Slashing pizza prices has resulted in a class action against
Pizza Hut by its own franchisees. The action, which began in late
July this year, followed a move which dropped some pizza prices by
half by Pizza Hut's parent company, Yum! Brands. The move
resulted in franchisees selling pizzas at below cost price.
The ex-franchisees involved in the class action have based their
claim on the two companies having engaged in unconscionable conduct
and breaching their duty to ensure that franchisees (and Yum!
Brands) make a profit.
The intention behind Pizza Hut's price cuts was to provide
more competitive prices than that of their biggest rival, Dominos.
Managers from Pizza Hut's Sydney head office told franchisees
that the price cut would improve overall sales and be of great
benefit – clearly not the case.
Former franchisee involved in the class action, Lyn Bayakly, has
said that her franchise was operating at a loss of approximately
$5,000 per week. Six percent of all sales made at Pizza Hut by
Australian franchisees are taken by Yum! Brands, regardless of
whether the franchisees are operating at a profit or loss. Lyn
subsequently closed her Pizza Hut store over seven months ago and
is on the verge of bankruptcy.
Professor Lorelle Frazer, Director of Griffith University's
Asia Pacific Centre for Franchising Excellence, has commented on
the importance of aligning expectations of franchisees and
franchisors through transparent communication and due diligence by
Professor Frazer also claims that the regulation of the
Franchise industry by the Franchising Code of Conduct lures
franchisees into a false sense of security - that purchasing a
franchise is safe and that franchisees will be protected. In
reality, the franchisee is at the mercy of the franchisor and has
little control over how their business is run.
Due diligence is an integral part of the franchising process in
better preparing the franchisees for what they can expect in
undertaking their venture and the benefits (or consequences) they
can expect from the brand they are signing up to. The franchisor,
as part of their obligations will provide the potential franchisee
with disclosure documents, however part of the burden rests on the
franchisee to make the appropriate inquiries to the franchisor to
ensure the best start to their business and to maximise its
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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