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Ray Borradale's picture

MP warns of rogue operators at Franchise Expo

Media Release from Peter Abetz MP 22 May 2011;

The Member for Southern River, Mr Peter Abetz, has issued a warning to people considering entering into a franchise arrangement after visiting the Perth Franchise Expo, which will be held this week end May 21 and 22nd .   He warned that franchising is a “minefield for the inexperienced business operator”.

Mr Abetz recently introduced a Private Member’s Bill in the WA State Parliament in an effort to provide additional protection to  mum and dad  franchisees from unscrupulous franchisors.   He urged people considering buying a franchise to make sure that they speak to other franchises in that system and not only the ones the franchisor suggests. 

“There are people out there who prey on the inexperienced and naive business operator. Franchising is not a level playing field and although I am sure the majority of exhibitors at the Franchise Expo are people of integrity, there is every likelihood that some rogue elements will be there as well.” Mr Abetz said. 

“While there is a Franchising Code of Conduct, franchisees need to be aware that there are no penalties for breaches of the code, which results in some franchisors thumbing their nose at the code, because they know that franchisees don’t have the $100,000 or more it takes to sue their franchisor for rogue behaviour,” Mr Abetz said.

Mr Abetz pointed   to a recent media report about a Sumo Salad franchise outlet in Sydney where reportedly a franchisor sent a crew into the franchise and vandalised the property of the franchisee. 

“Franchisees buy a franchise because they trust the franchisor, but sadly, that trust is often misplaced.  “I would never consider buying a franchise unless the franchise agreement included words to the effect that the franchisor must deal with me at all times and in all aspects of our relationship, honestly, fairly, reasonably and cooperatively. “

The other aspect that franchisees often don’t realise is that while buying a franchise is touted as “be your own boss”, the fact is that when the franchise agreement expires,  most franchising agreements allow the franchisor not to renew the agreement and to take over the business themselves, and then sell it as a going concern to someone else.  In other words, franchisees can build up a great business, but ultimately it is not their business.  It is simply a licence to use the franchisors system for a period of time.”  Mr Abetz said

 I would caution anybody who is contemplating   buying a franchise to take all precautions and seek independent advice before making a commitment” Mr Abetz said.

The Franchising Bill 2010 introduced by Mr Abetz seeks to ensure that both franchisees and franchisors adhere to generally accepted standards of conduct, and that persons breaching the Franchising Code of Conduct can be fined.     “Unless there are penalties, there will continue to be few incentives for unscrupulous operators to act honestly, fairly, reasonably and cooperatively.” Mr Abetz  said.

The Franchising Bill 2010 is currently being examined by a Parliamentary Committee which is expected to report back to Parliament by the end of June.

Ray Borradale's picture

Abetz slammed after warning franchisees

I’ve heard this same self-serving rhetoric so many times, coincidentally from the same self-serving profiteers, over so many bloody years that I am now beginning to believe it. I just need a little bit more bullsiht, perhaps a little thicker on the ‘we’re getting our butt kicked so we’ll pretend you’re losing’, and then I think I’ll be across the line.

I always prefer to be on the ‘I think we’re winning’ side of any argument especially when that side has all the money and wants to keep it and the rest of the little meaningless people pushing for reform either are not going to get a penny out of protecting others or some might just be trying to stop the whiners from ripping them off.

Rogue franchisors [or rouge for the straight set] seem to be getting a rough time in Australia and a lot is at stake.

I will stick my head out and totally agree with the spirit of Abetz' warnings and the effort he is injecting into helping people avoid financial, professional and personal wipeout. I visited the franchise expo in Perth this last weekend and was utterly dismayed by the quality of the offerings, and the start-up costs for the value offered. In the main these so-called franchises were an expensive way to buy a low-paid and stressful job. Even those that claimed they were not buying a job.  StartUpSmart

Actually a lot has been at stake for many decades and many generations of franchisees and franchisors. Think about today’s and the future masses of mom and pop investors who empower bad franchise businesses rather than invest in ‘good for everyone’ businesses. Seriously; are they worth getting upset about? 

Now if I actually joined the smartie set over at the FCA and I could see so much so easily arrived at wealth at risk ….. I think I would be a lot upset.  How could any Australian even contemplate agreeing to law reform when it means the influential few would have to earn a living honestly rather than powerfully.

So I have now officially decided to remain on the fence.  With my wrecked‘um pointing straight at the ‘I think we’re winning’ spinners.

Robert W Sisyphus's picture

Franchisors support Expos

Gone are the days when Franchise Expos carried the stigma of simply being there to befuddle gullible investors out of serious money while being held in large auditoriums too noisy for recording.

The Franchisor Council of Your Australia [ForCYa] in conjunction with the ACCC has readied the introduction of a short course designed to help prospective franchisees plan where to leave their inheritance.  The course will held between 2pm an 2.15pm on the last day of all future Franchise Expos across Australia.

Expert speakers listed are the franchisors for Bakers Delight, Lenards Chicken, Wendy’s, Automasters, Allphones, ActionCoach, Poolwerx, Big Dad’s Pies, Battery World with a number of others yet to confirm while SumoSalad agreed after a last minute request.

According to 2008 research by the Public Trustee, only 23 per cent of Gen Y franchisees have a will and over 60 per cent of Australian franchisees don’t see the point.

Early bird bookings will also gain entry to another newly developed course entitled ‘Termination is not a Dirty Word’. This course is expected to be a popular and entertaining event including humorous clips from many of the most recent franchisee lock outs from across Australia. It will run from 2.15pm through to midnight on the last day of all future Franchise Expos across Australia.

