Cheap delivery pizza; loved for generations by hung over
students and lazy corporate workers. But it appears 190 (out of a
possible 200) Pizza Hut franchisees don't love super cheap
pizzas and geared up to slice down Yum! Restaurants Australia
Pty Ltd (Yum!) after its decision to make a drastic change to
Pizza Hut's range and price point.
After a lengthy trial period, Yum! announced that Pizza
Hut's pizza range would decrease from four to two and the price
point for the remaining two ranges would be reduced to $4.95 for
"Classics" (previously $9.95) and $8.50 for
"Favourites" (previously $11.95). They called it the
"Value Strategy"; we call it "desperate for
more pizza eaters' strategy".
To make matters worse, Dominos then pre-empted the strategy and
launched an all day every day $4.95 price point one week
before Pizza Hut. Ouch!
A class action resulted. The Franchisees argued the Value
Strategy amounted to:
a breach of an "implied term" of the franchise
agreements to set profitable prices, which would enable the
franchisee to make, maintain or increase their profits;
a breach of Yum!'s duty of good faith, which extended to
cooperate with the franchisees to achieve the objectives of the
comply with reasonable standards of conduct that have regard to
the interests of the parties to the franchise agreement;
unconscionable conduct under the Australian Consumer Law.
Guess what? The Franchisees failed on all grounds. The Federal
Court found that franchisors do not have a general obligation to
ensure all of its franchisees are profitable after a new product or
pricing strategy is introduced. It certainly helped that Yum!'s
franchise agreement allowed for it to set prices and implement
advertising and promotions without being liable to the franchisee
The power balance between franchisors and franchisees remains
squarely where it always was. Like the old saying goes, nobody owes
you a living even if you did cash in all your super to buy their
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