Dominic Walsh: Rent, Landlords, and Wild Times at Dominos

For years, Domino’s Pizza was a cash machine for all involved.

Management notched up some serious bonuses and incentives by delivering the goods year after year, while long-standing shareholders such as Nigel Wray and Colin Halpern, who is also the group’s vice chairman, coined it as the share price rose inexorably. Also happy were the franchisees, many of whom went from pizza maker to millionaire entrepreneur in as long as long as it took to establish their new shop – not a lengthy process in those days.

In more recent years, things have not gone quite so smoothly. Its international ambitions have twice ended in disaster, first in Germany then in the Nordics, forcing a humbling retreat from both (a partial retreat in the case of Germany and work still in progress in the Nordics) and costing the company many tens of millions in losses and write-offs.

The pizza delivery firm’s UK operation, while proving altogether more resilient, has also had its ups and downs of late, not helped by a revolving door in the CFO’s office. But it is the increasingly acrimonious relationship with its biggest franchisees and the game of Who Goes First? played by CEO David Wild and chairman Stephen Hemsley (himself a former CEO) that have proved most damaging.

As I have written here before, I have some sympathy with David Wild’s robust approach to dealing with the franchisees. The top two or three are very wealthy in their own right, mostly due to their successful relationship with Domino’s Pizza and such spats between franchisee and franchisor are pretty common – in America they are par for the course and usually end up enmeshed in lengthy litigation.

It seems pretty clear that so long as Wild remained as CEO progress on peace talks was always going to be painfully slow, if not static.

However, with both Wild and Hemsley now gone (Hemsley went first) the prospects for a peace treaty must surely have improved, not least because of the excellent replacements who have been found to fill those two key roles.

Matt Shattock, as I wrote a couple of months ago, is a great choice for the job of chairman. Not only because of the calibre of the former Suntory Beam CEO and now chairman.

The former army tank platoon leader is also a thoroughly good bloke and just the sort to help find a way to repair relations with the franchisees.

The same could be said of Dominic Paul, its new CEO. Again, he is a very high calibre executive with a strong consumer-led track record at the likes of EasyJet, British Airways, Royal Caribbean and, most recently as CEO of Costa Coffee, first under Whitbread then under Coca-Cola. As well as having gained experience with franchisees while at Costa, Paul is, according to very senior former colleagues, a terrific colleague with boundless enthusiasm.

With Shattock and Paul at the helm, a quick shout-out is due to Usman Nabi, founder and managing partner of Browning West, a Los Angeles-based hedge fund. The activist investor joined the board and its nomination committee in November last year, in time to have a hand in both appointments. Having met him, he seems to be a thoroughly sensible and pragmatic individual who will continue to provide wise counsel – a refreshing change from the confrontational approach of so many activist investors.

Anyway, with Shattock, Paul and Nabi (not forgetting senior independent director Ian Bull) on what is now an excellent board, I foresee a swift resolution to the franchisee contretemps – assuming the coronavirus doesn’t distract them from the task. The fact that Domino’s is prospering while the wider restaurant sector teeters on the brink of disaster may even have reminded the franchisees that perhaps the company isn’t so bad a franchise partner after all.

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I have commented before about the mixed nature of the readers’ comments posted at the bottom of articles on The Times’s online edition. For every sensible comment appended to a story, you’ll get two or more less sensible, often quite rude messages (to say the least). An example: earlier this month I wrote a story about Hollywood Bowl deciding to pay its March quarter rent and service charges in full and on time, unlike so many other tenants, before embarking on negotiations with its landlords. The total cost of “doing the right thing” was £5.4 million.

So there were three comments posted by readers. The first, rather cutting post said: “Put some of the money saved into better cleaning and better food.” The second said: “Oops, what a mistake to pay March quarterly rent in advance in full by the CEO.”

So far, so inane. But then my faith in the essential fairness of the average Times reader was rewarded. In response to the second post, someone called Alan posted: “I don’t think so. Landlords are less likely to be amenable if you suddenly don’t pay. It gives them no chance to prepare for the loss of revenue. Far better to do as they have - offer up a quarter’s rent and then enter into negotiations about deferral for up to a year. Which appears to be what they are doing.

“Ultimately the landlords want a successful tenant, and the tenant is clearly prepared to pay the rent ultimately, but just wants to share the cost of deferral with landlords. It seems a rather grown-up attitude - especially when compared to some the landlord/tenant issues we have seen.”

Hallelujah!