Behind the Headlines with Jason Gehrke

Jason Gehrke | Director | Franchise Advisory Centre

Pie Face closes company-owned stores in preparation for sale

Trouble-plagued brand Pie Face has gone bust for the second time in two years following the closure of its manufacturing business, with its remaining operations being restructured ahead of a sale by receivers, according to a media report.

The manufacturing business of Pie Face – one of three entities to emerge from insolvency in early 2015 under a deed of company arrangement (DOCA) when Pie Face first went bust – was put into the hands of receivers for failing to meet its DOCA obligations in November. This, along with the brand’s franchising arm and its intellectual property, is now being offered for sale by receivers O’Brien Palmer.

The chain had more than 70 outlets in Australia at its peak, plus outlets in New York and other overseas locations when it first went bust in late 2014, resulting in the closure of more than 20 stores, and losses in exess of $20 million for private investors who had bought into the franchisor company.

Pie Face currently has just 28 surviving outlets in Australia, with its US operations closed and former CEO and company founder Wayne Homschek pursued by former investors who lost millions.

Class actions potentially brewing against Caltex over wage fraud

Two class actions against fuel retailer Caltex are potentially brewing following claims that workers in its network of outlets have been exploited over a number of years, according to a media report.

One class action is to be brought by franchisees, who allege that its business model leaves them insufficient profit, while the other will be brought by exploited workers to recover unpaid wages and employee entitlements, according to the report. These are similar grounds to those previously reported in regards to 7-Eleven.

Caltex says it is investigating alleged underpayments to workers and has terminated five franchise agreements covering 13 sites to date.

Red Rooster parent eyes $650 million float

Quick Service Restaurant Holdings (QSRH), which owns fast food brands Red Rooster, Oporto and Chicken Treat, is expected to float on the stock exchange in 2017 for an estimated $650 million, six years after private equity bought it for $450 million, according to a media report.

Red Rooster is expecting sales growth of at least five per cent this financial year, largely driven by its new home delivery service which currently serves 5,000 customers per day. Private Equity owners Archer Capital bought the business in 2011 from previous owner Quadrant Private Equity.

Video footage shows 7-Eleven still grappling with wage fraud

Covert footage taken by ABC News in a Brisbane 7-Eleven store indicates that wage fraud is still occuring, with workers paying back nearly half of their earnings in cash to their franchisee in a fraud known as the cashback scam.

The ABC report showed the worker handing over cash after withdrawing it from her bank account, effectively reducing her hourly rate from $25 to $14, with $11 being repaid to her employer. In a statement on the ABC News website, 7-Eleven said it did not condone any fraudulent behaviour and would investigate the incident.

Since the wage fraud scandal first made national headlines in September 2015, 7-Eleven has paid more than $55 million in outstanding wages to 1,382 workers.

Greens push to increase wages for franchise groups

The Greens party has introduced a bill into Federal Parliament that would increase the wages of workers on enterprise agreements – often used by franchise groups – by requiring such agreements to match wages otherwise payable under a relevant award, according to a media report.

The move is supported by the newly-formed Retail and Fast Food Workers Union (RAFFWU) and its founder, Josh Cullinan, who exposed wage underpayment at Coles when comparing the Coles enterprise agreement with the relevant award.

Under the Greens bill, employers and groups such as fast food chains, would be required to increase their rates of pay to match those available under relevant awards, where currententerprise agreements may have traded-away penalty rates in return for higher hourly rates of pay.

The move puts the RAFFWU on a collision course with the Shop, Distributive and Allied Employees Union (SDA), which negotiated the agreements in the first place.

Chemist Warehouse ordered to pay staff $3.5 million

Pharmacy retail chain Chemist Warehouse has been ordered to pay nearly 6,000 workers more than $3.5 million for unpaid online training undertaken by the employees outside of normal working hours, according to a media report.

Despite advising its franchisees that they should pay their staff for compulsory training, the 350-store network has agreed to sign a compliance deed on behalf of its franchisees with the Fair Work Ombudsman.

Pizza Hut acquires Eagle Boys

Private equity firm Allegro Funds, which recently bought the Australian operations of Pizza Hut from its parent company Yum!, has bought rival chain Eagle Boys from administrators for an undisclosed sum, according to a media report.

More than 50 out of 114 Eagle Boys stores are currently in the process of being rebranded to Pizza Hut.

The acquisition will add to Pizza Hut’s current 270 stores, and strengthen its position as a solid competitor to Domino’s which dominates the Australian pizza market.

The acquisition follows a turbulent year for both Pizza Hut and Eagle Boys, with Pizza Hut’s former owners defeating a franchisee class action arising from its price war with Dominos, and Eagle Boys going into administration owing an estimated $30 million after shrinking from a peak of 340 stores in its prime.

First prosecution of franchisor for staff underpayments

 The Australian franchisor of yoghurt chain Yogurberry is the first franchisor to be prosecuted by the Fair Work Ombudsman for being an accessory to the exploitative practises of one of its associated companies.

Yogurberry must submit to a national audit of its chain, plus pay financial penalties of $146,000 across several entities for the underpayment of four Korean workers on 417 holiday working visas employed at World Square, Sydney.

The four were underpaid $17,827 despite previous warnings about underpayments, including two infringement notices which the company treated as a “cost of doing business”, according to the court decision. Co-owner of the Yogurberry Australian master franchise, Soon Ok Oh, was also penalised $11,000 for her involvement in exploiting the workers.

Listed Australian KFC operator acquires outlets in Germany

Collins Foods, the listed Australian operator of KFC restaurants in Queensland, Western Ausralia and other parts of the country, has agreed to buy 11 KFC restaurants in Germany for 12.7 million euros, according to a media report.

The acquisition has been flagged as an initial foothold in the European market for the company, with Germany’s number of current KFC outlets expected to more than double to 300 in the next few years.