Ovchinnikov's Dodo Pizza is on fire

The Dodo Pizza franchisee in Yaroslavl accused the company and its founder Fyodor Ovchinnikov of unfounded nagging and pressure to transfer the business to another owner.
02.12.2021
Forbes
Origin source
The history of the Dodo Pizza company began in 2011, when an entrepreneur from Syktyvkar, Fedor Ovchinnikov, opened a pizzeria with a name consonant with the name of the dodo bird depicted on the company's logo. A year later, he launched a franchise that allowed the business to grow rapidly: in 2014 there were 25 pizzerias, a year later - 50, in 2017 their number exceeded 200. At the beginning of 2019, the network consisted of more than 440 establishments, including outside Russia. Today, more than 750 outlets in Russia and 14 in other countries operate under the brand name "Dodo Pizza". For many years the company has been included in the Forbes rating of the most profitable franchises.

At the end of 2020, the chain's revenue amounted to 22.3 billion rubles. According to Infoline-Analytica, the company is among the top 4 catering brands in terms of revenue in Russia after McDonalds (91.4 billion rubles), KFC (59.2 billion rubles) and Burger King (35.2 billion rubles), which are also developed by franchise. In terms of the number of outlets in Russia, Dodo Pizza is also in the top 5 fast food chains, second only to international giants. The minimum investment is 8 million rubles, 55% of partners own two or more Dodo Pizza pizzerias.

Evgeny Tkachev, a franchisee who is suing Dodo Pizza, was born and raised in Kamchatka, later went to study in Moscow, and his family went to the Krasnodar Territory. He studied to be a translator, then received a diploma from the Plekhanov University of Economics in Moscow and an MBA from Trinity College in Dublin. The Tkachev family has owned the Pulse pharmacy chain for 20 years, which operates in the Krasnodar Territory (10 outlets). According to SPARK-Interfax, in 2020 the revenue of the head company Pulse LLC, which manages the network, amounted to 158.5 million rubles.

"Nobody Wanted to Buy"

At the end of 2017, Tkachev decided to try his hand at the restaurant business, buying a franchise of a famous brand. At first, he applied to international KFC and McDonalds, but did not receive an answer. Then Tkachev drew attention to the young company "Dodo Pizza", which was dynamically developing on the Russian market. “I really liked the project: open, democratic, with a bright leader and an interesting business model. The management assured that we are one team and work on the principle of an open, honest business, I believed, ”the entrepreneur recalls the beginning of cooperation with the brand.

Tkachev opened his first pizzeria in the same year in the small town of Tikhoretsk in the Krasnodar Territory. “I wanted to work in a larger city, but many of them were already busy with the Dodo Pizza brand,” he says. Tkachev found a room, equipped it according to all brand standards, investing about 15 million rubles, and began to work. The lack of competition and low prices for rent and wages in a small town allowed them to quickly develop and start earning.

In mid-2018, Tkachev, like other franchisees, learned about the closure of the Dodo Pizza pizzeria in Yaroslavl. The previous partner of the network allegedly lost control and declared himself bankrupt, putting up for sale objects: one closed and requiring renovation pizzeria with a staff and debts to the management company, suppliers and an investor of several million rubles and another premise rented for a pizzeria at the initial stage repair.

“Nobody wanted to buy because the points were in poor condition and it was difficult to restore them,” Tkachev recalls. - I also refused at first, but the management company asked for help in this situation - to buy it out with debts, resolve all issues and restart so as not to lose the city. I thought and agreed, because I wanted to develop, and Yaroslavl is a regional center, a large separate city. "

“At that moment, many existing partners were exploring the reserved cities, so few people wanted to go to Yaroslavl, then I proposed to Evgeny Tkachev,” says Ovchinnikov's partner and director of Dodo Franchising Andrey Petelin. - We had the hope that he would turn the tide in the city, and there was mutual understanding with each other. Then it seemed to me that Eugene shares the brand values ​​and everything will be fine. "

Nobody wanted to work in Yaroslavl, as there is a strong competitor in the region. The Pizza Factory chain has been operating, like the Ovchinnikov chain, for 10 years. It has five pizzerias in Yaroslavl, as well as more than 40 establishments throughout the country and also operates under a franchise. “It is difficult to compete because they were the first and formed the pizza delivery market in Yaroslavl,” says Tkachev. “Their prices are 10-15% lower than those of Dodo, due to the difference in the cost of products, and the assortment is wider: for example, there are rolls, pasta, wok.”

