Date: 4/22/97 4:10pm
Subject: 16 CFR Part 436
My name is Kevin Bores and I am a Domino's Pizza Franchisee in Minnesota. I am writing in regard to proposed changes in the Franchise Rule. It is my understanding that the Franchise Rule offers no protection after a franchise contract has been signed. I believe that unless contract extensions and renewals are identical to the initial agreement, some sort of protection needs to be extended to all franchisees already under contract. I signed my first Franchise Agreement with Domino's Pizza in 1980, my second in 1982 and my third in 1992. I will have to sign a new agreement ibn 2002. Each of the agreements which I signed were more restrictive than the previous, and the next agreement I will sign will be more restrictive than the one I am currently operating under. All the agreements offered by my Franchisor are non-negotiable. I must either sign their agreement or sell. They do not even consult the Domino's Pizza national Franchisee organization (IFAC) for input concerning the potential harm the contract might do to existing franchisees.
As a Domino's Pizza franchisee I have two options at renewal time:
1. Sign an agreement that is substantially different and substantially more one-sided than the previous agreement.
2. Sell the business.
Selling the business is often not an option because Domino's Pizza (through its franchise agreement) controls that market by not only regulating the value of the business, but by also regulating the potential list of buyers.
Recently Domino's Pizza found me in default of my contract and felt that I would have a difficult time curing the default. To that end they made me an offer to purchase my 5 Domino's Pizza stores. The price they offered was the price spelled out in my contract. This contract price is significantly less than it was 10 years ago but significantly more than what is shown in the contract that will be offered next year.
That offer was for $600,000. This represented 1.5 times my yearly cash flow. After deducting for other obligations required in the Franchise Agreement, paying my debt, and paying my capital gains taxes, I would have had to pay Domino's pizza to finish the purchase. Last month I had this same business independantly appraised for sale at $1.8 million. But I cannot sell it to anyone but a Domino's Pizza employee who is approved by Domino's Pizza. Its in my Franchise agreement.
You might ask, why I don't use some of my cash to reinvest in another business so that I can afford to sell. I can't. Under my Franchisee agreement I'm not allowed to do that either. I'm trapped.
Each time a franchisee signs a new agreement, it is just that. New. A franchisor should not be allowed to tighten agreements year after year knowing that the franchisee can not walk away from his substantial investment. We are no different from indebted coal miners who continue to buy from the company store because, even though they will never be able to pay off their bill, at least they have a job if they keep buying.
Would you please look into how franchise agreements are unilaterally evolved to the detriment of existing franchisees. Every franchise agreement looks good up front, but that agreement always changes and we have no protection from these changes.