Business Franchise Australia

Behind the Headlines

7-Eleven Australia sells for $1.71 billion

 

The Australian operations of convenience retail chain 7-Eleven have been sold to 7-Eleven International (7IN), a joint venture of the brand’s Japanese listed parent company Seven & I, and the US business, in a deal reported to be worth $1.71 billion according to media reports.

 

The deal is still subject to regulatory approval and is expected to settle in the second quarter of 2024. It is understood to be the single largest sale price achieved for a privately-owned franchise brand in Australia, encompassing 752 Australian outlets, of which 75% include fuel retail outlets, with the balance comprising stand-alone convenience stores.

 

7-Eleven started operations in Australia with one store in Melbourne in 1977 after the local rights were acquired by a family from a grocery retail background, who built up the business before putting it up for sale earlier this year. According to one report, the business had been offered to 7IN last year, before being placed on the open market earlier this year.

 

The Australian business plans to open around 35 new outlets a year, and is well known in the eastern states and Western Australia, but currently has no outlets in Tasmania, the Northern Territory or South Australia.  Read more 1Read more 2

 

 

RFG makes first acquisition since end of ACCC investigation

 

Multi-brand listed franchisor Retail Food Group (RFG) has acquired Sunshine Coast pie chain Beefy’s for $10 million in its first acquisition since agreeing to a court-enforceable undertaking with the Australian Competition and Consumer Commission (ACCC) in December 2022, according to a media report.

 

The deal includes all nine Beefy’s stores located across south east Queensland in Brisbane, Sunshine Coast and Gympie, as well as the brand’s manufacturing facility. RFG has no immediate plans to change the business’ operations, 180-strong team, business operations or supply partnerships.

 

It is the first brand acquisition for the Gold Coast-based listed franchisor since before the 2018 Parliamentary Joint Committee Inquiry into the Franchising Code of Conduct, sparked in part by media coverage of the plight of franchisees of RFG-owned brands including Michel’s Patisserie. 

 

In its December 2022 court-enforceable undertaking, RFG agreed to pay $5 million to Michel’s Patisserie franchisees who paid levies into a marketing fund between 1 July 2012 and 30 June 2017 following allegations of unconscionable conduct and false and misleading representations made to franchisees and also agreed to waive approximately $5 million of debts owed by franchisees.  Read more 1Read more 2

 

 

Australian brand settles US management lawsuit

 

Australian-based Mexican food chain Guzman Y Gomez (GYG) has settled a lawsuit brought against it in the United States by a group of six executives from its former management team responsible for the chain’s expansion into North America, according to a media report. 

 

Filed in California earlier in 2023, the USD$100 million lawsuit accused GYG’s leadership team of racism and ageism, among other things. GYG described the action and allegations as a cash grab and retribution by underperforming employees.

 

The lawsuit was settled with a USD$1 million payment to the six complainants and a buyback of $15.9 million in shares. GYG maintains the lawsuit had no merit but settled with the complaints to avoid the distraction and the investment of time and money associated with pursuing litigation in the US.  Read more

 

 

Court rules on burger brand battle

 

The Federal Court has resolved a three-year trademark battle between burger chains Hungry Jack’s and McDonald’s by finding that the Hungry Jack’s Big Jack and Mega Jack brands do not infringe trademarks held by McDonald’s.

 

In particular, the Court found that the Big Jack burger offered by Hungry Jack’s was recognisably different to the Big Mac burger offered by McDonald’s, despite Hungry Jack’s conceding that the name was a deliberate taunt of McDonald’s. 

 

However, Hungry Jack’s were found to have engaged in misleading advertising by claiming that it’s burgers contained 25% more beef than those of McDonald’s after expert tests disproved this claim.  Read more

 

 

New service brand met with disbelief

 

Multi-brand service franchisor Jim’s Group has reportedly expanded their offering to include beauty services under the banner Jim’s Beauty, according to a media report.