Nevertheless, he decided to take the risk. The funds were found. Tkachev attracted five investors with whom loan agreements were concluded (without a share in the business). The businessman paid them a percentage of the proceeds before paying off the principal debt, with the subsequent payment of a certain percentage of the proceeds over several years as a bonus.

At the end of 2018, the revenue of Tkachev's three pizzerias, according to him, amounted to 35 million rubles. The next year, he expanded the network to seven points (three were added in Moscow and one more in Yaroslavl), and the total revenue exceeded 100 million rubles. Investments in each new point on average amounted to 15-20 million rubles, the entrepreneur cites the data. As of today, Tkachev has settled completely with two out of five investors. In just four years, Tkachev opened 11 outlets, the revenue of which is more than 300 million rubles a year.

Mystery shopper

Back in 2014, Fyodor Ovchinnikov, the founder of Dodo Pizza, developed a system for evaluating establishments (public rating), which worked according to the principle of “percentage of the ideal”, where 100% is a full compliance with the ideal, which is composed of many criteria. Ovchinnikov established a separate company "Dodo Controlling" on the basis of a call center, having invested several million rubles in establishing work with mystery shoppers, and immediately tested the technology at his pizzerias. “Some received a rating close to 100%, but in the future it will be very difficult to get such a result,” the businessman warned at the time.

Ovchinnikov spoke in detail about the quality control system in June 2014 in his personal blog "Power of the Mind". The idea of ​​the owner of the franchise was immediately criticized by commentators: “I don’t understand franchisees who sign up to become members of a regulated franchise”, “By becoming a franchisee, you risk living your life as a soldier.”

Ovchinnikov was indifferent to sharp jokes and in 2017 added another control tool to the quality system - on-site inspections. A special Business Development Eurasia department was created, consisting of business developers and territorial business development managers.

In four years, Dodo Pizza's business developers have carried out more than 1,100 inspections across the country (more than half were in 2021). In 2022, the company plans to expand its staff from 18 to 30 employees.

“The ratings control the operation of pizzerias, but only a deep on-site audit can show the full picture,” Nikolai Piskov, head of Business Development Eurasia in Russia, Kazakhstan and Belarus, explains the difference. “Dodo Pizza has a complex operating business, and business developers deeply understand it and help partners to successfully conduct it on their territory and eliminate mistakes.” It is business developers who interact most closely with franchisee partners at all stages, from selection and decision-making on cooperation to parting with a partner, if this happens.

“As of November 2021, almost all large and medium-sized cities are occupied by Dodo Pizza's partners, so it is logical that the management company is now bringing pizzerias to more serious unified network standards, consistently strengthening the control and support of franchisees,” argues the franchisees of eight Domino's restaurants Pizza, member of the Russian Franchising Association (RAF) and owner of Franch profi business scaling agency Oleg Yudin. According to him, the presence of a business development department is an indicator of professionalism for any franchising company of the federal, and even more so the international level. For example, Domino's also employs franchise consultants, they audit franchisees and provide support.

Since 2018, the franchisor has closed nine Dodo Pizza partner establishments, four of which are pizzerias in Yaroslavl that belonged to Evgeny Tkachev. Another 18 pizzerias were sold due to the termination of the contract. “The contract with everyone was terminated on our initiative, the reason is a gross inconsistency with work standards,” explains Piskov.

