Behind the Headlines

Jason Gehrke, Director, Franchise Advisory Centre


Sacked worker’s petition forces Grill’d to review staff pay

Burger retail chain Grill’d has announced it will review its rates of pay after an online petition in support of a 20-year-old worker who was sacked 11 days after she raised concerns about underpaid wages garnered more than 22,000 signatures in less than four days.

In an online video, Grill’d founder Simon Crowe reiterates the legality of the chain’s pay structure, which was initially developed in 2005, but that enough ‘noise’ had been made around the issue for the company to take notice and announce a review.

Former employee Kahlani Pyrah who worked in a franchised Grill’d outlet in Camberwell has launched legal action after she was sacked for “bullying two senior male store managers” just days after she launched a legal application to replace the existing Grill’d employment contract with the modern award, according to a media report. A Fair Work Commission hearing on this issue is imminent.

According to media reports, other Grill’d staff have alleged that their employment under traineeships is a ploy to suppress their wages as little or no training is offered. Under the current Grill’d contract, adult grade 2 staff are paid a flat hourly rate lower than the restaurant award, and without any penalty rates.

Hooters goes bust again

Hooters restaurants in Australia have gone bust for the second time in six years with the appointment of administrators who will continue to operate the chain’s five stores so that the business can be sold as a going concern.

The chain has three stores in Sydney, one on the Gold Coast, and one in Townsville which opened in May this year among protests that the chain sexualised women by employing female wait staff who are required to wear tight-fitting tops and skimpy shorts. The Australian operations of Hooters were previously in administration in 2009.

ABC to close retail stores throughout Australia

The Australian Broadcasting Corporation (ABC) has announced it will close its 35-year-old retail network, with stores unlikely to trade past Christmas, however it will continue its retail offer through its online shop.

The announcement is expected to result in the loss of 300 jobs, and the closure of 50 retail stores and 78 ABC Centres within other retail outlets. The broadcaster has already shed 400 jobs following government funding cuts, and stated that the retail network was not profitable and it could not allow funds to be diverted from broadcasting to support retail operations.

Rather than being sold, the network will be closed, potentially making prime retail sites available for other chains.

Former franchise director sentenced to prison

A former director of a New South Walesbased beauty chain Ella Rouge has been jailed for two years for misappropriating $2.6 million from a related entity, ERB International Pty Ltd, which subsequently collapsed.

An Australian Securities and Investments Commission (ASIC) investigation led to the prosecution, with the director, Ali Hammoud, pleading guilty.

Unfair contracts legislation introduced to parliament

After a short consultation period of just two weeks, Small Business Minister Bruce Billson has introduced unfair contracts legislation to apply to small businesses into parliament that is expected to come into effect from January 1 next year.

The exposure draft of the unfair contracts legislation was released on April 28, with a short consultation period closing on May 12. Small businesses 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 asts longer than 12 months will be subject to the new legislation. This will include most service retail franchises operating in Australia, as well as some retail brands, despite previous suggestions that franchising be made exempt from unfair contracts legislation.

The new law defines a small business as employing fewer than 20 people (excluding casual employees), which means that it will also apply to small and developing franchisors who enter into agreements with larger organisations (such as suppliers). Although the Small Business Minister has the discretion to exempt industries subject to mandatory industry codes of conduct from the effects of the legislation (such as the franchise sector in regards to the Franchising Code of Conduct), no exemption has yet been offered despite the sector still adjusting to the new Code which commenced on January 1 this year.

The unfair contracts legislation will apply to contracts entered into, renewed or amended after its implementation date.

Metcash sells auto business for $275 million

Following its recent suspension of dividend payments for 18 months, and a $640 million write-off of assets in its grocery business, publicly-listed multi-brand franchisor Metcash has announced the sale of its auto business for $275 million to restore its balance sheet.

Metcash sold its Automotive Brands Group, operator of franchise brands Autobarn, Midas and AutoPro to rival auto parts supplier Burson after recently indicating it may separately list the group for up to $350 million.

The writedown in the company’s grocery business, which includes the IGA brand, is reported to be mostly in the value of its goodwill. Metcash has reduced its grocery prices to compete more effectively with rivals Coles, Woolworths and Aldi, launching a marketing blitz to promote a  price-match guarantee and the 1,400 independenly owned and operated stores in its network. Despite attempts to turn the company around, its share price has nearly halved in the last 12 months, with losses for the 12 months to April topping $384 million.

$37.5m Sizzler write-off drags down KFC franchisee

A $37.5 million write down in the value of the Sizzler chain of restaurants has brought listed parent company and corporate KFC franchisee Collins Foods to a loss of $10.4 million for the year to April 30.

Collins Foods operates 171 KFC stores in Australia. It has announced it will not invest any further capital in Sizzler, citing better opportunities elsewhere. Starving the brand of capital is likely to result in a partial or complete closure of the Sizzler network, or offloading the brand altogether in a trade sale.

Betting agency Sportsbet has offered odds on when the Sizzler chain will be closed, while one media outlet has published the recipe for Sizzler’s iconic cheese toast for customers to enjoy at home after the chain’s anticipated demise.

Cash Converters pays $23m to settle class action

Payday lender and pawnbroking franchise Cash Converters has agreed to pay $23 million to 37,500 customers that were allegedly overcharged fees and interest on short-term loans.

The publicly-listed chain did not admit any wrong-doing in its settlement of the class actions, which originally sought $40 million, and was settled by mediation between the company and solicitors for the claimants. The company’s share price has decreased more than 40 per cent this year and may come under further pressure with a federal government review of payday lending services imminent.

Meanwhile, former Bank of Queensland boss Stuart Grimshaw who moved to the United States to take the helm of EZ Corp, which owns 30 per cent of Cash Converters, has himself borrowed more than half a million dollars from EZ Corp’s largest shareholder, according to a media report.

Cartel laws may apply to NZ franchisors

A competition bill that was introduced to New Zealand parliament four years ago may be passed in the very near future, with potentially significant implications for franchisors.

The Commerce (Cartels & Other Matters) Amendment Bill 2011 proposes to regulate an area of competition law, but creates the potential for franchise networks to be captured by a broad definition of the term ‘cartel’ and potentially require approval for franchisors for certain conduct otherwise required for the operation of the network.