 

Officially launched on November 1, Jim’s Beauty offers franchisees three alternative model options:  Franchisees can go to the customer’s house, operate out of their own home, or open a shop or traditional beauty salon. According to a Jim’s Group social media post, Jim’s Beauty will allow customers to experience luxury beauty treatments at their convenience, delivered by professionals who are ready to pamper them, anytime, anywhere. Beauty treatments offered by the franchise include bridal packages, facials, nails, and teeth whitening.

 

However, the new brand has been met with scepticism by influencers who have questioned the authenticity of the Jim’s Beauty concept.  Read more 

 

 

ACCC seeks licensing system to regulate franchisors

 

The right to grant new franchises will be stripped from franchisors in Australia under a proposal from the Australian Competition and Consumer Commission (ACCC) which seeks to introduce a licensing system for franchisors, according to the ACCC’s submission to the current Franchising Code Review.

 

Under the proposal, the ACCC would impose a range of prudential requirements on a franchisor before they can be licensed to start offering franchises, and which must be maintained in order to continue to offer franchises. If a franchisor’s license is suspended or revoked, the franchisor would be prohibited from soliciting new franchises until it has met any conditions imposed on it by the ACCC, including providing a mechanism for accessible and binding dispute resolution to manage conflicts between franchisors and franchisees.

 

According to the ACCC submission, after more than 25 years of operation, the Franchising Code of Conduct does not provide the Commission with sufficient powers to intervene before or when harm occurs in franchise relationships, but only after the damage has been done.

 

The ACCC argues that it, or another government agency, could take more proactive steps to reduce harm to existing and potential franchisees via a government licensing arrangement imposed on franchisors. The ACCC submission also states that a substantially similar outcome could be achieved via the Franchise Disclosure Register, which has been operating for the past year, and which could suspend or cancel franchisors from the Register unless they meet more stringent conditions.

 

The proposals are contained in the ACCC’s submission to the Franchising Code Review, which is published on the ACCC website. No public submissions to the Review have yet been posted to the Review’s website.

 

The Review itself is due to be completed and presented to the Australian Government in December 2023, but it is unknown when the Review findings will be released publicly.

 

 

High-profile franchise termination drags McDonald’s into court

 

The operator of two McDonald’s restaurants in regional Victoria who had his franchise agreements terminated and outlets sold following an altercation with neighbours is seeking damages from the burger chain claiming he suffered significant financial loss and damage as a result of their response to the incident, according to a media report.

 

The altercation occurred in 2019 when the former franchisee and an accomplice confronted a local resident near the franchisee’s home and demanded that he remove an Aboriginal flag that was hanging from his residence. A video of the incident, which went viral on social media, documented the interaction quickly disintegrating into a profanity-laden argument.

 

Within 24 hours of the video being posted, McDonald’s Corporate ended the franchisee’s franchise agreement and took over operation of the two outlets. The former franchisee claims the sale of the stores he was negotiating prior to the incident was negatively impacted by McDonald’s actions and that the price he utimately achieved was lower than it should have been because he was pressured by the company to finalise a quick sale. The plaintiff has dropped separate defamation action against McDonald’s.  Read more

 

 

US authorities reinstate joint employer rule

 

United States labour authority, the National Labour Relations Board (NRLB), has issued a final rule making it easier for workers and unions to hold companies liable for labour law violations by their franchisees and contractors, according to media reports.

 

The NLRB has effectively re-instated an Obama-era standard through the rule that will treat companies, including franchisors, as “joint employers” when they have control – even when it is indirect or not exercised – over essential terms and basic conditions of employment such as hiring and firing, pay, scheduling, and supervision, among other things. The joint employer rule replaces a rule enacted during the Trump administration which required companies to have “direct and immediate” control over contract and franchise workers to be considered joint employers. 

 

The rule which takes effect on December 26, 2023, has been described by the NLRB chair as a “legally correct return to common-law principles”. The US Chamber of Commerce and the IFA, which represents franchising in the US, both oppose the rule and have indicated they will seek to have it overturned. Industries affected by the rule include not only franchised businesses, but also those that rely heavily on staffing agencies and contractors such as manufacturing and construction.  Read more 1; Read more 2; Read more 3

 

 

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