Yaroslavl repressions

According to Evgeny Tkachev, the parent company began to show interest in his business in 2019: in the spring, on-site inspections of a pizzeria in Yaroslavl became more frequent, during which business developers found “minor inconsistencies”. “The checks were frequent, harsh, repressive and mostly biased. Sometimes the inspectors frankly found fault: they took off points for the fact that the sign does not burn in the middle of broad daylight, or found dirt where it was not. Once we were reprimanded for the fact that we ran out of printed discount coupons and along with the delivery my employee put in a handwritten note with a promotional code, ”the businessman lists the cases.

“Since 2019, systematic violations of standards, as well as payment discipline (delays in royalties and other payments) have been recorded in pizzerias in Yaroslavl,” explains Ovchinnikov. - Violations were repeated and significant, that is, not only the internal standards of Dodo Pizza were violated, but also the norms of current legislation (requirements of Rospotrebnadzor and SanPiN standards, including labeling of the shelf life of ingredients, the presence of mandatory medical books for pizzeria employees, etc.). etc.). This could lead to serious risks for consumers and the brand. ”

“The internal standards of Dodo Pizza have become tougher every year and in many ways do not correspond to the general requirements of SanPiN,” Tkachev said. "For example, the shelf life of salads is 18 hours, but according to the recently introduced Dodo rule, we have to write them off in the evening, even if they are just cooked and their shelf life is, for example, until 4:00 pm the next day." According to the partner, if the check comes in the morning and sees the evening salads, it will be considered a violation.

I also disagree with claims for delays in payments to the franchisee from Yaroslavl. “The Criminal Code turns the facts around,” says Tkachev. - According to the terms of the commercial concession agreement (DCC), partners must pay only royalties, other payments (advertising, call center, charitable contributions, etc.) are not included in the list of mandatory and do not belong to the reasons for termination. For one of the two DCCs, I only once had a royalty delay of just one day (April 21, 2020), and that was by mistake of an accountant. Working situation. While according to the DCC, you need at least two per year for the right to terminate. In all other years, payments, as a rule, were made several days ahead of schedule. "

“The history in Yaroslavl has been developing for two years, and our company has made serious attempts to help improve the management of Evgeny Tkachev's pizzerias, although the management of pizzerias is 100% the responsibility of the franchisee,” says Ovchinnikov. One of these attempts was the invitation in February 2020 of an external manager, who, according to Tkachev, “tried to take away the levers of control” and which the franchisee refused.

The Tkachev story is not unique. Entrepreneur Yuri Nurzhanov lost a cafe in Nalchik in 2021 - Dodo Pizza terminated the contract with him. “During one of the inspections, a flaw was discovered - the distance between the horizontal boards of the signboard, on which the letters are located, should be 20 mm, while mine was 10 mm. It seems like a trifle, but it affects the rating, - Nurzhanov explains. - Due to the pandemic, for several months I could not fix the flaw; at first they gave me a reprieve, and then they stopped and began to systematically remove three points out of five ”.

In October 2020, the parent company sent Nurzhanov an order to terminate the contract and subsequently terminated it. “The human component, communication with the aim of building a business, has disappeared. A 20-year-old guy comes to you with a checklist and silently assigns points. He does not ask questions, does not understand the situation, - Nurzhanov complains. - If it were some kind of import company - one conversation. But yesterday these guys talked to you in a completely different way. "

Piskov confirms: with a partner from Nalchik there was "a long history of negative interaction", the reasons for the termination were systematic violations of financial discipline, as well as low ratings of standards in the pizzeria due to violations that the franchisee could not eliminate in a long time. “This is not an impulsive decision. Obviously, we will not terminate the contract just because of the millimeters. " This is one of the many problems officially recorded in the documents, for which he lost points in the rating and which he is now clinging to in order to justify himself and make the situation more dramatic, "Piskov comments.

