Jason Gehrke, Director, Franchise Advisory Centre

Media storm erupts around franchise carbon tax pricing claim

A media storm erupted this week around the release of an internal memo for Brumby’s Bakeries, which urged franchisees to review their recommended retail prices, and blame the carbon tax for any increases. With the tax barely days old (it was introduced on July 1), and an endless parade of government politicians talking up the benefits of the tax in the media, it was perhaps inevitable that a business which increased its prices and used the wrong language to do so would fall afoul of the government’s carbon pricing claims.

The Brumby’s memo, which encourages franchisees to review and where possible, increase their recommended retail prices, indicated that any increase could be linked to the carbon tax, but did not specify that price increases should be limited only to those increases in input costs attributable to the tax. Brumby’s parent company, Retail Food Group, issued an announcement which stated that the comments in the memo were not sanctioned and were of concern to the company’s board. An internal RFG investigation had concluded that the memo remarks were “innocent” and “ill-considered”, and not reflective of the company’s policy, and that RFG was liaising with the Australian Competition and Consumer Commission (ACCC) on the matter.

Grocery wholesaler buys Autobarn

Grocery wholesaler Metcash has finalised its acquisition of 75.1 per cent of Auto Brands Group, parent company of vehicle accessory franchise Autobarn, and has announced it is considering further acquisitions. The company, which last month also announced its intention to acquire the balance of shares in hardware chain Mitre 10, continues to look for new acquisitions, with deals currently under negotiation estimated to be worth $90 million.

Franchisee awarded more than $1.3 million in  landmark case

An Adelaide franchisee has been awarded a claim for damages and interest of $1.3 million against coffee chain Billy Baxters, for a representation that induced them to buy a franchise in 2004. With legal costs also awarded against the franchisor, the  total payout to the franchisee could be in excess of $1.5 million.

The decision in the Victorian Supreme Court last month overturned a previous court decision in which the franchisor successfully sued the franchisee for more than $250,000 in unpaid franchise royalties and marketing levies accumulated over a  period of nearly two and half years.

The franchisee terminated the agreement, and in response, the franchisor sued for the outstanding royalties (though why the franchisor waited two and a half years is not apparent). In turn, the franchisee counterclaimed for misleading representation about the turnover potential of the site (which has since ceased to operate).  The case has received relatively little media coverage, despite its significant lessons for both franchisees and franchisors. It is unclear if Billy Baxters or its corporate parent Paradise Retail Holdings which also owns the Pets Paradise chain, will seek leave to appeal the decision. Lawyers for the franchisees, Adelaide-based DMAW Lawyers, have indicated that the judgement was a great relief for their clients, who are now awaiting payment.

Pie Face seals $15 million deal for US expansion

Australian retail chain Pie Face, which opened its first US store in New York on January 26 this year, has signed a USD$15 million deal with a major investor for 43 per cent of the US operations that will see three more stores open in Manhattan, and  then one per month thereafter.

The deal with Las Vegas business magnate Steve Wynn, who is reported to be worth US$2.5 billion, will allow the brand to grow from its current New York beachhead into other US markets. Pie Face CEO and founder Wayne Homschek has announced  that the company is looking at similar arrangements to enter markets in the United Kingdom, Japan and Indonesia, with a possible license arrangement for New Zealand.