Behind the Headlines

Jason Gehrke, Director, Franchise Advisory Centre

This article appears in the May/June 2015 issue of Business Franchise Australia & New Zealand

Former franchise chain to be liquidated

The remaining 103 stores of homewares retail chain Homeart will be closed and the business liquidated after administrators were unable to find a buyer for the group.

The chain franchised early in its development during the 1980’s and 1990’s under the brand Copperart, but later rebranded to Homeart and became fully owned and operated by the brand’s founders, Aart and Amy Van Roest. The group was placed into administration in January this year, with 13 stores closed almost immediately while the administrators sought a buyer for the group.

Review recommends fewer restrictions on taxis, pharmacies and shopping hours

The most comprehensive review of competition policy in Australia in 22 years has recommended deregulation of shopping hours, and the removal of restrictions on the numbers of taxi licenses and locations of pharmacies.

The comprehensive review which made 56 recommendations in total, was released this week by federal small business minister Bruce Bilson immediately on receiving the report. The government is yet to issue a formal response to the report. However the Pharmacy Guild of Australia has opposed the report’s recommendations to deregulate pharmacy location and ownership.

Court orders $500,000 penalty against cleaning franchisor

The Federal Court has ordered a $500,000 penalty against South East Melbourne Cleaning Pty Ltd, the former Victorian state master franchisee for national chain Coverall Cleaning.

The court previously found that the company had engaged in unconscionable conduct by withholding payments owed to the franchisees, made misleading earnings representations, and had breached the Franchising Code of Conduct.

The action was brought by the Australian Competition and Consumer Commission (ACCC), which acknowledged the $500,000 penalty was significant as a deterrent for the franchise sector. The court found that the master franchisee did not have in place a business system to collect payment and pay its franchisees on time, nor did it have the willingness to do so.

Brett Jones, the former director of the master franchise (which is now in liquidation), was previously fined $30,000 and disqualified from managing a corporation for two years.

US franchise association loses first round over Seattle “living wage” increase

The association which represents franchising in the United States has vowed to keep fighting after a US federal court denied the group’s request for a preliminary injunction against the city of Seattle for introducing a “living wage” law that increases wages paid to hospitality workers, who are among the lowest-paid in the country.

The proposed new law seeks to increase the minimum wage to USD$15 per hour (up from USD$7.25) over three years for big businesses, but at a slower rate over seven years for small businesses.

The International Franchise Association (IFA), which has opposed significant wage increases that affect its membership, is sueing the city of Seattle for discriminating against franchisees, which are counted as big businesses by the city for the purposes of the legislation.

Australia Post set for first loss in 30 years as letters fail

Australia Post is heading for its first full-year loss in more than 30 years following a 56 per cent plunge in first half profit to $98 million following a staggering loss of $151 million in its letters business driven by an 8.2 per cent decline in letter volumes in the past six months.

The government-owned corporation is now seeking government permission to reduce the number of days per week in which letters are delivered or charge more for mail to be delivered five days per week in order to reduce its massive operating costs. However an association which represents licensed post offices says that Australia Post must find new revenue streams to survive.

Radio Shack declares bankruptcy, 4,000 US stores to close

One of the world’s oldest franchise brands, US-based electronics chain Radio Shack, has declared bankruptcy, and will close around two-thirds of its stores.

Founded in 1921, Radio Shack pioneered the sale of radios, then personal computers, but has failed to make a profit since 2011. It will close 4,000 stores in the United States, and likely retain up to 2,400 others under a deal with its major shareholder and a telecommunications company which may see the stores rebadged.

Confidential settlement in Metcash franchise litigation

A Federal Court litigation by a multi-unit operator of 19 IGA supermarkets who sued IGA parent company Metcash for $12 million over the collapse of 11 of its outlets, has been settled out of court.

The Federal Court action by Ajay and Pooja Arora, and companies under the Arora Group, sought damages from Metcash after paying $9 million to Metcash for 16 supermarkets in New South Wales in 2012 and 2013, but claimed that they would not have entered into the deal if they had received information in a franchise disclosure document beforehand.

The plaintiffs also sought a declaration that Metcash was in fact a franchise and therefore had breached the Franchising Code of Conduct, however the confidential settlement means no declaration was made.

The litigation had been watched with interest by other buyers of former Franklins stores who may have considered their own agreements with Metcash to also be subject to the Franchising Code.

KFC develops edible coffee cup

KFC in the United Kingdom has developed an edible coffee cup made from a biscuit, wrapped in sugar paper and lined with white chocolate to mark the launch in the UK of KFC’s new coffee brand, Seattle’s Best Coffees.

The new “Scoff-ee Cup” is completely edible, and infused with different scents such as coconut sun cream, wild flowers and others, to enhance the customer experience.

Gloria Jean’s franchisee fined more than $110,000 for underpayments

A Gloria Jean’s franchisee in the Melbourne suburb of Caulfield has been fined more than $110,000 for underpaying 22 casual staff by up to $17,103 each.

The two owners of the business were fined $17,500 and $13,000 respectively, as well as incurring a company fine of $80,000. Most of the underpaid workers were foreign students attending nearby Monash University.