According to the Criminal Code, Nurzhanov periodically delayed payments to logistics companies and distributors, which was reported to the franchisor. It is inappropriate to talk about delays, argues Nurzhanov: “There were no options to delay payments, since you were instantly disconnected from Dodo Is (using the system, franchisee partners receive orders and control the internal work of their outlets. - Forbes). If the bills are not paid on the 20th, a prescription is immediately issued: will not be paid until 17:00 - they will be disconnected from the system. We had orders, but they were always paid during the day. "

“Everything in the aggregate resulted in the fact that we made a difficult decision for us to terminate the contract. We gave many opportunities to the partner to rectify the situation, "Piskov concludes.

“The restaurant business (especially fast food) requires quick decision-making,” says Oleg Yudin. - For example, in many international franchises, it takes from several days to several months to fix any situation. So "Dodo Pizza", in my opinion, does not act rigidly and quite adequately. But everything that is happening now with the franchisee can still potentially repeat itself. "

The Shokoladnitsa chain, numbering more than 120 franchised coffee houses, conducts inspections regularly: in Moscow and nearby regions - several times a month, in remote locations - at least once a quarter. "The seriousness is always maximum, we check all the necessary parameters: from compliance with the standards of guest service to SanPiN, commodity neighborhood and other operational things," emphasizes Maxim Trubnikov, head of the Shokoladnitsa franchise department.

“Termination of the treaty is like a nuclear weapon for us - the most extreme measure,” explains Ovchinnikov. - We absolutely do not want the entrepreneur to lose money, and therefore, if we see that the partner is unable to establish management, we offer him to sell the pizzeria so that employees and guests do not suffer, and the pizzeria would go to a more efficient owner. At the same time, this always remains a recommendation until it comes to terminating the contract. "

The terms of sale are not spelled out in the contract, just as the formula for calculating the cost of a pizzeria is not defined: it is determined by the market and is essentially equal to the amount that the new owner is ready to offer for it, adds Petelin.

"Throw off Yaroslavl"

Tkachev claims that he received offers to “throw off Yaroslavl” repeatedly and in an ultimatum, including from the director of Dodo Franchising Andrey Petelin and business developer Viktor Nikitin. “At the same time, by mail, I received a request for the sale of pizzerias from two partners, including a franchisee from Vologda, Dmitry Lyulintsev - according to my information, this is Petelin’s half-brother,” says Tkachev. "In response to refusals to sell, I was threatened with a tough scenario to close pizzerias."

Petelin, which is typical, does not deny the connection with the Vologda partner. “Lyulintsev is not a relative, but he is an old friend of mine, who, moreover, has been running two Dodo Pizza restaurants in Vologda for many years,” explains the top manager of Dodo Pizza. - Lyulintsev told me back in 2019 that he asked Tkachev from neighboring Yaroslavl if he was selling his points. This was his independent decision, possibly coinciding with our checks, but not related to them. Proposals from me and from the business developer Nikitin, whose zone of control included Yaroslavl, were already later and were of a recommendation nature: they say, Evgeny, if you took over a lot of points, you can always sell part of the network to one of the existing partners " ...

In August, Tkachev, according to him, found two buyers willing to pay 150 million rubles for four pizzerias, but they, again, according to him, were not approved by the parent company.

According to Petelin, he is aware of only one buyer, who was rejected by the Criminal Code. The reason is that the potential partner was reluctant to make contact. Petelin assumes that the second buyer means the current partner of Dodo Pizza, which owns more than a dozen pizzerias in the Central Federal District. “According to our information, Evgeny himself rejected this buyer, who could only complete the deal with an installment plan,” adds Petelin.

“Before the sale, the franchisee submitted inaccurate P&L data (income statement). Tkachev's declared profitability of Yaroslavl pizzerias in terms of EBITDA of 25% is generally not typical for our business, for which 10-15% is the norm, says Ovchinnikov. - When analyzing the costs, inconsistencies were also found. For example, Tkachev states that the salary of kitchen staff and couriers in pizzerias was 10,000-15,000 rubles a month, while in the job advertisements posted by a partner, it was listed from 30,000 rubles. " According to the parent company, the real value of the partner network (based only on the revenue and profit forecast of four restaurants) is 30-40 million rubles, or 60-80 million rubles, if we take into account the market potential. Moreover, just at the start, Tkachev invested, according to his own estimates, 15-20 million in each point, without advertising costs and operating minus.

