One of the worst performers on the ASX 200 this week has been the Domino's Pizza Enterprises Ltd (ASX: DMP) share price.
Following a sharp decline on Thursday, the pizza chain operator's shares are down over 9% since the start of the week.
Why is the Domino's Pizza Enterprises share price down 9% this week?
The majority of this decline came on Thursday when the Domino's Pizza Enterprises share price fell almost 5%.
The catalyst for this decline was news that one of the company's award-winning franchisees is suing it in the Federal Court.
According to the AFR, franchisee Tim Yervantian alleges "misleading and deceptive conduct, unconscionable behaviour, misuse of market power and breaching the franchise code of conduct by failing to act in good faith." Mr Yervantian is seeking losses and damages of over $6 million.
The report explains that the franchisee was told that his store would generate $100,000 a week in sales four years ago when he paid almost $900,000 for it. Whereas last week the store produced sales of just $34,000 and is apparently only just breaking even.
In addition to this, Mr Yervantian has a second store nearby which is generating weekly sales of $17,000 and losing money. The franchisee paid over $650,000 for this store and has blamed $4.95 pizzas for the majority of the losses.
What now?
There are concerns that this could lead to other disgruntled franchisees taking action against Domino's Pizza in the near future. If this were to happen then I fear it would weigh heavily on investor sentiment and ultimately its share price.
The company has yet to comment on the development, but hopefully it will give its side of the story very soon.
Until then, it might be worth seeing how the situation unfolds and focusing on other quick service restaurant options such as Collins Foods Ltd (ASX: CKF) or Restaurant Brands NZ (ASX: RBD).
