and capture the “after-school” market. Around the same time franchisees were told they would need to buy new digital menu boards, with an option for in-store music, at a cost $10,429 upfront along with a monthly charge of $190.
In 2015 Domino’s rolled out its GPS trackers which cost $2717 upfront plus a monthly subscription fee to Domino’s of $34.50 for 48 months in addition to a monthly licence fee of $25 per store per month.
Franchisees are currently being encouraged to buy new quick-cooking ovens from Domino’s at a cost of around $60,000 a pair to help them meet the target of quick pizzas.
Domino’s offers loans to help with these purchases with interest rates seen by Fairfax varying from zero to 15 per cent.
Some franchisees, such as Darren Ramm, who owns three stores in Queensland, argues that new technologies grow customer numbers.
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When profits are tight, franchisees look for different ways to flout the system.
When he was working as a delivery driver and cook, Rob Goodwin remembers being told by a franchiser to scrimp on core ingredients like flour.
“You can only make 42 bases out of a bag of flour but we were making upwards of 50 - they were getting around 10 more pizzas out of each bag then they were supposed to,” he says.
Former Queensland franchisee Rohit Malhotra said he was aware of some franchisees using raw ingredients that fell off unbaked pizzas.
“They put it into a container and put it back into the cold room to reuse them. That’s how much you have to cut corners,” he said.
Malhotra lost four stores following an audit that found underpayment of wages. He had to repay more than $200,000 in unpaid wages and superannuation and admitted to not always paying staff by the book. He says it was standard practice across many stores.
Goodwin claims there are many franchisees “doing dodgy stuff”.
“It is not just one-off people, they can’t make money without it,” he says.
Like most of the cases of underpayment of wages uncovered during spot checks or audits, it was handled by Domino’s with the regulator none the wiser. If it isn’t a complaint, they don’t have to tell the regulator.
Devanshi Panchal says running a Domino’s store threatened her health, relationships and financial wellbeing. In 2013, after three years managing stores in and around Sydney, she decided to buy her own store in Bathurst on the NSW central tablelands.
She worked at the store six days a week, clocking off at 3am some nights.
In early 2016, Domino’s conducted a payroll audit which found she had underpaid staff by more than $80,000. She found discrepancies in the audit and says she negotiated it down. She disputes underpaying staff, but says the stress of dealing with Domino’s and the meagre profits wasn’t worth it.
“A lot of people I’ve known have had mental breakdowns because there is so much you have to do, and so many restraints … I was seeing doctors. I had anxiety and cardio problems caused by all the stress,” she says. Panchal sold her store just before Christmas.
“If you haven’t run a Domino’s you don’t understand it.”
She was no novice. Before she became a franchisee she worked at a Domino’s store at Kings Langley in NSW for three years. In March 2016 she wrote to Domino’s saying she had been ripped off, working up to 30 hours a week for a flat rate of $12 an hour.
She herself eventually received $25,000 in back pay. The franchisee is still working in the system. “A broader investigation did not identify any ongoing breaches of employment obligations,” Domino’s said in a statement.
Pamir Dehsabzi runs 10 stores on the outskirts of Sydney. He also represents Domino’s franchisees on the powerful Franchisee Advisory Committee and has even been put forward to Fairfax Media by Meij as a satisfied franchisee (Meij forwarded an unsolicited email Pamir had written that outlined his passion for Domino’s and how the company had achieved what franchisees could never have dreamed about.)
Dehsabzi told Fairfax Media he has fostered a “loving” relationship with his staff.
“I am not a dictator, I just want my staff to be happy. I want them, when they come, they are not scared of me … they are very hardworking, I love them and they love me. Happy staff work better than unhappy staff,” he said.
But not all his staff agree. Azrael Yin, his former store manager, remembers long hours in suffocating heat, with no air conditioning.
“I was so stressed all the time,” he says. “I was working 60 hours a week without a break and sometimes I was the only person in the shop, to save on labour costs. I would have to make the pizza, run to customers if they came into the shop, take phone orders, deal with complaints, go out the back and make the pizza, pack the pizza, train staff, order stock and do the payroll.
“I had to bring in a fan because it was so hot working close to a 200-degree oven … North Ryde was the same, bad air conditioner and wages.”
Yin says his job involved systematically underpaying employees to meet Dehsabzi’s 27 per cent labour-cost ceiling. Every week Yin would send Dehsabzi payroll reports which listed employees working less than their actual hours.
Dehsabzi vigorously denies allegations that he underpaid workers. The Fair Work Ombudsman says it has a record that 12 workers were underpaid by one of his businesses.
He admitted the payroll figures didn’t always match the hours recorded on internal “sales reports”, but blamed his employees for the discrepancies, claiming they often clocked in early or clocked out late.
“People are not signing out on time or they are going out on a delivery and not coming back … I’ve seen it with my own eyes, people coming in late. Even the store manager, I have caught them many times,” he said.
“A lot of the time people are coming to work not [to work] but they are coming for fun - they are having lunch or come to see their friend.”
Yin said he worked between 50 hours and 60 hours a week but that his pay slips often showed he worked 35 hours as anything above 38 hours would attract penalties.
But they also credited him with payments for deliveries he never made. This had the effect of denying him overtime payments for extra hours he worked. In one week he was credited with making 140 deliveries as well as working 35 hours as store manager. Some weeks the entire delivery of pizzas at the store was 250.
Dehsabzi says store managers can work 50 hours but he never asks them to work more than 38 hours a week. He said sometimes store managers deliver pizzas and this accounted for the pay-slip differences. He says he always paid overtime correctly.
Yin reported Dehsabzi to head office shortly after he quit his job in April 2016. The long hours, poor pay and heat exhaustion finally got to him.
He never heard back from Domino’s and never received back pay.
Domino’s says “the complainant, who advised they were a current employee, was adamant they did not want to be identified in relation to their complaint.”
It says an investigation identified a “limited number of discrepancies with our management policies, which were rectified.”
Meanwhile, on January 19, 2017 another worker in another store wrote to Dehsabzi asking him to “please pay them [staff] on time and correctly”. He said “last week our labour is 27 per cent but you deduct lots of our staff salary ... today is my day off ... But after I know you hold our pay, I have to come back to the store and spend more than an hour to write this email.”