Pizza Pizza franchisees claim company exploits them

“I know a guy who paid $220,000 for his store. He’s doing $6,000 a week (in sales) and he’s crying. He’s losing his wife, he’s losing his life, everything.”

The Toronto Star
January 25, 1993

Pizza Pizza franchisees claim company exploits them
Paul Moloney


PIZZA PIZZA PROBLEMS PROBLEMS: Homayoun (Homey) Rafati's Pizza Pizza franchise that he bought four years ago for $260,000 is losing money because, he says, of unreasonable price increases by the franchizing company.

The first week of the new year, Homayoun (Homey) Rafati went another $1,200 deeper in the hole. It adds to the $9,000 deficit he chalked up last year running what had been a successful Pizza Pizza franchise when he bought it four years ago for $260,000.

The first week of the new year, Homayoun (Homey) Rafati went another $1,200 deeper in the hole.

It adds to the $9,000 deficit he chalked up last year running what had been a successful Pizza Pizza franchise when he bought it four years ago for $260,000.

The recession hasn’t helped, but Rafati says his major problem was a head office decision two years ago to award almost half his market to other franchises.

At the stroke of a pen, with no recourse, his dreams of financial security turned into a nightmare.

“Anything they want to do, they can do,” said Rafati, 33. “The way they do it, you don’t have the right to say anything.”

He has joined a fledgling group of Pizza Pizza franchise owners, whose meeting last Monday was attended by uninvited executives of the pizza giant in what owners say was a show of intimidation.

Organizers say the group, the Southern Ontario Pizza Franchisees’ Alliance Inc., plans to press on with their attempts to get answers to their questions:

  • Why, in a recession, did head office raise rents to 10 per cent of sales? Rafati said at current sales levels, this year’s rent will be $14,000 more than Pizza Pizza will pay his landlord.
  • Why doesn’t the 244-store company have a higher advertising profile, when franchisees pay 6 per cent of sales versus, for example, 4 per cent at the smaller Pizza Nova chain?
  • Why did Pizza Pizza recently raise charges for its central phone system to $1 per order from 91 cents?
  • Why does it charge more for many supplies than ordinary consumers pay? Example – a case of pop, $8.17. More than other pizza companies? Example – a pound of cheese at Domino’s: $1.73. At Pizza Pizza: $2.76.
  • Why won’t Pizza Pizza disclose it finances, information the group’s lawyer says franchise holders are entitled to see?

Lorn Austin, Pizza Pizza’s executive vice-president, characterizes the franchise alliance as the creation of a handful of unhappy hotheads.

In an interview, Austin said nobody queried Pizza Pizza’s charges when times were good. His advice: work harder.

“Our franchise agreement calls for full-time attention by our franchise owners,” he said, adding: “I put in 90 hours last weeks.”

Rafati said that when his store, on Danforth Ave. near Victoria Park Ave., had its territory cut, his sales plummeted from a high of $19,000 a week to $9,000.

His first year $45,000 profit became a distant memory and his $32,000 salary disappeared, despite the fact he works up to 100 hours a week, takes no holidays and sometimes enlists his two brothers to work for free.

Rafati said head office hits him with unnecessary charges. During the interview, a supervisor came in and handed him a tab for two pizza delivery bags at $194.33 despite his protest that he didn’t need or want them.

He says for the week ended Jan. 10, he was charged $8,697.53 for food, rent, royalties, advertising and a slew of other items, while net sales were $8,841.60. That left him $144.07 to live and pay is staff and his bills. Hydro is $500 a month and the phone and gas company bills total $400 monthly.

Rafati invested $110,000 cash to acquire the franchise, money he saved since coming here in 1984 from Iran. He worked as a Pizza Pizza driver, then cook, then manager, before he made his big move, borrowing $150,000 from the bank to complete the purchase.

Some weeks are better than others, but for the past two years he’s been barely hanging on, running up his credit cards to the limit to pay the bills.

