Behind the Headlines

Jason Gehrke, Director, Franchise Advisory Centre

Subway tops 44,000 outlets globally

International sandwich giant Subway now has 43,945 outlets across 110 countries, making it the largest food brand by number of outlets in the world.

However in the United States, home to more than half of Subway’s outlets, the chain has experienced a three per cent decline in sales, while planning to roll out a further 8,000 outlets. The US sales decline has been attributed to the growth of newer and even healthier fast food brands, according to a media report.

Unions allege McDonald’s dodges Australian taxes

A report commissioned by a coalition of international trade unions, including the Service Employees International Union (SEIU) which is targetting McDonald’s in the United States in a campaign to increase minimum wages, has claimed that the fast food giant uses loopholes to avoid  paying millions of dollars in taxes.

McDonald’s has avoided paying around $500 million in Australian taxes over a five year period by shifting profits through lower tax jurisdictions such as Singapore, according to the report. The report stops short of alleging illegal conduct, and appears to be another attempt to apply pressure on the international chain, which is currently resisting moves in the US for franchisees’ workers to be treated as employees of the franchisor for the purposes of setting uniform pay and employment conditions.

In other news, McDonalds’ international business has announced that it will cease public reporting of monthly sales figures following a year of mild declines and to minimise commentary while it rolls out its new turnaround plan.

Optus moves away from franchising to cut retail store costs

Telecommunications provider Optus has announced it will conduct a “hard-nosed” review of its 160 stores to reduce costs as the company seeks to increase expenditure on developing its mobile phone network.

Optus will seek to move more customer interactions online, after moving away from a retail store model and returning all but 10 of its existing outlets to company ownership in order to exercise greater operational control, cut costs and achieve higher levels of productivity, according to a report which quoted the company’s chief executive.

Food brands launch massive hiring spree

Pizza chain Domino’s has announced it is seeking to hire up to 3,000 more staff across its network to keep up with home delivery demands, while McDonald’s has announced it will hire another 15,000 Australians across its local network as part of its new domestic positioning.

1,000 outlets to receive $51.4 million in payments from franchisor

Australia Post has announced that it will increase annual payments to more than 1,000 postal outlets as a $51.4 million lifeline to sustain postal services in rural and remote areas, according to a media report.

The money would increase payments to 478 licensed post offices, and 495 community postal agencies and was announced following an independent review of the cost of running services compared to revenue in these locations.

Metcash prepares auto franchise brands for separate listing

Publicly-listed grocery retailer Metcash has indicated it will spin off its Automotive Brands Group subsidiary, owner of franchise brands Autobarn, Midas and AutoPro, in a separate listing that may raise as much as $350 million.

The Automotive Brands division is reported to have generated turnover of $250 million in the year to April 2015, and is prime for listing following the successful listing and subsequent share growth of rival automotive parts retailer Burson Group, according to a media report.

Metcash will reportedly use the proceeds of the listing to pay down debt related to its grocery business.

Meanwhile the company has recently announced plans to slash 400 jobs to reduce costs across its businesses, while its share price has slumped to its lowest level since 2001

No exemption for franchising under new unfair contracts legislation

Despite the introduction of a new Franchising Code of Conduct on January 1 this year, the Australian franchise sector is set to be further impacted by additional regulation with the introduction of unfair contracts legislation to apply to small businesses.

The exposure draft of the new unfair contracts legislation was released on April 28, with a short consultation period of just two weeks with submissions closing on May 12.

Small businesses (including franchises) that enter into contracts worth an upfront investment of up to $100,000, or an upfront investment of up to $250,000 where the contract lasts longer than 12 months will be subject to the new legislation.

South Australia to introduce specific franchise dispute legislation

Despite the introduction of a new Franchising Code of Conduct in Australia on January 1 this year, the South Australian government has announced its intention to introduce state-based legislation specifically dealing with the resolution of franchise disputes.

The legislation is being introduced under powers created during the formation of the South Australian Small Business Commissioner, and will regulate the cost and process for mediating franchise disputes in South Australia.

At the heart of the legislation is the right for the Small Business Commissioner or an authorised officer to compel the parties to a dispute to engage in a dispute resolution process through its office, with fines of $500 applied to individuals and $4,000 for companies who do not comply. The legislation also prescribes a fee of $195 per party per day, which is considerably lower than the cost of commercial mediation services.

The draft legislation was released with little fanfare, and the public consultation period for feedback to the South Australian Government closed on May 15.

Franchisees join workers in push for unionisation

A coalition of franchisee associations representing 35,000 franchisees is joining a push to unionise their workers under the collective banner of their respective franchisors so that the franchisees themselves can apply union pressure to obtain better conditions under their agreements.

The move is the latest development in a long-running saga by the Service Employees International Untion (SEIU) in the United States to grow membership among US fast food workers by pushing for an increase in the minimum wage from its current level below USD$8 to just over USD$15.

Franchisees in a number of brands in the US have their own brand-specific franchise associations, which are unrelated to any franchise advisory councils operated by the franchisor, and which lobby the franchisor for concessions under the system.

However, the alignment by the franchisee associations with the union is a double-edged sword, as they will be required to support wage increases that will cost their members’ businesses more, but will also potentially gain further negotiating leverage with their franchisors if they themselves are considered both employees and union members.