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Behind the Headlines with Jason Gehrke

Another franchise to exit stock exchange listing

Listed mortgage business franchise Yellow Brick Road (YBR) has announced an intention to delist from the Australian Stock Exchange (ASX), according to a media report.

YBR was initially launched as a wealth management and mortgage business in 2007 and listed on the ASX the following year at an initial price of $1.10 per share. Its wealth management arm was sold off in 2019, and most recently the business recorded an after-tax loss of $3.5 million for the 2023 financial year. 

The company’s share price crashed to just 20c within months of its listing in 2008 and peaked at 70c by 2014 before slumping again to trade around 5c per share, prompting a scathing review of the performance of the business and its high-profile founder and television’s Celebrity Apprentice host Mark Bouris by the Australian Financial Review.  Read more 1Read more 2

 

Landmark dealership case rejects franchisee goodwill

A class action lawsuit brought against Mercedes-Benz Germany by more than 80% of Australian Mercedes dealers in 2021 has been dismissed on all claims in a 567-page ruling that may affect all franchise agreements, according to a media report. 

After nine-months of deliberation by Federal Court Judge Jonathan Beach, the dealers’ claim that Mercedes-Benz’s change from a traditional dealership model to a fixed-price, direct-to-customer agency model decimated the value of their businesses and stripped them of customer goodwill was found to fail on fundamental issues of law. The judgement upheld Mercedes-Benz’s right to cancel existing franchisee contracts and replace them with agency agreements and rejected the goodwill claim because there is no “right at law for a franchisee to be compensated for goodwill on non-renewal of a franchise agreement”.

The judgement may impact all franchise agreements by expanding the boundaries around what franchisors can and cannot do under their agreements, and what the definition of goodwill means at the termination of agreement, among other things. Justice Beach described the case as “forensically complex although legally straightforward”, stating that further consideration needs to be given to the Franchising Code of Conduct. It is not known if the Mercedes Benz franchisees will appeal the decision.  Read more

 

Data breaches at two brands impact 1.4m franchise customers

Two major retail franchise brands have suffered recent data breaches that impact up to 1.2 million Australian customers, according to media reports and company statements.

The largest data breach affected bookstore franchise Dymocks, which confirmed that the personal information of up to 1.2 million customers had been accessed and shared on the dark web following a third-party data breach.

The Australian operations of Pizza Hut were also the target of a major breach, with the contact details of about 193,000 customers exposed by a third party attack.

The customers of Dymocks and Pizza Hut respective have been contacted to inform them that their contact details may have been compromised. Dymocks has assured its customers  that information relating to their passwords, identification and credit card details remains secure, however the Pizza Hut data breach also included encrypted payment and password details.  Read more 1;  Read more 2Read more 3

 

Mexican chain signals listing timeframe

Privately-owned Australian-based Mexican food chain Guzman y Gomez (GYG) has indicated it will list on the Australian Stock Exchange (ASX) in the 2025 financial year or sooner, according to a media report. 

GYG has voluntarily released financial performance figures for the 2023 financial year, including an increase in sales by 32% from FY2022 and a 56% increase to $32 million in underlying earnings for the same period. The financial disclosure is reportedly part of the company’s strategy of being transparent regarding performance and establishing reporting systems which will become mandatory when the company lists. 

GYG has been working towards listing since 2020 when it converted from a proprietary company to an unlisted public company and engaged investment bankers and lawyers to fast-track formal initial public offering documents to have a pitch ready for the first half of 2021. Current institutional investors in GYG include Aware Super, Athletic Ventures, Point King Capital, and TDM Growth Partners. GYG operates 171 restaurants in Australia and 23 restaurants in Japan, Singapore, and the US.  Read more

 

Prison proposal for wage theft

Employers found guilty of wage theft could face jail time and million-dollar fines under proposed new federal legislation, according to a media report. 

The Closing Loopholes Bill includes a proposed maximum 10-year prison sentence for employers guilty of wage theft. The government’s Workplace Minister stated that jail time is not the objective of the new legislation, but is an important deterrent beyond even the new penalty of fines up to $7.8 million, or up to three times the amount that was underpaid if that exceeds the maximum fine. Read more

 

Small business exemption from Privacy Act to end

Up to 2.3 million small businesses will no longer be exempt from the Privacy Act after the Australian Government agreed to 38 of 116 potential areas of reform proposed in a report from the Attorney-General advocating for tighter regulation of data and personal information, according to a media report.

Small businesses with an annual turnover of $3 million or less will be impacted to varying degrees by the changes which reportedly still require further consultation between government and small businesses. Governments and regulators believe that even the smallest businesses are now technologically able to handle and control sensitive data in the same manner as bigger enterprises and the new rules will be designed to protect customers, clients, and employees from the misuse or exposure of their personal information. Small businesses will need to address how they collect and store data, comply with Privacy Act obligations, and respond to cyber-security breaches, among other things. Read more

 

Major food brand increases royalty fee despite franchisee pushback

McDonald’s’ franchisees opening new outlets in the United States will pay 1% more in royalties to the company from 1 January 2025, according to a media report. 

The increase in royalty fee from 4% to 5% will affect buyers of company-owned restaurants, relocated restaurants and new franchisees. Existing franchisees who maintain their current footprint or who buy a franchised location from another operator, rebuild existing locations, and restaurants transferred between family members will not be affected.

The royalty increase is the first in 30 years and is expected to contribute to tension between McDonald’s and its US franchisees who have clashed in recent years over a number of issues including the company’s new assessment system for restaurants and a recently-passed California bill which will raise fast-food worker’s wages by 25% in 2025. The National Owners Association, an independent self-funded association of McDonald’s franchisees representing more than 1,000 of the burger giant’s franchisees, has raised concerns not only about the royalty increase but also about the renaming of the fee from a service fee to a royalty fee which they claim may impact operators’ rights to services, support, and assistance from McDonald’s.  Read more 

 

Chain fined after food worker trapped in freezer

British-based international sandwich franchise Pret A Manger has pleaded guilty to a health and safety offence and has been fined GBP£800,000 after an employee in a London outlet was trapped in a walk-in freezer for more than two hours, according to a media report.

The female employee, dressed only in jeans and a t-shirt, became trapped in the freezer in July 20221. She was found in distress by a fellow employee and was treated for suspected hypothermia.

Pret A Manger’s reporting system showed that in the 19 months prior to the incident, multiple call outs were made related to defective or frozen push buttons in the freezer, and, in January 2020, another worker was trapped in the same freezer. The company has since improved existing systems, collaborated with the freezer manufacturer to prevent similar incidents in the future, and cooperated fully with the authority investigating the incident. 

A similar incident at an Arby’s restaurant in the United States earlier in the year resulted in the death of a 63-year-old employee, the family of whom are now suing both the restaurant chain and franchisee for negligence and wrongful death.  Read more 

 

 

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for more than 30 years at franchisee, franchisor and advisor level. He advises both existing and potential franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News, Australia’s only fortnightly electronic news bulletin on franchising issues. In his spare time, Jason is a passionate collector of military antiques. www.franchiseadvice.com.au