Hot Topics: Behind the Headlines

Jason Gehrke | Director | Franchise Advisory Centre

BP to buy 527 Woolworths’ fuel stations

Jason GehrkeFuel retailer BP will buy 527 petrol stations from Woolworths in a deal worth $1.8 billion, according to a media report, however it is still subject to approval by the Australian Competition and Consumer Commission. The acquisition will more than double BP’s market share in Australia from 15 to 39 per cent, with the deal likely to complete in early 2018. Caltex currently supplies fuel to Woolworths outlets and was also a potential buyer, however were outbid by BP.

ACCC reports 40% decline in franchise complaints

The Australian Competition and Consumer Commission (ACCC) has reported a 40 per cent decline in franchise complaints in its latest Small Business in Focus report covering the last six months of 2016.

The report notes that since the introduction of the new Franchising Code of Conduct on 1 January 2015, complaints have dropped nearly 40 per cent from an average of 52 per month for the first six months of 2015, to an average of 32 per month for the last six months of 2016. The decline is in stark contrast to overall complaint volumes, which have increased signficantly over the same period, according to the report.

Howard’s Storage World goes into administration

Specialist retailer Howard’s Storage World, which has 59 stores throughout Australia, has been placed into voluntary administration, with administrators indicating they have received strong early interest from potential buyers for the chain, according to a media report.

Creditors are believed to include landlords, suppliers, the Australian Taxation Office and staff, although a total amount owed has not been reported. There are 30 franchised stores which are unaffected by the administration and which continue to trade, however the future of the brand’s 29 company-owned stores remains uncertain. Howards Storage World was started in in Sydney around 40 years ago, and has also expanded internationally.

Share dip for McGrath on revised outlook

Shares in listed real estate chain McGrath have come under further pressure after the company signalled weaker revenues as a result of lower volumes of listings and the loss of 36 agents from its network, according to a media report.

The company listed around 12 months ago at $2.10 per share but is now trading at around 81c after hitting a recent low of 71c per share. The chain is concentrated in the Sydney market, where rising prices are causing vendors to baulk at selling their properties in case they can’t afford to buy another.

New wholesaler aims to take market share from Metcash

New competitor irexchange is taking-on listed wholesaler and multi-brand franchisor Metcash with plans to take up to 70 per cent of Metcash’s customers, according to a media report.

The new company has told investors the $18 billion independent retail sector needs to change to compete sustainably on price. It has also bought the remaining assets of Supabarn, a Canberra-based supermarket chain as part of its growth drive.

Franchisee terminated over racist rant

A franchisee of fast food chain Dairy Queen in the United States has been terminated for a racist tirade directed at an African American customer who asked for a refund after an item had been left out of their order, according to a media report.

The franchisee from Zion, Illinois abused the customer in front of her young children, and continued to use racist language when confronted by police. The franchisee later apologised and volunteered to undertake sensitivity training, but his franchise has since been terminated and the store closed. The customer who was abused by the franchisee has retained a lawyer and is considering legal action, although it is unclear if this will be against the franchisee or Dairy Queen itself.

Shaver Shop shares shrink

Shares in speciality electrical retailer The Shaver Shop, which listed in July last year at $1.05 have shrunk around 20 per cent in value as the retailer announced lower than expected sales through the Christmas period, according to a media report.

Entities attached to major institutional investor NAB also reduced their holdings in the company during the first month of the year. Shares were trading at around 81c at the time of print.

New partnership gives RFG access to 1,300 BP service stations

Listed multi-brand franchisor Retail Food Group (RFG) has announced a partnership with fuel retailer BP to explore food and coffee opportunities in BP’s 1,300 outlets throughout Australia according to a recent company announcement.

At RFG’s annual general meeting recently, managing director Andre Nell also announced the continued rollout of drive-through locations for its Gloria Jean’s brand, capsule operations for its coffee brands, and master franchises in Indonesia, Singapore, Northern England, Pakistan and Myanmar which will result in more than half of all new outlet openings for the first half of the 2017 financial year.

7-Eleven signs binding agreement to fix wage fraud

Embattled convenience retailer 7-Eleven has entered into a proactive compliance deed with the Fair Work Ombudsman to reform its internal systems and procedures to stamp out the wage fraud which has scandalised the brand for more than a year, according to a media report.

The proactive compliance deed – a binding legal agreement – requires 7-Eleven to undertake and implement a number of initiatives that will reduce and potentially eliminate the capacity for wage fraud to reoccur in its network.

The initiatives include thumbprint scanning of workers to clock on and clock off at the start and end of their shifts, backed-up by a network-wide CCTV system monitored by 7-Eleven head office; continued rectification by 7-Eleven of unpaid staff wages; the introduction of a mandatory centralised payroll system that all franchisees will be required to use; the establishment of an employee consultation group that specifically excludes franchisees; and a raft of other measures.

In statements on their respective websites, both 7-Eleven and the Fair Work Ombudsman claim that the deed includes initiatives that set new standards for the franchise sector.

However both statements fail to note that 7-Eleven is unique in the sector in its application of a gross profit-share royalty model (rather than a fixed fee or percentage of turnover royalty model), and which has been criticised by some observers as a contributing factor for franchisees in the underpayment of employees. The Fair Work Ombudsman does note that 7-Eleven has since changed its financial model to provide greater financial assistance to franchisees, and is now also required to provide detailed wage information to potential franchisees.

The proactive compliance deed was announced on 7 December and has a duration of three years. Unpaid 7-Eleven workers had until the end of 31 January 2017 to submit claims for outstanding wages before a new repayment process commences which will place potentially more onerous conditions on claimants. To date, 7-Eleven have paid 1,432 claimants a total of $56, 847,950 in outstanding wages for an average of $39,698 per claim.

The full proactive compliance deed is a public document available online.

Domino’s expected to double but franchisee profits will suffer: Analysts

Analysts at investment bank UBS are predicting Domino’s will more than double its share of the fast food market in Australia from four to 10 per cent by 2025, however franchisee profits will be squeezed as the chain adapts to higher wages, according to a media report.

UBS predicts that Domino’s will achieve a greater share of the $23 billion fast food market by increasing from 714 to at least 1,200 stores in Australia and New Zealand, while also achieving same store sales growth of 8 per cent per annum.

However UBS expects franchisee profits to drop around 14 per cent as wage costs increase following the expiry of the chain’s enterprise agreement, and noted that profits for Domino’s franchisees were already lower than those in Britain, Europe and Japan.