Franchisee rights

Franchises can be a dependable port of call in a crowded marketplace - but many Australians have paid dearly for signing on the franchisee dotted line.
 
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04.Voices from the front

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During our investigation, CHOICE interviewed a significant number of aggrieved franchisees and ex-franchisees across the spectrum along with a few satisfied ones and also took on board the franchisors' point of view. 

Graeme Brown, former North Perth Bakers Delight franchisee: “We needed to make $10,500 a week to break even. In four-and-a-half years we only did that twice. The shelves had to be full, so we were tossing out about half of what we baked every day or giving it away to charities. And, the shop was in a terrible location.”

Peter Berryman, former Ranger Outdoors franchisee: “Our marketing payments just went into general funds and weren’t used for marketing, but there was no regulatory body to keep an eye on the franchisor to prevent this from happening. Franchisees don’t have the funds to prove a legal case. We went to ASIC, we went to everybody, but no-one would help.”

Isaac Chalik, former franchisee and NSW/QLD rep for the National Franchisee Coalition: “Due diligence isn’t possible because the franchisee has to rely on information provided by the franchisor. People get spreadsheets about the performance of other stores that turn out to be unsupported by tax documents. With as much as eight per cent or 12% of your annual revenue going to the franchisor in royalty payments, plus another 10% for marketing costs, any profit margin is raked off by the franchisor. But the bulk of their profit comes from churning franchisees.”

Catherine Lezer, Personal Mortgage Adviser/Smartline franchisee: “I’ve been with Smartline since 1999 and have stuck around for a number of very good reasons. They provide fantastic data management and IT support and also look after the relationships with the banks, all of which gives me a competitive advantage I wouldn’t have on my own. The franchisor takes 30% of my commission in exchange for a great support system, which I consider a very fair deal.”

Gerry Gerrard, general manager, Bakers Delight: “There’s a whole series of support systems that people can draw on. We have 550 franchisees, and if a handful have grievances that’s a very low number. We want them to succeed – it’s better for both parties.”

Stephen Giles, deputy chairman, Franchising Council of Australia: “There’s been a huge amount of scrutiny on the sector, and when wrongdoing has been investigated, it always turns out there’s nothing there. We recommend that potential franchisees speak to as many existing and former franchisees as they can and get good legal advice. Almost 100% of franchisees don’t seek legal advice before going into an agreement.”

Professor Lorelle Frazer, director of the Asia-Pacific Centre for Franchising Excellence, Griffith University Business School: “Franchisees are often wooed by the franchisor during the recruitment process and then dropped once they’re in the contract, but the main issue is that they haven’t done the due diligence before signing the agreement. Franchisees need to understand they’re only getting a right to operate. Many of the problems in the industry stem from franchisors not realising it’s not their business.”

 

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