"We are a principled company"

Now the halls of the pizzerias "Dodo Pizza" in Yaroslavl are empty. According to Tkachev, on the night of October 31 to November 1, all four pizzerias in the city were disconnected from the Dodo IS system without warning. Tkachev is now prohibited from using the Dodo Pizza brand.

In September-October, Evgeny Tkachev appealed to the Moscow Arbitration Court with a demand to declare the unilateral termination of contracts invalid. Yuri Nurzhanov from Nalchik followed the example of a partner. “The lawsuit was filed even before the closure of the pizzerias, and the main task at that stage was to urge the Criminal Code to work within the legal framework. This was to minimize the number of conflicts and disputes that I absolutely did not want to get into. I don’t want to fight, ”admits Tkachev.

According to him, now he has no other options except for the sale, since every day there are new losses. Direct losses and lost profits in November are more than 10 million rubles (purchased and unsold products, debts on mandatory payments - rent, utilities, payroll, taxes, payments to investors). 40 employees were left without work. “We can’t even dismantle signs that we do not have the right to use (they are covered with black film and scotch tape), simply because it’s expensive,” sighs the partner of Dodo Pizza. He fears that the scenario will repeat itself with his pizzerias in Moscow, where they also came with checks more than once.

“In Russia, a practice has developed that 70% of terminations are initiated by the franchisee,” says Anna Rozhdestvenskaya, head of the franchise catalog at Franshiza.ru. “And the franchisor tries to keep the object in the network until the last moment, and sometimes goes to buy out the outlet if it is important for the brand.” The reasons can be different, for example, when a franchisee, succumbing to promises of "success and guaranteed income", in reality is faced with the need to engage in this very business. Logging out and closing is a logical conclusion to such a story. If the relationship is terminated by the franchisor, then this, as a rule, is due to violation of standards and systematic non-payment of royalties.

According to Rozhdestvenskaya, the judicial practice of resolving conflicts between franchisers and franchisees in Russia is still just being developed. “Only a few go to court, and, as a rule, for the most part, these are two categories of cases: demands of the franchisee to terminate the contract and return the lump-sum fee, or collection by the franchisor from the franchisee through the court of unpaid royalties. Other problems of franchising in courts are rarely touched upon, ”says the expert.

Conflicts between the franchisor and the franchisee are typical: only in the last few years have they happened at Doublebee, Cofix and Domino's Pizza. “The Dodo Pizza situation is unique in that this is the first publicly highlighted termination of a contract, and absolutely justified by non-compliance with the standards of the copyright holder. Any good franchise agreement describes in detail all the circumstances under which the management company has the right to terminate the agreement unilaterally, ”says Irina Avrutskaya, founder of the consulting company Like4Like Hospitality Strategies and curator of Novikov School. According to the expert, the franchising market in Russia is very weak in terms of compliance with standards and relationships between partners. “If such a situation had happened in any international market, then no one would have ever challenged it publicly,” she adds.

Ovchinnikov admits that he regrets the lost market in Yaroslavl, even though his share was not large (monthly four Tkachev pizzerias brought in 9 million rubles in royalties against the background of the total turnover of all franchisees of the brand in 3.3 billion rubles). The amount of royalties received by the parent company from this region was less than 1% of the total contributions. The founder of Dodo Pizza says that in the future, if necessary, he is ready for a more significant reduction of the network: "We are a principled company and will go to reduce the business for long-term goals."

How will the Dodo Pizza franchisee precedent affect the brand image and the franchise market? Experts polled by Forbes are unanimously positive. “The company has long been not counting on a new audience of franchisees in Russia, because the market has already been divided between partners,” says Avrutskaya. - The key audience of Dodo Pizza now is investors. Therefore, a tough leadership position and adherence to principles is a strategic advantage of the company and a positive signal for the market. "

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