Refurbishment costs drive franchisees out

A group of Australian franchisees of South African-based chicken restaurant chain Nandos is claiming that they are being forced out of their businesses by excessive refurbishment costs imposed as a condition of renewal, according to a media report.

One franchisee claimed that they were told to spend $400,000 renovating a store that was only four years old, while another said that the cost of renovations through Nandos was significantly greater than the comparative quotes they had received.

The South African peri-peri chain has been accused of “muscling out” franchisees and taking over their stores by demanding they spend huge amounts on renovations in order to renew their agreements.

Many can’t afford the excessive cost and are forced to walk away with nothing, having invested their life savings building up the stores. In other cases, Nando’s has been accused of preventing franchisees from selling their store to a new owner, forcing them to sell it back to Nando’s for a fraction of its value.

Nandos has responded that its refurbishment and renovation program is necessary to remain competitive and to provide an enhanced customer experience. The chain has 198 stores operating in Australia, about 60 per cent of which company-owned, with 44 franchises ceasing to operate in the last three years, according to the report. The former franchisees believe it’s part of a push to move to the UK model of fully company-owned restaurants.

In a lengthy statement, a Nando’s spokeswoman defended the refurbishment program as essential to delivering “Enhanced customer experience and loyalty” and ensuring the “Maintenance of brand relevance and position Nando’s against competitors within the market”.

“We are committed to our franchise partners and continuing to work with them to grow their business,” she said. “We have renewed franchise agreements in recent years and continue to review these on a case-by-case basis.”