Bank Hapoalim will close down the Domino's Pizza franchise in Israel if the owners do not inject funds into the business.
The bank has notified the owners of the pizza chain, Omni Food Brands, that if they do not come up with more funds in the next few days, Hapoalim will stop providing credit to Domino's and request the firm's liquidation. The bank, which is owed NIS 16 million by Domino's, is demanding that the owners put up another NIS 5 million in order to finance the firm's recovery plan; and only then will the bank agree to reschedule existing debts.
Domino's owners, who have invested over NIS 7 million in the franchise since 2000, have yet to respond to the bank's request. Omni will probably agree to inject more funds, according to sources close to the company.
Omni is owned by businessman Danny Alpher (43 percent), Ian Fisher (23 percent), Dror Ad owned by the Almog family (20 percent) and the public. Domino's operates 24 branches in Israel, seven of which are run by sub-franchisees. The firm employs 700 workers.
The recession and the security situation, along with the intense competition in the pizza business, have led Domino's to years of losses. The company lost NIS 2.3 million in 2001, NIS 7 million in 2002, and another NIS 3.8 million in the first half of this year.
Revenues for the first half of 2003 were NIS 19 million, down 30 percent from the same period in 2002. In order to enable the firm to continue functioning, the owners lent Domino's NIS 5.5 million in 2000 and 2001, and put up another NIS 2 million in 2002.
The CEO of Domino's Pizza, Assaf Greenberg, implemented a recovery plan for the chain in February. The company's headquarters was cut back, and all food production in the chain's logistics center was stopped. Domino's closed its national pizza orders call center at the end of October, hoping for annual savings of NIS 500,000.
One of the reasons for the lack of success of Domino's Pizza and Pizza Hut is the competition between them that demands high advertising costs and special discount offers. Local pizza ventures, on the other hand, have lower operating costs.
Entering the pizza market in Israel is relatively easy compared to the hamburger business, for example. Equipment is relatively simple and inexpensive, and large storefronts are not required. Regulatory and kashrut approvals are also relatively easy to attain. All this makes it easy for local "mom and pop" pizza operations to compete with the likes of Domino's and Pizza Hut.
Domino's Pizza is one of several international fast food franchises that have struggled in Israel, including Burger King, Kentucky Fried Chicken, Dunkin' Donuts, Pizza Hut, Haagen Dazs, Subway and Starbucks.
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