Behind the Headlines

Jason Gehrke | Director| Franchise Advisory Centre

Behind the headlines

ACCC signals increase in franchising activity

The Australian Competition and Consumer Commission (ACCC) has indicated that it is increasing its activity in prosecuting breaches of the Franchising Code of Conduct more than two years after the Code was updated. ACCC Deputy Chairman Dr Michael Schaper said that the ACCC could only enforce financial penalties for behaviour that emerged after the Code changes took effect, which takes time for issues to emerge and investigate.

In the last six months alone, the ACCC has taken enforcement action against three franchisors for breaches of the Code, and one for breaches of business to business unfair contract terms in relation to restraint of trade provisions.

Franchisors share war stories at Management Forum

Senior franchise executives representing brands which account for more than 10 per cent of the 77,000 franchised outlets in Australia attended the Franchise Management Forum recently.

The annual event was held in Brisbane in June, and this year included a focus on risks to franchise networks, including those that will arise with the impending introduction of new laws under the Protecting Vulnerable Workers bill that will hold franchisors liable for wage underpayments by franchisees.

The Forum attracted CEO’s and senior franchise managers from networks throughout Australia and New Zealand who also shared their war stories and experiences in the Forum’s unique Open Exchange session. The Forum is jointly organised by the Franchise Advisory Centre and Griffith University, providing a rare professional development opportunity for senior franchise leaders.

The Management Forum will be followed by a Marketing Forum on October 27 to provide professional development for the marketing managers of franchise brands.

Mortgage brokers face pressure to scrap $2.4 billion in commissions

Mortgage brokers who receive upfront and trailing commissions on each loan they write could find their future incomes under threat as pressure grows on lenders to scrap the payment of commissions and replace the practice with a fee for service.

The issue of mortgage broker commissions has come under the spotlight following a review by the Australian Securities and Investments Commission (ASIC), published in March.

Consumer groups say that home loan customers would be better-served by broking arrangements based on a fee for the hours of work performed by the broker to arrange the loan, rather than the current commission structure which can add thousands of dollars to the cost of the loan.

More than half of all home loans in Australia are arranged through mortgage brokers, many of which are franchised. While upfront commissions for brokers are common in other countries, Australia is a rare exception in its use of trailing commissions over the life of a loan.

Former 7-Eleven franchisee fined $168,000 for wage rort

A former Brisbane franchisee of 7-Eleven has been fined $168,000 for underpaying eight staff a combined total of $19,937.

The fine is more than eight times the amount of the wage underpayment, which sends a clear message to other potential underpayers, according to the Fair Work Ombudsman.

The Federal Circuit Court found that former franchisee Jim Chien-Ching Chang deliberately underpaid the staff despite knowing the correct award rates, made misleading entries into the 7-Eleven payroll system and provided false records to the Fair Work Ombudsman, but that the underpayments were not related to cash flow difficulties but greed to enhance the business’ profit.

NZ franchise sector turnover almost doubles in five years

Turnover generated by the franchise sector in New Zealand has increased by a massive 84 per cent in just five years, according to the latest franchising survey, which also found that the number of franchisors increased by 41 per cent from 446 in 2012 to 631 in 2017. The overall turnover of the NZ franchise sector is now estimated to be NZ$27.6 billion, or 11 per cent of NZ GDP, but with motor vehicle sales and fuel retailing added the turnover increases to NZ$46.1 billion.

There are now 34,000 franchise outlets – up from 22,400 in 2012 – with 124,000 New Zealanders employed in the franchise sector. Compared to its small population, franchising has achieved a massive penetration of the economy and social landscape with one franchise outlet for every 124 Kiwis. The survey was conducted by Griffith University (which conducts the regular Franchising Australia surveys) in partnership with New Zealand’s Massey University.

Float of Red Rooster parent cancelled

The proposed float of the parent company of Red Rooster, Oporto and Chicken Treat has been cancelled due to poor equity market conditions, according to a media report. The company previously known as Quick Service Restaurant Holdings (QSRH) and which recently renamed itself to Craveable Brands, withdrew from its anticipated float after an investor roadshow in Sydney and Melbourne failed to generate sufficient interest.

Craveable’s offer price of between $2.09 and $3.07 a share indicated a market value of up to $400 million for its 570-store network, however one analyst said this price range was far too high in a softening retail market, with investors sceptical of private equity sell downs following the recent float and subsequent collapse of electronics retailer Dick Smith. Craveable is owned by private equity firm Archer Capital. The company will now focus on expanding its home delivery services, adding more outlets nationally, and growing internationally.

National gym chain sued over actions of contracted personal trainer

A Queensland man is suing national gym chain Snap Fitness and his personal trainer after suffering internal muscle damage arising from his first personal training session in a case that highlights the relationship between gyms and trainers. Daniel Popp was checked into a hospital emergency ward when his urine turned black following the training session at Snap Fitness Emerald. He is suing both Snap and the personal trainer, with both parties defending the action. However the contracted trainer is claiming that he was effectively an employee of the gym, and that both he and Snap owed a duty of care to the client.

The fitness industry, which is dominated by franchise chains, commonly uses contractor arrangements for personal trainers, although many work on the gym’s premises, wear the gym’s branded uniforms, and sign-up customers to gym memberships.

Self-driving mobile convenience stores a future possibility

A Chinese university and a Swedish company’s joint venture to develop the convenience store of the future is focussed on creating a self-driving mobile store that comes to the customer, has no staff, and is fully automated for payment processing and restocking.

Franchising could save $15.5 billion in public transport costs

Franchising of more public transport operations in Australia would save the state and federal governments around $15.5 billion by the year 2040 according to a study by consultants PriceWaterhouse Coopers for Infrastructure Australia.

The study highlights the extensive use of franchising already in place by governments for public transport. For example, trams in Melbourne are operated under a franchise agreement, as are ferries in Sydney Harbour and along the Brisbane River (by the same company), and even the new light rail service at the Gold Coast.

Ironically, as much as governments are embracing franchising for the delivery of public transport services, the sector will face issues arising from the Protecting Vulnerable Workers bill, which will create joint employer liability on franchisors for wage underpayments by franchisees to their employees.