When his account with Pizza Pizza dipped into the red in November, he received a letter telling him to pay up within two weeks and warning the company would seize the store if it happened again.

He isn’t alone, he says.

“I know a guy who paid $220,000 for his store. He’s doing $6,000 a week (in sales) and he’s crying. He’s losing his wife, he’s losing his life, everything.”

Earlier this month in Oshawa, a franchise holder changed the door locks to block the store from being seized by head office, owed about $30,000.

The company cut off the store’s access to the centralized phone system, forcing it to rely on walk-in traffic, said Aileen Collins, 28, a partner in the franchise.

The store is falling back on delivering pizzas to schools at least three days a week. A 100-pizza order every other Friday at General Motors “has really helped us,” Collins said.

Organizers claim their membership, currently 51, would be higher if it were not for intimidating phone calls from management the day of the meeting.

Despite being asked not to attend, Austin turned up at the meeting along with sales executives Bob Anand and Pat Finelli.

“There’s intimidation. We aren’t able to meet freely,” said association president David Michael, who has a franchise in Orillia.

“People who turned out came despite being called and given promises of something good for them if they don’t go or something bad to them if they do go.”

Other pizza operations agree the recession has had an impact on the pizza business.

Sam Primucci, president of Pizza Nova, said the customers are still there but they’re now more likely to order cheaper pizzas, and less frequently than before.

One bright spot, Primucci said, was McDonalds’s introduction of pizza hasn’t hurt the take-out franchises as had been originally feared.

“They didn’t touch us. They’ve just shuffled their menu. It just means three people go in and order two big Macs and a pizza instead of three Big Macs.”

John Sotos, lawyer for the franchisee group, said the economy isn’t the reason his clients have banded together.

“These franchisees are very comfortable that they’re holding their own in the marketplace,” he said. “What they don’t know is why their costs are increasing and they’d like to know.”

For example, they want to know why the fee they pay for their central phone system has gone up at a time when there’s an obvious drive to cut the costs of running that service.

Pizza Pizza is in the midst of a strike by its telephone order-takers, almost two-thirds of whom were laid off last year when the work was contracted out.

Last week, they voted down a proposal that would have allowed only 10 of 54 workers to keep their jobs. The 10, who had been making up to $10.21 an hour, were offered $6.45 an hour.

Austin said the order-takers come under an entity called Franchise Owners (Toronto) Ltd. (FOTL), and in effect work for the franchise owners, not the company directly.

This comes as a surprise to Sotos, who said the owners have nothing to do with the order-taking operation, and in fact want to know why the fee they pay has increased to $1 per order.

Sotos said Pizza Pizza ran it in the past but in November, 1990, it was transferred to FOTL.

Rafati said the association has started to solidify because attempts to discuss the issues informally with the company were unsuccessful.

Michael said the group wants to pressure management to sit down and talk with them, but in the course of that campaign doesn’t want to harm Pizza Pizza’s hard-won image of delivering a high-quality product.

Franchisee Tony Fammartino said the group has no intention of being unreasonable.

“If you look at our bottom line, it doesn’t make sense,” he said. “We’re the biggest, we do more volume buying, we are more efficient…it doesn’t make sense.”

“Now if there’s a problem, then it might very well be justified. We’re saying, ‘Please show us.’”

Sotos added that under the agreements with its franchisees, Pizza Pizza agreed to provide annual financial statements but “such statements have never been provided as far as I’ve heard.”

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Risks: Dave Michael & Tony Fammartino, Lorn Austin, Lorne Austin, Lawrence Austin, Infamous trademark system, Centralized order taking system, Lease controlled by franchisor, Divorce, Emotional collapse, Short- or forced-shipping, Disgruntled, Bad faith and unfair dealings, Encroachment (too many outlets in area), Unfaithful servants, Dissident leaders, Franchisee association, independent, Evict instead of terminate, Unsophisticated tyranny, Gouging on rent and equipment, Gouging on supplies, Labour unrest, Canada, 19930125 Pizza Pizza

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