DOMINO'S 'WAGES TROUBLE' AS IT INTRODUCES AUTOMATION
Written on the 9 November 2017 by David Simmons
THE CEO of pizza chain Domino's (ASX: DMP), Don Meij, has rejected claims that an increase in staff wages will result in more loss-making stores and cost the company between $35 million and $50 million a year.
Meij says 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.
Last week, the Fair Work Commission ordered the 2009 agreement be terminated and for workers to be paid award penalty rates and casual loadings from January 24.
Meij says the increased wages will only account for two percent or less of sales across the Domino's Australian network.
"The franchisees will be fine," assures Meij.
"The penalty rates on the weekend and late nights are the only variables that have been changing and they haven't changed a lot."
With Domino's Australian wages under scrutiny following the Fair Work ruling, Meij told shareholders that negotiations for the new enterprise agreement are nearly complete, with an aim to have it in effect by January.
The CEO also knocked back claims from the Retail and Fast Food Workers Union who said franchisee profits could fall by 30 to 50 per cent under the new penalty rates regime.
Domino's wage dilemma comes as it announced it will commence automated pizza quality checks across Australian stores.
The pizza chain will roll out technology that uses a camera and artificial intelligence to assess whether its pizzas are made well.
As the pizzas emerge from the oven, a camera sitting above the cutting board takes a photo and assesses whether they have the correct toppings and an even spread of ingredients.
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 test and needs to be remade.
Domino's plans to begin rolling out the tech 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 overseas stores too.
At the Domino's AGM, CEO Meij unveiled ongoing strong sales growth for the first 17 weeks of FY18.
Australian and New Zealand stores had 4.45 per cent same-store sales growth, and the group maintained full year guidance for Australia and New Zealand seven to nine per cent sales growth.
Despite the message from Meij that everything is tracking along well at Domino's HQ, Deutsche Bank analysts have warned that Domino's stores could fall below break-even.
"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," says Deutsche Bank.
Meij says Domino's will no longer be revealing franchisee's profitability as it has done during FY17 because it "is giving away too much information".
Domino's is currently trading down 2.95 per cent to $46.68 per share at around 11.20am (AEDT).
Business News Australia
Author: David Simmons