Behind the Headlines with Jason Gehrke
Pharmacy merger to create 500-store chain
The Terry White and Chemmart pharmacy chains are set to merge in a deal that will result in a 500-store group with an annual turnover of around $2 billion and around 12.5 per cent market share, according to media reports.
The proposed merger will involve the Chemmart business being sold by its listed parent EBOS to Terry White in exchange for equity in the merged entity, and additional investment to to take EBOS’ stake in Terry White to 50 per cent. The deal remains subject to approval by Terry White’s 422 shareholders. Terry White CEO Anthony White says the merger will help the group’s franchisees retain a foothold in a highly competitive market
Pizza Hut buyer considers Eagle Boys
Private equity firm Allegro Funds, which recently bought the Australian operations of Pizza Hut from its parent company Yum! for an undisclosed sum, is understood to be moving forward in its consideration of rival chain Eagle Boys, which is currently in administration.
Allegro has appointed three former McDonald’s executives to operate Pizza Hut who will seek improvements in the brand’s speed of delivery and ease of ordering. Many Pizza Hut franchisees were previously engaged in a class action against their former franchisor over declining profits following a price war with market rival Dominos.
How to get franchisees to run more effective local area marketing campaigns
Real-life case studies highlighting successes and mistakes in marketing campaigns by leading Australian franchise brands will be featured at the annual Franchise Marketing Forum, to be held in Brisbane on November 18.
The program will feature case studies from award-winning retail brands Lenards and Shingle Inn, as well as RAMS Home Loans, and include a special discussion session on how to get franchisees to run more effective local area marketing campaigns.
The Forum is an essential professional development opportunity for all marketing personnel in franchise networks, and includes a unique Open Exchange session in which participants actively discuss key marketing issues, share experiences and learn from one another, in addition to formal presentations and case studies.
The Forum is jointly organised by the Franchise Advisory Centre and Griffith University’s Asia Pacific Centre for Franchising Excellence. Registrations from $495 are now available. For program details go to www.franchiseadvice.com.au/franchise-marketing-forum.
Make all franchisors pay for franchisee wage abuses: 7-Eleven
Embattled convenience retailer 7-Eleven has called on the federal government to require all franchisors to be liable for wage underpayments by their franchisees.
In a remarkable move given its ongoing criticism in the media and by its former Wage Panel chairman, Professor Allan Fels about the time taken to process claims, 7-Eleven has urged the government to reform franchising laws so that franchisors are held accountable for wage underpayments by franchisees. While 7-Eleven’s position aligns with pre-election policy statements made by both major political parties prior to the federal election, those very policies were announced because of widespread wage fraud in 7-Eleven.
As possibly the only franchisor in Australia to charge royalties on franchisees’ gross profits, rather than noting the uniqueness of its model sets it apart from the franchise sector at large, 7-Eleven instead is supporting the notion that the entire sector should face further regulation based on 7-Eleven’s circumstances.
Former Kleenmaid director sentenced to nine years jail
A former director of failed whitegoods retailer Kleenmaid has been sentenced to nine years jail for his role in knowingly operating the company while it was insolvent, and for defrauding the Westpac Bank of $13 million. Bradley Young was sentenced in the Brisbane District Court after a jury found him guilty in the marathon 71-day case, which is the second longest trial in Queensland criminal history, and which heard evidence from a total of 60 witnesses.
Young is one of three former directors to be charged over the fraud and insolvent trading, and is the second to be sentenced to jail. Director Garry Armstrong pleaded guilty to fraud late last year, and was a prosecution witness at the trial.
Young’s older brother Andrew Young was initially tried jointly with Bradley, but will now be tried separately after Andrew’s barrister withdrew and could not be replaced in time, according to a media report. In addition to charges of fraud and insolvent trading, Andrew Young is also charged with stripping $330,000 cash from Kleenmaid immediately prior to placing it into administration.
Kleenmaid collapsed in April 2009 with debts of more than $100 million and left more than 6,000 customers empty handed after they paid deposits for whitegoods that were never supplied, making it the highest-profile collapse of a franchise system in a decade. The Kleenmaid brand has since been sold to new owners.
Proposed competition law changes could impact franchising
Proposed changes to the Competition and Consumer Act 2010 could impact franchising by improving supply chain efficiencies and harmonise prices across a network, but would also result in greater penalties if franchisors failed to provide documents when requested by authorities.
The exposure draft of the Competition and Consumer Amendment (Competition Policy Review) Bill 2016 includes broader proposals to change current laws, but specifically draft laws dealing with supply chains, pricing and penalties may impact franchisors if they are adopted.
Under the proposed new laws, conditions around third line forcing (ie. where a franchisor requires a franchisee to purchase supplies from a specified supplier) will be eased. Currently third line forcing is illegal across the board (ie. per se), and franchisors need to lodge a notification with the Australian Competition and Consumer Commission to apply for an exemption. This process is proposed to be simplified, but will still be subject to a “substantial lessening of competition test”.
Additionally, laws regarding resale price maintenance are proposed to be modified, to allow a notification process to occur if a supplier requires its products not to be sold or advertised at a price lower than it specifies (which is currently prohibited), and that related bodies corporate such as franchise networks may not be considered as subject to resale price maintenance laws.
However, penalties for failing to produce documents under compulsory Section 155 orders when an entity is being investigated by the ACCC will increase to two years imprisonment (up from 12 months) and 100 penalty units (up from 20 – penalty units determine the size of financial penalty to be applied).
ACCC seeks penalties against franchisor for disclosure omission
The Australian Competition and Consumer Commission (ACCC) has instituted proceedings in the Federal Court against Western Australian-based food franchise Pastacup and its former director Stuart Bernstein for not disclosing Bernstein’s involvement in two failed former franchisors of Pastacup.
The ACCC is seeking declarations, injunctions, penalties, findings of fact, and costs against Pastacup and Bernstein, who cofounded Pastacup in 2008, and which in 2014 was placed into administration.
This is the first time the ACCC has sought penalties for breaches of the Franchising Code of Conduct since the Code was overhauled to encompass penalties for breaching key provisions.
The ACCC alleges that Bernstein’s directorship and management of two previous Pastacup franchisor companies that became insolvent should have been disclosed by Pastacup to potential franchisees.