Behind the Headlines: Coalition victory a likely win for franchising

Jason Gehrke | Director | Franchise Advisory Centre

The unexpected win for the Liberal/National Coalition in this federal election could also represent a win for the franchise sector in Australia.

While both the Coalition and the Labor Party made pre-election commitments to follow-through on the recommendations of the recent Franchising Inquiry, other Coalition policies are likely to be more favourable to small businesses and franchises than those proposed by Labor. In particular, Coalition policies to provide tax relief, and to grow the economy are seen as more beneficial for small business than Labor policies, including a return to full penalty rates, and further increases to minimum wages.

Meanwhile the Franchise task force announced late last month will continue its work to assess the recommendations made by the recent Franchise Inquiry.

The inter-agency task force will be co-chaired by the Department of Jobs and Small Business and the Treasury Department and include other government agencies such as the Australian Competition and Consumer Commission (ACCC), the Department of Industry, Innovation and Science, and the Department of Environment and Energy as needed.

The final report of the recent Franchise Inquiry made 71 recommendations, nearly a third of which are to be referred to the task force for more detailed consideration.

Details as to the frames of reference, degree of industry consultation, or reporting timeframe for the task force have not been disclosed at this stage.

Franchise founder challenged for election interference

The Australian Electoral Commission (AEC) has issued an infringement notice to Mark Bouris, the founder of financial services franchise Yellow Brick Road, for making robocalls to warn about Labor Party real estate policies ahead of the federal election, according to a media report.

In an automated phone call to people around the country, Bouris warned that Labor policies would cause the housing market to plummet further and drive up the price of rent. Bouris denied that he was supporting any one political party in the calls, which he paid for personally, but said it was necessary to highlight economic policy.

The calls were the subject of a number of complaints to the AEC, which resulted in the infringement notice.

Landlord sends food franchisor into liquidation

The landlord of a Sunshine Kebabs outlet in Queensland has successfully applied to liquidate the food franchisor, according to insolvency notices.

Queensland Investments Corporation (QIC), the owner of Noosa Civic Shopping Centre has forced Sunshine Kebabs Franchising Australia Pty Ltd into liquidation following a hearing in the Federal Court in Victoria earlier this month. The food chain’s remaining 40-plus outlets throughout Queensland, New South Wales and Victoria are reported to still be trading, according to a media report. 

McDonald’s become US embassy representatives in Austria; Political thickshake ban

McDonalds’ 194 restaurants in Austria can now be used by American citizens in distress to receive special access to the United States embassy, according to a media report.

In a Memorandum of Agreement signed between the US Ambassador in Austria and the fast food chain, McDonald’s will assist US citizens to make contact with the US Embassy for consular services, such as reporting a lost or stolen passport, or to seek travel assistance.

McDonald’s was chosen by the US Ambassador because of ‘the great fame of the brand’.

Meanwhile in Scotland a McDonald’s outlet temporarily suspended sales of its thick shakes and ice creams in response to police concerns that they would be thrown at a controversial UK right-wing political identity at a nearby rally. 

Pay rise and potential backpay claim for 100,000 fast food workers

Employees of fast food chain McDonald’s are set to benefit from higher wages after an agreement was reached which will cost the company tens of millions of dollars in weekend penalty rates, according to a media report.

Currently young workers are reportedly earning as little as $8.64 an hour, even on weekends, after a controversial deal was agreed to with the Shop, Distributive and Allied Employees’ Association (SDA) in 2013 trading off penalty rates for a small increase in the ordinary hourly rate.

McDonald’s is also facing a claim for backpay which could be worth in excess of $200 million to its predominantly young and low-paid workforce after an employee lodged an application with the Fair Work Commission to end the existing agreement, backdated to June 2017.

Insolvent franchise barely survives administration

Custom toy franchise, Build-A-Bear Workshop Australia, has agreed to a Deed of Company Arrangement (DOCA) effectively keeping the business afloat after being placed into voluntary administration in March, according to a media report.

The DOCA will save more than 200 jobs, keep a number of stores open, and deals with numerous creditors including the Australian Taxation Office, American Express, and employees. The company cited increased operating costs, wages and rent, and decreasing shopping centre foot traffic as key challenges for the business and ‘unusual challenges’ including Brexit and GDPR laws as additional issues at the time of the administration.

Government announces Franchise Task Force

A task force to consider the feasibility and implementation of many of the recent Franchise Inquiry’s recommendations has been established, according to a media report.

The inter-agency task force will be co-chaired by the Department of Jobs and Small Business and the Treasury Department and include other government agencies such as the Australian Competition and Consumer Commission (ACCC), the Department of Industry, Innovation and Science, and the Department of Environment and Energy as needed.

The announcement of the creation of the task force by Federal Small Business Minister Michaelia Cash comes as a surprise, as the government was in caretaker mode in the lead-up to the election, however may be seen as a response to a commitment by the Opposition that it would create the task force as a matter of priority if it wins government.

The final report of the recent Franchise Inquiry made 71 recommendations, nearly a third of which are to be referred to the task force for more detailed consideration.

Details as to the frames of reference, degree of industry consultation, or reporting timeframe for the task force have not been disclosed at this stage.

Court finds marketing funds not held in trust

A Victorian Supreme Court judgement has found that marketing funds are not held in trust on behalf of franchisees and are available for distribution to secured creditors in the event of a franchisor’s insolvency.

The decision was prompted by legal action instigated by the administrators of a company linked to grocery home-delivery franchise Aussie Farmers Direct, which collapsed in early 2018 with almost $800,000 left in its marketing fund.

The court decision is a blow to the former franchisees of Aussie Farmers but clarifies a grey issue which also became the subject of one of the recommendations of the recent Franchise Inquiry.

RFG ignores purchase offer despite dire straits

An offer to purchase listed multi-brand franchisor Retail Food Group (RFG) has been ignored as the company continues to struggle under a massive debt burden in a toughening retail market and a failed attempt to sell some of its brands, according to a media report.

The Australian Financial Review reports that former Eagle Boys Pizza CEO and founder Tom Potter had organised funding for an offer to buy Retail Food Group but has been rebuffed in his attempts to contact the company last year and again as recently as last month.

However, the company has denied receiving any communication from Potter. RFG recently announced that plans to sell its Donut King and pizza brands had collapsed after a binding agreement with an interested party could not be reached. The company currently owes about $260 million but continues to trade after renegotiating its debt covenants with its financiers. 

Domino's Australia to acquire Danish operations

Listed food franchise Domino’s Pizza Australia will pay nearly $4 million for 30 company-owned stores and other assets of Danish franchise, Domino’s Pizza Scandinavia, according to a media report.

The deal will reportedly be completed by June 2019, and while Denmark is currently a small market Domino’s estimates it could support up to 150 stores.

Real estate agencies merge for national coverage

Sydney-based Belle Property has merged with Melbourne-based Hocking Stuart in a union of real estate agencies which creates a ‘pure national agency’ similar to competitors, Ray White and LJ Hooker, according to a media report.

While the two companies will operate as a single entity, each will keep their individual names and no franchises will be rebranded or altered. The franchise model will also remain unchanged.

Mexican investor takes control of listed NZ fast food group

Mexican investment fund manager, Finaccess Capital, has secured a 75 per cent share of listed New Zealand franchise group Restaurant Brands, according to a media report.

The deal closed in late March with Finaccess paying NZD$9.45 cash per share to acquire control of the company. Restaurant Brands, which will remain a public company, operates the New Zealand outlets of KFC, Pizza Hut, Carl’s Jr., and Starbucks, and a number of KFCs internationally.

www.franchiseadvice.com.au