SA’s Domino Pizza Deal Gone Sour

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FOR 18 months, Domino’s Pizza negotiated with a local consortium to open the world’s biggest pizza-delivery chain in South Africa, but then made a sudden about turn and announced a deal with Taste Holdings instead, court documents show.

The local consortium, now a Mauritian-registered company called International Foodservice Concepts (IFC), has now lodged court papers revealing e-mails between it and senior Domino’s executives to show that the deal was all but complete, except for the final signature.

IFC is made up of three prominent businessmen — RJ van Spaandonk, Rodney Ichikowitz and Keith Warren. Warren was the general manager for Africa of KFC-parent Yum! Restaurants International, responsible for building the chicken franchise on the African continent, while Van Spaandonk and Ichikowitz are part of Core Group, which markets and distributes Apple’s iPhones, iPads and computers in Africa.

Last Monday, IFC served papers to interdict Dominos, Taste and Abraham Carel Viljoen from “implementing any master franchise agreement (MFA)” and “selling products in the territory under the Domino’s Pizza brand”.

The court challenge has put a stick in the spokes of Taste Holdings’s plans, hitting its share price.

After Taste said on April 10 that it had signed an “exclusive” master franchise agreement with Dominos, its stock climbed 10%.

After the legal challenge to the deal was revealed, Taste’s share price fell 1.5%.

This shows how big a deal this was for Taste, which already sells pizzas through 150 stores under the banners of Scooters and St Elmo’s. All these pizza brands were to be renamed Domino’s, in a push to make this South Africa’s biggest pizza-delivery company.

Domino’s, based in Michigan in the US, delivers more than one million pizzas across the world every day.

Pizza sales remain strong in South Africa, even though consumers have cut back on other fast foods. Taste’s financial results for the year to February, released this week, showed its strongest performer was its food division, including pizza, which clocked up R364-million in sales. Bottom-line profit from its food division rose 12.6% to R31-million.

Now, however, IFC is asking that the court issue “an order declaring that [the] agreement concluded with [Domino’s] for the exclusive appointment in the territory of a master franchisee … is valid and binding”.

The 353-page document includes 276-pages of supporting e-mails and correspondence, as well as the final version of the franchise agreement, which appears to confirm IFC’s argument.

E-mails from October last year between the local consortium, various lawyers and Domino’s legal counsel Adam Gacek, who is the chain’s vice-president, discuss the details of the “revised MFA”, as well as an “invoice for the portion of fees to paid now” and a “shareholder agreement”.

Gacek ends the e-mail by asking for two changes to specific clauses in the contract, then adds: “Other than that, we are good.” IFC paid $45,000, which was a 10% deposit as a “prepayment for services to be rendered”, on November 13 last year.

A month before that, Fred Lund, Domino’s director of international business development, sent an e-mail to the consortium on October 17, saying: “We look forward to working with you and the team to launch Domino’s Pizza in South Africa.” Lund was part of a three-man team sent to South Africa in November. He outlined their objectives to include:

• Present our market opening timeline and commit to specific tasks/ dates with you and the team;

• Review the site selection and market development process; and

• Define the basics of the menu.

After the court papers were served on Monday, Taste Holdings issued a terse announcement the next day dismissing the challenge, saying: “None of the aforementioned parties have, or had, a written agreement with Domino’s Pizza International.” Carlo Gonzago, the founder and chief executive of Taste Holdings, brushed off concerns, telling Reuters that “we are not worried about this”.

Later that day, Gonzago told a radio station: “There is no signed agreement. Domino’s confirmed that telephonically with me, that there’s no signed agreement with them. We have a signed agreement.” The court papers, however, tell a different story.

There is more intrigue in the case as IFC’s consortium initially including a fourth person, Viljoen, as a 25% shareholder and the chief executive- designate.

This week, Viljoen emerged as the new managing executive of Taste Holdings’s Scooters pizza chain, suggesting that he jumped ship.

He is now named in court papers as the third defendant in the case, alongside Domino’s and Taste.

IFC would not be drawn on the case, and would only say: “We maintain a binding agreement is in place with Domino’s Pizza regarding an exclusive master franchise for, among others, South Africa, and that implementation thereof started in November 2013 with the knowledge and support of Domino’s.”