Domino’s Pizza’s ‘wages hike and lost profit’

dominos-cheltenhamDomino’s staff costs could rise by 14 per cent if the fast food retailer is forced to pay weekend penalty rates, analysts warn.

A report by Deutsche Bank analysts says under its enterprise agreement (EA) Domino’s pays a lower base rate than its rivals Pizza Hut, KFC and McDonald’s.

And like its competitors, Domino’s doesn’t pay weekend penalty rates as set out in the Fast Food Industry Award, instead paying higher base rates under the EA.

Don Meij, Domino’s Pizza Group CEO and managing director, said the article from Deutsche Bank is incomplete and incorrect.

Deutsche’s analysts say Domino’s EA expired three years ago and while it remains in force until a new agreement is signed, it was in need of catching up with the competition.

“We believe penalty rates will need to be paid at some point which could have a significant impact on (Domino’s Australian stores) profitability,” the report said.

“If Domino’s were forced to pay penalty rates, in line with the award, it would represent a significant cost impost because the hours of operation generally extend into times which attract penalty rates.”

Deutsche Bank’s analysts have forecast weekend penalty rates would cost the retailer’s Australian business about 24 per cent in profitability.

They also said Domino’s Australian wage costs accounted for 28 per cent of the network’s sales and if Domino’s were to pay penalty rates in line with the award, wage expenses would increase by about 14 per cent.

“While this is technically a franchisee’s problem, in our view, Domino’s will need to share the pain given franchisee profitability has been a key element of its success,” the report said.

“We don’t believe this will break the business given technology and product development should drive continued sales momentum.”

Meij said while the report refers to increases, which is partly true, it wasn’t the complete story. He said they have been aware of the pending changes for many years and are currently negotiating a new agreement around the modern award.

“This includes formulating our business model over the past four years in preparation for this change. Therefore, the article from Deutsche Bank is incomplete and incorrect,” said Meij.

Meij said they have been busy putting in place a number of measures and significant business strategies all aimed at improving productivity and increasing margins for franchisees, including but not exclusive to the GPS Driver Tracker, 15/20 Minute Guarantee, Project 3/10, electric bikes and working on pricing models.

“The company has been fully aware and prepared for the expected changes in benefits and entitlements, to the point that both DMP and its franchisees are set to increase rates in the interim (from August onwards), while negotiationss continue with the SDA (Shop, Distributive & Allied Employees trade union),” he said. The ongoing negotiations were said to have begun 12 months ago.

“The company has been fully aware and prepared for the expected changes in benefits and entitlements, to the point that both Domino’s and franchisees are set to increase rates in the interim while negotiations continue,” Meij said.

It said Domino’s was committed to delivering a modern agreement with more beneficial working conditions for all staff.

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