Competition & failure to change blamed for collapse as Kleins stores close

A failure to reinvent its image and offering, as well as rental and income guarantees for franchisees caused the failure of the Kleins network, according to its administrator. In a wide-ranging article in The Australian Financial Review last week, Ferrier Hodgson partner James Stewart examined the issues surrounding the chain’s collapse, and found that the business had failed to move with the times in a fast-paced retail environment and failed to keep up with the entry of new competitors to the market.  Read more

Kleins is currently closing its 130 franchised and 35 company-owned stores as the Australian operations are wound up. After more than 20 years in retailing, the business will be liquidated with debts of around $25 million.

Offers to buy the business were not able to be completed, and efforts to secure a buyer by a large legal firm funded by voluntary contributions from franchisees were unsuccessful. A report in The Australian Financial Review this week noted that unused contributions were being refunded to franchisees, but raised questions about a potential conflict of interest when it was revealed that three of the potential buyers approached were already clients of the firm. Read more

(See related Kleins story below)

Franchisees launch $2 billion claim against doughnut franchisor

A franchisee class action worth AUD $1.99 billion has been launched against a Canadian doughnut franchisor whose move to centralized, rather than in-store, production resulted in the doubling of franchisee doughnut costs.

Two franchisees of the 1,200-strong Tim Horton’s chain have launched the class action on behalf of all franchisees in the group, claiming that the franchisor has pushed up franchisee costs and failed to deliver promised economies of scale by forcing the network to buy doughnuts from franchisor-owned central production facilities, rather than continuing to bake products in-store. The franchisees claim that the cost of a doughnut has risen from 9 to nearly 20 cents after the franchisor’s mark-up on factory-produced goods, and that promised increases in sales and profits have failed to materialize.

The centralized production model belies the franchisor’s slogan of “Always Fresh” as doughnuts are no longer baked in-store just prior to sale, but instead par-baked at the factory, frozen, and shipped to the stores where they are microwaved prior to sale.  Read more

Loss-making multiple-unit franchisee pickets colleagues’ stores

A New Zealand Subway multiple-unit franchisee facing bankruptcy has resorted to picketing outside the stores of fellow franchisees to protest against the company and prevent the closure of her last store.

Franchisee Keely Clements bought a Subway store in Christchurch in 2005 and another the following year. However one store closed last week when the landlord terminated the lease over NZ$164,000 in unpaid rent, and her other store was likely to be closed this week.

Clements last week protested outside the store of a fellow Subway franchisee and the vendor who sold her one of her two stores to draw attention to her plight. She says the store was located in the wrong area, and pleas to Subway to move it were unheeded. She claims that Christchurch has been flooded with an unsustainable number of 23 Subway stores, or one for every 16,000 residents.  Read more

McDonalds & KFC franchisees to bring in foreign workers

Fast food franchisees in booming regional mining communities are so hard-pressed to find staff they are resorting to bringing-in workers from overseas under the 457 skilled visa program. Both McDonalds and KFC franchisees are understood to have used 457 visas as a means of filling positions in busy stores where suitable local staff cannot be found.  Read more

Franchise mediations grow in discount VIC Small Business program

Business to business disputes, including those between franchisees and franchisors, have grown from around one percent to 18% of the Victorian Small Business Commissioner’s mediation case load in the last five years. Victoria is the only state government with a Small Business Commissioner, and its $195 dispute resolution service has proven to be popular, running at about 100 per month for the last year.

Small Business Commissioner Mark Brennan says the low-cost mediation service has been popular with franchisees, who can’t afford litigation or more expensive mediation services. His office works with the Office of the Mediation Advisor, which recently referred a mediation involving 70 franchisees to the Commissioner. The Commissioner also works with the ACCC, and refers it complaints involving unconscionable conduct. Read more 1  Read more 2

Surfwear retailer sinks below the waves

After nearly two years in administration and worsening trading conditions, the administrators of Queensland-based surfwear retail chain Brothers Neilsen have decided to liquidate the business. The former franchise and Queensland icon will close its 10 remaining stores.  Read more

Wizard magic wanes as sale options considered

Wizard Home Loans owner GE Money is believed to be considering a trade sale to either the National Australia Bank or ANZ, according to a report in The Australian. The likely sale of the business follows speculation last month that Wizard founder and chairman Mark Bouris was putting together a bid to buy the franchise back from GE Money after selling it to them four years ago.

