Angry Pizza Hut franchisees have launched legal action against the company after a price war with rival Domino’s forced them to slash the price of pizzas, sending many out of business.
A class action to be heard in the Federal Court this week alleges Pizza Hut parent company Yum Brands breached its duties to its franchisees by denying them the chance to make a profit.
The franchisees are seeking damages to cover the losses they have incurred.
At least one franchisee has also lodged a complaint with the Australian Competition and Consumer Commission (ACCC), claiming Pizza Hut’s actions forced them into insolvency and the termination of their franchise agreement.
Solicitor for the franchisees Jim Kartounis, who is also the president of the Australasian Pizza Association, said the class action represented 288 of the chain’s 298 stores nationwide.
He said many franchisees had been forced to give up their businesses because of the price war, which Pizza Hut had anticipated “because the strategy did not allow for franchisees to sustain their businesses”.
It is believed 32 franchisees have lost their businesses since the introduction of the pricing strategy.
Award-winning store closed amid price war
Lyn and Fred Bayakly had a thriving store in Perth’s northern suburbs before the price war began.
Ms Bayakly said the store was one of the highest trading stores in Western Australia, had won several national awards and was used to train new franchisees.
“We had 40 staff and we continued to dominate in terms of operational excellence, sales growth and compliance,” Ms Bayakly told ABC’s 7.30.
She said WA franchisees agreed to a three-month trial period of selling pizzas for $8, on the condition that it would be stopped if it proved unsuccessful.
Gourmet pizzas previously selling for $14.95 were included in the trial, despite assurances from Pizza Hut that this would not be the case, and free deliveries were also introduced at different times.
Her store lost $9000 a month during the trial period but Pizza Hut refused to stop the trial, despite Ms Bayakly providing financial data to management soon after it started showing the scale of the loses being incurred.
“They said the marketing has all been done, it’s too late to stop the trial,” Ms Bayakly said.
Following the trial, the company decided to implement a nationwide policy of selling pizzas for $4.95 from July 1 last year.
At this point, Ms Bayakly said the losses incurred by the business increased to $5000 per week.
“It sent us spiralling further into debt, but the company didn’t want to know,” she said.
“Their conduct has been bullying, unconscionable, deceptive and intimidatory throughout.
“They think they’re untouchable – their arrogance is astounding.”
Eventually, in November 2014, Pizza Hut terminated the franchise agreement and closed the store, leaving the Bayaklys hundreds of thousands of dollars in debt.
Unable to service the debts, the couple face losing their home.
They have a fleet of delivery vehicles they have been unable to sell, and have had to borrow money from family members to make ends meet.
“Our credit ratings have been destroyed – I can’t even get a $20 mobile phone plan,” Ms Bayakaly said.
The couple have lodged a complaint with the ACCC, claiming Pizza Hut forced them to sell pizzas at below cost “with full knowledge that the franchisee [was] in serious financial difficulties and trading towards insolvency”.
Ms Bayakly said she wanted the ACCC to make Pizza Hut more accountable to its franchisees.
“We don’t want another poor unsuspecting franchisee being coerced, misled, lied to and sent to the wall,” she said.
A Tasmanian franchisee who is in the process of selling his businesses said the decision to match Domino’s pricing had “absolutely killed” his business.
“I’m operating with eight staff where I used to have 25-30, and I’ve gone from working three days a week to seven days a week non-stop,” the franchisee, who asked not to be named, said.
“I’m losing tens of thousands of dollars, I’m $70,000 in debt and I’ve had to remortgage my house.
“I hardly see my family and it’s causing real issues with my teenage son, who is having a lot of problems.”