Increased wages to eat into Domino’s revenue

Dominos-Pizza-Japan

An increase in staff wages is set to eat into Domino’s revenue but the pizza maker has knocked back claims it will lead to more loss-making stores.

Chief executive Don Meij said union claims that Domino’s has been saving $35 million to $50 million a year on wages by sticking to an expired 2009 enterprise agreement are false.

The Fair Work Commission last week ordered the old agreement be terminated by January 24 next year and for workers to be paid award penalty rates and casual loadings.

Meij maintains that the increased wages of delivery drivers and store staff across the group’s network in Australia will account for two per cent or less of sales, however the company has not given a dollar figure.

“The franchisees will be fine,” Mr Meij told AAP ahead of the group’s AGM on Wednesday.

“The penalty rates on the weekend and late nights are the only variables that have been changing and they haven’t changed a lot.”

At the AGM Mr Meij unveiled ongoing strong sales growth for the first 17 weeks of 2017/18.

Australian and New Zealand stores had 4.45 per cent same-store sales growth, Europe 8.48 per cent and Japan, which usually has flat or lower sales, rose 0.12 per cent.

The group maintained full year guidance for Australia and NZ of seven to nine per cent sales growth, and zero to two per cent for Japan.

However, it upgraded Europe sales growth forecasts from five to seven per cent to six to eight per cent after teething problems in France were fixed.

With Domino’s Australian wages bill under scrutiny following the Fair Work ruling, Meij told shareholders that negotiations for the new EBA were well advanced, with an aim to have it in effect by January.

Meij has dismissed analysis from the Retail and Fast Food Workers Union that said franchisee profits could fall by 30 to 50 per cent under the new penalty rates regime.

Deutsche Bank analysts have warned that more Domino’s stores could fall below break-even, hurting the group’s profit margin and hindering store rollout in Australia.

“We continue to believe Domino’s share of the profit pool is too large and the heavy impact on franchisee profitability suggests Domino’s may need to increase the financial support it offers,” Deutsche Bank said in a report last week.

Meij said the increase in wages would not lead to more loss-making stores and said critics were not factoring in Domino’s voluntary wage increases which have moved wages closer to the modern award in the past eight years.

“Forty-five stores needed financial support from us last year and there are stories saying this is going to grow,” he told AAP.

“Well it’s not going to grow. It is going to be in and around those sort of numbers at any window of time.

“The question is: will we have to provide more financial assistance and the answer is no.”

Domino’s has 20,000 plus employees across its 660 stores in Australia – the vast majority of which are franchisee stores.

Meij said Domino’s will no longer be revealing franchisees’ profitability as it has done during the 2017 financial year because “it is giving away too much information.”

Domino’s shares closed three cents higher at $48.10 on Wednesday.

“The growth in same store sales, on the back of corresponding years of strong sales, demonstrates the importance of continuing to invest in our strategy, high quality food, and reducing customer friction at every point,” Meij said.

“Our technology development isn’t for development’s sake, each project seeks to answer the question ‘how can we make this experience easier, more convenient, and more engaging for customers?’ and customers are responding positively,” he added.

Domino’s said it will roll out technology that uses a camera and artificial intelligence to assess whether its pizzas are picture perfect.

As pizzas emerge from the oven, a camera sitting above the cutting board takes a photo and assesses whether they have the correct toppings, an even spread of ingredients, are the right temperature and match what they are supposed to look like.

The results of the assessment are then sent to the store manager, and a photo of a pizza can be sent to the customer, along with a notification if their pizza has failed the quality test and needs to be remade.

Dubbed Domino’s Pizza Checker, the system is currently being trialled at one store as the first step in a project to automate quality control.

Domino’s plans to start rolling out the system across Australia in 2018, and has struck a 12-month global exclusivity agreement with the developer of the technology, Dragontail Systems, so it can roll it out at stores overseas.

Meij said Pizza Checker is a virtual trainer which will lift standards and likely lead to a reduction in customers rejecting their pizza, or being disappointed with their purchase.

“It will dramatically improve the quality and consistency of handmade pizzas – cooked and cut to perfection,” he said.

 

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