However market conditions are very different now from four years ago, and GE Money is facing rising discontent among its Wizard franchisees who have seen loan volumes and margins drop as the global credit crunch unfolds. Up to 15% of the 200-branch network has closed, with lead volumes shrinking by up to 50% and little prospects for future improvement. Complicating a sale of the system is the number of franchisees on old license agreements who have so far not taken-up the $10,000 sign-on bonus to sign the system’s new franchise agreements. Read more

Basketball franchise loses bounce

Last minute attempts to resuscitate the Sydney Kings franchise in the National Basketball League (NBL) have failed, with prospective buyers unable to meet NBL conditions at the final hurdle. Meanwhile child-care mogul Eddy Groves has handed-back to the NBL the license for the Brisbane Bullets after the team failed to find a new buyer by the June 30 deadline.

The NBL will continue with a smaller competition in the new season, despite concerns that the entire league may be jeopardized by the loss of two franchises. Read more 1  Read more 2

New franchisors should rush slowly to grow

Franchisors should be in less of a hurry to recruit and expand until they have developed fully robust systems and established comprehensive franchisee selection criteria, according to Franchise Advisory Centre director Jason Gehrke in an article in The Australian recently.  Read more

Changes to banking margins squeezes franchisees

The Bank of Queensland has come under fire for changes to the revenue model used to generate income for franchisees, according to an article in The Courier Mail.

Franchisees earn a margin from the bank on both loans and deposits, but the change will result in a reduction on margins paid on loans and an increase in margins paid on deposits. This will result in a net decrease in income to franchisees, according to a report in The Courier Mail, which says that the Bank of Queensland business model is more focused on loans than deposits.

The bank has dismissed the claims, stating that they arise from out-of-date franchisee comments.

The Bank of Queensland is currently in litigation with a former franchisee who is suing under the NSW Industrial Relations Act for “work” performed whilst a franchisee.  Read more

Huge legal bill for ex-wife in franchise marital spat

A failed legal action by Laree Jane, the ex-wife of T-Mart founder Bob Jane against her husband has resulted in a court judgment to pay more than $300,000 in legal costs to the Bob Jane Corporation.

The breakdown of the marriage between the tyre franchisor Bob Jane and his former wife led to claims her two Bob Jane franchises were terminated as punishment. The case in the Victorian Supreme Court was recently abandoned at the 11^th hour after Laree Jane sacked her legal team and failed to negotiate a settlement with the Bob Jane Corporation. During the case, the court heard allegations that Laree Jane had up to 41 credit cards and was an “extravagant spender” who drained her franchises’ bank accounts because she could not live within an $800,000 per year allowance during her marriage.  Read more

Godfreys vacuum pricing misled consumers

The ACCC has found that franchised vacuum retail chain Godfreys misled consumers in Western Australia last year by promoting a vacuum at half its normal price when it had never previously been offered for sale. Godfrey’s consented to court-enforceable undertakings including not advertising previously unavailable products in such a manner again, and to undertake a Trade Practices compliance program.  Read more

Requirement for commencement date exposes franchisors

Changes to the Franchising Code of Conduct requiring agreements to be issued in their final form mean franchisors may incur additional property costs on retail leases, or wear the entire cost of the site altogether if a franchisee withdraws, according to a recent newspaper article. Read more

Franchising myths: What the Kleins collapse and the Titanic have in common

The collapse of Kleins and several other insolvencies of both small and large franchisors so far this year has thrown the issue of franchisor failure into a rarely illuminated spotlight.

Franchisor failure is an unsavoury topic which participants in the sector rarely discuss publicly.

Like a sinking ship, a franchisor failure often creates a suction that drags surviving franchisees down with it, leaving only a small amount of wreckage on the surface to identify that the system ever existed (such as a vacant store, a painted-over sign, or a Yellow Pages ad). But this flotsam associated with the tragedy of a system collapse is rarely visible years or even months after the event.

The Titanic, an “unsinkable” passenger liner which became the greatest maritime disaster of all time, sank with its lights on and engines running. Franchisors can also sink in a similar fashion. Up until a just a few days ago, the website for Kleins was still touting the franchise’s virtues as a business opportunity.