Expert speakers listed are the franchisors for Bakers Delight, Lenards Chicken, Wendy’s, Automasters, Allphones, ActionCoach, Poolwerx, Big Dad’s Pies, Battery World with a number of others yet to confirm while SumoSalad agreed after a last minute request.

An exciting finale to today’s Perth exhibition will include a rendition of ‘I Thought I Bought the Sheriff’ from the acclaimed Gillespie, O’Brien, Poulter and Giles Sheering Shop Soprano Quartet.

Franchise expos are an

Franchise expos are an organized mass sting but wow this is left field. This release is more than Mr Abetz saying 'is that all you got' to Mr Giles' below the belt attacks on everyone supporting the Bill. Abetz is also pointing out what is obvious to everyone in franchising but not obvious to those who go along to an expo blitzkrieg. If Mr Abetz wanted a reaction from the FCA I'm sure he will get one. The media should love this.

Ray Borradale's picture

a dirty big brown land

In Australia there seems to be three main reasons our industry is so flipping dirty.

1) The regulator [the ACCC] has encouraged franchisors by ensuring that ACCC lack of interest is the standard industry joke. The only message sent to rogue franchisors is that you can do what you want without fear. The federal government has supported that message so for rogue franchisors there are no deterrents to worry about.

2) Human nature. Sadly many people steal and take advantage of others when the opportunity arises in the belief that if you can get away with it then it cannot p[possibly be immoral.  Franchising just makes it easier.

3) Australia has a comparative and massive over abundance of franchise brands feeding from a very small investor market.  This encourages franchisors to sign any franchisee investor and if duping an investor is needed where there is no consequence then duping is the standard. When systems reach a level where they cannot attract enough new prospects then churning offers the opportunity to recycle investment dollars and lower the cost of entry where churned franchisees covered the bigger costs of producing an impression of established business.

Why should any of this change? Those who benefit from the old franchising status quo are now beginning pay.

michael webster's picture

Australia Regulation

Ray, I saw the piece on the new Franchisee Association being talked about.  Right now, Jack Cowin is your best rallying point.  He has staked out a big claim on the renewal issue - and he might get his way.

I would be putting his stance out in every media I could find:

Mr Jack Cowin Chairman and Chief Executive Officer, Competitive Foods Australia 

“Competitive Foods is proud to support FairGoLegislation.org. As a franchisors and franchisee I am a passionate believer in the ability of franchise systems to provide opportunities and a great future for thousands of small businesses and their employees.

However, there have been  too many examples of a lack of good faith in some franchise relationships  which can result  in unfair exploitation, which are beyond the ability of franchisees to defend, and reflect badly on our industry. 

“Our company – like many franchise businesses throughout Australia – has found itself in the unenviable position of being exposed to this kind of behaviour which now threatens our investment and our employees.

As a result of this experience Competitive Foods is pleased to lend its reputation and resources to advocating, as we have done many years, for a fairer go for all franchisees.”

Ray Borradale's picture

Michael: Re rallying point

You are right Michael and I believe Jack Cowin has the connections to move this forward. Surprisingly I've had a rush over the last week of from franchisees who have been working away doing their bit  but only as more pockets of fragmented franchisees.  Personally I would like to see more information released on the proposed franchisees association. You and I discussed an Australian association model before Christmas and I continue to believe that model is the short term and long term answer for Australian franchisees. We have the franchisees, we have the model, we have some benefits on the political table and we have momentum. 

michael webster's picture

Cowin

Ray, Jack Cowin is the franchisee focus - for better or worse.  Even though he has a single issue, it is an important issue.  It needs a greater exposure than it is currently getting.

Ray Borradale's picture

I cannot agree more

I cannot agree more but I haven't read where Jack wants to be the rallying point. He is not an easy man to contact - you try. I have no doubt the association will have much in common with Jack's cause. Non-renewal and the threat of non-renewal was shoved down every franchisee's throat when Yum! went after Jack Cowin. Seriously I don't give a rat's butt about the dollars involved.  Yum! allowed Jack to build the brand from nothing for more than 20 years and then said - thanks you have done a brilliant job with your money; here's a book of postage stamps now walk.

We often wonder why so many franchisees choose to walk away with what they can save and then never say a word. This is the extended and magnified version of the threat of non-renewal and a message for every franchisee.

When Yum! took from Jack it wasn't any different from when Navis Capital [Wendy's] too from Therese Evans.  For franchisors to maintain the right to termination and non-renewal is not under challenge. But when the threat is used to shut down dissenting franchisees complaining on legitimate grounds and using vexatious breaches to reinforce the threat then there is an absolute need for just cause and good faith. When a franchisor decides your ripe for the taking there is an absolute need for just cause and good faith.

The reality is that franchisees can expect support from fellow franchisees when their fellow franchisee is in the same firing line looking at hell and not too busy avoiding being in that firing line.  The silent threat of non-renewal for any reason lives in most of Australian franchising and allows the rogues to do what ever they like and then as franchisees head toward a financial black hole they are natuarally even more threatened. The hole actually does get bigger the closer you get to it!

So for every Australian franchisee who wants to avoid being in that firing line looking at that big black hole, now or at any time in the future, I'd suggest they all step up NOW!  Instead of waiting individually for their number to be called Now is the time to make change in one stroke for franchisees across every brand to ensure they have fair and reasonable protection for their investments and their families.

In the last decade and over any other time I've read about on Australian franchising there has never been a better time to come together and make it happen.