Behind the Headlines with Jason Gehrke from Franchise Advisory Centre

This article appears in the May/June 2017 issue of Business Franchise Australia & New Zealand

Domino’s faces marketing fund furore amid potential 11 per cent wage increase

A “screw up” led to Domino’s not releasing the 2016 audit report on its marketing fund to franchisees on time, generating additional headlines for the brand after recent media reports of worker underpayment.

The audit report of the $40 million marketing fund was last released in December 2014, according to a media report, with the most recent report released nearly three months late in early 2016 after inquiries by Fairfax media. Domino’s CEO Don Meij blamed a “screw up” for the oversight, however the Australian Competition and Consumer Commission (ACCC) has indicated it is looking at whether Domino’s has breached the Franchising Code of Conduct.

The Brisbane-based ASX-listed chain, with operations in Australia, New Zealand, Japan and Europe is understood to have recovered $4.5 million in outstanding wages from franchisees in Australia who have underpaid workers. Domino’s says it has “zero tolerance” for wage fraud, and has conducted 456 spot checks in the last three years, leading to 102 store audits, and investigated 88 complaints, with a number of audit and complaint investigations ongoing.

Investment analysts at Deutsche Bank have estimated the company could face a hike in wage costs of 11 per cent when it negotiates a new enterprise agreement to replace one which expired in 2013.

A proactive compliance deed between Domino’s and the Fair Work Ombudsman has also expired, with Ombudsman Natalie James recently indicating at a Senate committee hearing that she is uncertain about the prospects of a new deed being negotiated.

Caltex franchisees protest outside head office

A group of about 70 Caltex franchisees, workers and their families carrying placards and chanting against the company’s management protested recently in the streets of Sydney CBD outside Caltex’s head office following the company’s crackdown on wage fraud.

The protestors brandished signs with messages such as “Stop bullying franchisees” and “Stop stealing our stores” to protest against the audit and termination of franchisees for wage underpayment, claiming that the business model is not profitable, according to a media report.

The managing director of fuel retailer Caltex has publicly supported Government and Opposition policies which propose to hold franchisors accountable for wage underpayments by franchisees to their workers, and has promised to get tough on franchisees who exploit their workers.

However the protestors claim that the audits are costing them thousands of dollars and do not show the lack of profitability in the business model, according to franchisees. Two separate legal actions are being prepared against Caltex, according to the media report, with one lawyer representing 40 franchisees from across Australia.

Allphones collapses into administration

Mobile phone and internet reseller Allphones has collapsed into administration after its shareholders withdrew funding support to cover the group’s losses, according to a media report.

Administrators PPB Advisory immediately closed 18 stores and made 69 staff redundant while it prepares the business and its remaining 66 stores for sale.

At its peak, Allphones had 170 stores when it was purchased by Canadian telco Glentel for $70 million in 2012. A single Canadian shareholder took over the company last year with a view to turning around the shrinking business, but could not continue to fund the company’s losses.

Fast food chains to lose foreign worker visas

The Fast Food Industry Labour Agreement which allowed sponsorship of foreign workers on temporary visas to work in fast food chains for even unskilled jobs has been axed by the Federal Government, claiming that Australian workers must be given priority for these jobs. Individual businesses will still be able to make requests under existing labour arrangements to fill roles where exceptional circumstances can be considered. Existing foreign workers on 457 fast food visas will be required to leave Australia when their visas expire unless their employers can present a case why they should stay.

The Fast Food Industry Labour Agreement was introduced by the Gillard Labor government in 2012. The axing of the agreement was announced by Immigration Minister Peter Dutton following the release of proposed legislation to make franchisors liable for franchisees’ wage underpayments following mass media coverage of wage fraud in 7-Eleven and other networks, however most foreign workers affected by this wage fraud were generally holders of student visas, not 457 visas.

Penalty rates cut for many franchise workers

Penalty rates for jobs in the heavily-franchised retail, fast food, pharmacy and hospitality industries have been slashed after the Fair Work Commission handed down its findings this week after a two-year inquiry.

Employers in these industries estimate labour cost savings of between four to five percent, with Sunday rates being reduced in most fast food jobs from 150% to 125% for full and part-time workers, and from 200% to 175% for casual workers.

Penalty rate reductions of a similar size were determined for the other industries, however the restaurant and catering industry was not approved for a penalty rate reduction but may have another opportunity to seek change. The reduction in penalty rates will be welcome news for the franchise sector, where some franchisees struggle to trade on Sundays, or work the hours themselves, because of prohibitive wage costs.

The Prime Minister has said the government will accept the Commission’s ruling, with the new penalty rate system to apply from July 1, however it is expected that the Opposition will not offer bipartisan support.

New owner and franchisee CEO to turn around Howard’s Storage World

An experienced storage retailer from the United Arab Emirates has emerged as the new owner of Howard’s Storage World, which was placed into administration last December owning an undisclosed sum, according to a media report.

The arrival of the new owner has saved 46 out of the brand’s 58 stores, and resulted in the appointment of a new CEO for the business, an existing franchisee who has been part of the group for the last seven years.

New owner Enayat Ghiasi of My Home Storage and Store Trade has appointed Ron Pugsley as CEO, and will refocus the business using local suppliers to create greater innovation in its supply chain, and a “back to basics” retail formula. The company has been able to renegotiate a number of leases to ensure the continuity of retail stores, while 12 mostly company-owned stores were closed during the administration.

Serial franchise conman Peter Foster arrested again

Notorious fraudster Peter Foster has been arrested again barely a year after being released from jail for his role in the SensaSlim franchise scam which stole $6 million from 110 franchisees, according to a media report. Foster was arrested for his role in online sports betting scam Sports Trading Club, which defrauded a South African man living in Western Australia of $1.5 million. At a court hearing following his arrest, Foster’s application for bail was rejected by the court due to concerns Foster was planning to flee the country and continue the scam abroad.

Franchisees prefer closure to the cost of refurbishment

Franchisees of food chain Nando’s are closing their stores at the end of their franchise agreements rather than pay refurbishment costs of up to $1m for a renewed term out of concerns that they will be unable to recoup their investment, according to a media report. Fairfax media reports that at least five Nando’s stores have closed in Melbourne since 2014, and that renovation costs make the businesses unviable for franchisees to renew.

The company is currently involved in a Supreme Court dispute with one of its largest franchisees, whose three stores were seized by Nandos after they refused to pay for expensive upgrades.

www.franchiseadvice.com.au