In comparing franchisor failure with the sinking of the Titanic, there are some surprising similarities. Here are just three:  (Read more)

LJ Hooker Financial Services plans to double

Real estate franchisor LJ Hooker plans to nearly double its number of financial services consultants by the end of this year with an ambitious growth plan to add 100 more consultants.  Read more

Thin profits expected for fat-busting franchises

An article in a US advertising publication warns of shrinking profits despite expanding waistlines as consumers reduce their spending on weight-loss programs. In a trend that is expected to be repeated in Australia, US weight-loss chains Jenny Craig and Weight Watchers are bracing themselves for a profit slide as overweight Americans save their money and attempt to lose weight on their own.

New entrants in recent years have swollen the number of weight-loss and fitness franchise chains in Australia, and despite a recent survey revealing that nine million Australians are fatter than they should be, another report revealing a plunge in consumer confidence indicates that consumer spending on discretionary purchases such as weight-loss and fitness memberships will decrease.  Read more

Recession, revolution or revival?: Opportunities for franchisees & franchisors

The topic of growth opportunities for franchisors and franchisees during economic uncertainty will be tackled at a special franchise breakfast seminar on July 17 in Brisbane. Franchisor speakers include PoolWerx CEO John O’Brien, Raine & Horne QLD CEO Stephen Sharry, Lenards corporate Lawyer Alan Bate, and Australia Post business manager Michael Cavanagh.

The seminar will look at how franchisors and franchisees can both maintain and increase business share during tough times, and will draw on experiences of the speakers over the last 20 years, including the recession of the early 90’s. For more information or to register, click here.

Other franchise news:

- Eagles Boys Pizza wins Best Retailer in National Retail Awards;

- Federal Government announces changes to methods of operation for patent & trademark attorneys;

- Australian consumer confidence plunges to 18-year low;

- Mr Rental to open in South Australia;

- ACCC chairman recommends “reality-checking” before commenting on ACCC policies & decisions;

- Crazy John’s goes GRL crazy;

- US bakery chain’s casual franchise system grows because of its flexibility;

- Sumo Salad wins Best Food Retailer; Opens fine dining restaurant;

Franchise Appointments & Departures:

The Franchise Association of New Zealand has elected its first female chair. VIP Home Services NZ franchisor Estelle Logan has been elected to the chair of the association. She is one of three females on the seven-member board.

– Made a new staff appointment recently? details to Franchise News & Events (Free service).

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FRANCHISE JOBS

Positions Vacant:

Business Development Manager – Destiny Financial Solutions

Would you like to grow your own investment property portfolio while helping our franchisees succeed?  The candidate with the required attributes could expect a remuneration package in excess of $80K, and the right person would increase this rapidly.

To be successful in this role, you will be an outstanding team player, working with our growing network; consulting, motivating and coaching our franchisees to build successful business units...

To be successful in the position you will need:

• Demonstrated business acumen in a consulting, coaching or BDM role.
• Demonstrated communication excellence.
• Knowledge and/or experience in franchising, small business, property investing and mortgage lending.
• Enjoy frequent interstate travel.

Please direct enquiries for this role to:

David Braunstein – 02 4351 0380,

_______________________________________

Marketing Manager - Michel's Patisserie

Key Accountabilities:

Impact on key financial indicators of company performance, Budget management, Personnel management, Execution of marketing campaigns, Increased brand awareness, Growth of customer base and Contribution to Senior Management Team.

Skills Required

• Advanced Microsoft Office
• Graphics Knowledge
• Retail food packaging and presentation skills
• Advertising layout and key message delivery knowledge
• Ability to extrapolate and analyse data.

Experience/Education required

• Tertiary Qualifications in Business/Marketing.
• Minimum 3 years proven experience in a similar position, preferably in the franchising industry.
• Retail food marketing
• Leadership qualities.

For full job description including duties and responsibilities visit http://www.rfg.com.au/rfg/jobs/resultslist.asp?franchise=rfg&state=%25&Submit=Search+Jobs.

Applications Close 5pm 11/5/2008.

Please send your CV to - Att: Nicole Dodd.

_______________________________________

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