New national franchise inquiry announced with broad terms of reference

A new Federal Government inquiry into franchising was announced last week barely four months after the introduction of changes to the Franchising Code of Conduct arising from the last Federal inquiry (the Matthews Report) held in 2006. This inquiry will be the third in nine months for the sector, following-on and prompted by separate state inquiries in Western Australia and South Australia.

However the new inquiry has been launched by a Parliamentary Committee, and not from the office of Federal Small Business Minister Craig Emerson.

The inquiry will be chaired by Queensland-based Labor MP Bernie Ripoll, who announced it is “timely and necessary” for the Federal Government to look at franchising after himself reading the findings of the two state-based inquiries.

The inquiry, to be conducted by the Parliamentary Joint Committee on Corporations and Financial Services has broad terms of reference, and will report on the operation of the Franchising Code of Conduct and potential improvements in line with the following terms of reference:

1. The nature of the franchising industry, including the rights of both franchisors and franchisees;

2. Whether an obligation for franchisors, franchisees and prospective franchisees to act in good faith should be explicitly incorporated into the Code (having regard to its presence as an element in paragraph 51AC(4)(k) of the Trade Practices Act 1974);

3. Interaction between the Code and Part IVA and Part V Division 1 of the Trade Practices Act 1974, particularly with regard to the obligations in section 51AC of the Act;

4. The operation of the dispute resolution provisions under Part 4 of the Code; and

5. Any other related matters.

Inquiry submissions are due by September 12, with the a report due on December 1.

South Australian MP Tony Piccolo, a key figure behind the South Australian franchise inquiry, has declared that he will push for separate state-based franchise legislation in SA if the Federal Government fails to reform franchising within “a reasonable time”.

Meanwhile a franchisee lobby group has called for the regulation of the sector to be handed to the Australian Securities and Investments Commission (ASIC) instead of the Australian Competition and Consumer Commission (ACCC) which would also up the ante for continuous disclosure by franchisors.

The Australian Retailers Association, whose executive director is a former CEO of the Franchise Council of Australia (FCA), has hit out at the announcement of another franchise inquiry and demanded that this be “the last”, while the influential Australian Financial Review has published a rare commentary on the issue.

Just one day prior to the announcement of the inquiry, the Minister for Small Business indicated no special interest in a federal review or further changes to the Franchising Code of Conduct when asked during a meeting with Franchise Advisory Centre director Jason Gehrke. Coming from a Parliamentary Committee and not the Minister’s office (as with the Matthews Report in 2006), this inquiry’s broad terms of reference have the potential to hold far-reaching ramifications for the Australian franchise sector.

For more information on this story, see the following links:

- About the Inquiry (Official Government website);

- SA MP vows to go it alone with state regulation if Federal Inquiry fails to deliver;

- Franchisee lobby says give franchising to ASIC;

- Retailers Association criticizes Inquiry;

- Franchising’s desire for spotlight has brought the Inquiry on itself: Inside Retailing commentary;

- Don’t overdo reform of the franchise sector: Australian Financial Review commentary;

- First news of the Inquiry (1);

- First news of the Inquiry (2);

- Comment: There’s blood in the water for franchising;

Police charge franchisee with arson over Nandos explosion

A franchisee and his brother-in-law have been charged by police over an explosion in an inner-Sydney Nandos outlet earlier this year that caused $3.5 million damage and resulted in the evacuation of about 1,000 people. In a case of arson gone wrong, one of the arrested men was injured in the blast and suffered severe burns to two thirds of his body which required four months of hospital treatment.

The Sydney Morning Herald has reported that the franchise was not profitable, and had been robbed just hours before the explosion, with two other robberies in the previous two years. Police say that if the blast had occurred at a different time, it would have caused serious injury or even death to nearby residents, 300 of whom were forced to move out of their homes for three days after the explosion while the building was made safe.  Read more

Franchisee loan-write offs for banking franchise

The Bank of Queensland has written-off loans to franchisees of some of its troubled New South Wales branches, and re-hired them as branch managers, according to a news report, which claims that up to three quarters of the bank’s Sydney branches are failing to meet business targets.

The report estimates that individual franchisees with aggregate loans of up to $1 million in debt to the bank across a combination of home and business borrowings are an increasing credit problem for the bank, with claims that some current and former franchisees have been able to negotiate to have some of their loans written-off. Read more

The Bank of Queensland’s expansion through its owner-manager branch model which recruits only experienced bankers as franchisees has drawn criticism particularly in New South Wales, where the bank is facing an action by ex-franchisees under the NSW Industrial Relations Act. Read more

However a recent survey shows that the Bank of Queensland has overtaken St George as the preferred bank for business customers. Read more

Record profits, Chinese donut deal and system innovations for RFG

Multi-brand listed franchisor Retail Food Group (RFG) has announced doubling of annual profit for the financial year just ended, a deal to open Donut King in China, successful results for a cross-brand marketing campaign, and the installation of a new high-tech point of sale system throughout its 1,050-store network.

Net profit after tax (NPAT) for the 2008 year will be between $16.3 and $16.8 million, more than double the figure of $7.52 million for the previous year. The group’s deal to grow its Donut King brand into China through a master license agreement with Shanghai-based Mak Brands Limited will add a minimum of another 20 outlets over the next five years, and then at least eight outlets per year thereafter.

RFG will also consider further cross-brand marketing activities following the success of a recent SMS promotion conducted through its Donut King, bb’s café, Brumby’s Bakeries and Michel’s Patisserie brands. Meanwhile a new point of sale system to be introduced to the network will enable customized in-store promotions, product-ordering by text messaging, the creation of “bounce back” vouchers by individual stores, as well as online real-time store reporting.  Read more

ACCC appoints deputy commissioner for small business

The Australian Competition and Consumer Commission (ACCC) has appointed former Murdoch University Business school dean and past ACT Small Business Commissioner Michael Schaper to the newly-created role of deputy commissioner (small business). ACCC chairman Graeme Samuel has also been appointed for a further term.  Read more

Banks to buy Wizard?

Australia’s leading banks are among five parties believed to have been sent information memorandum for potential buyers of the 250-strong Wizard Home Loans franchise network. A sale price for the group is believed to be as high as $280 million given the $140 million Westpac paid for the 100-brand RAMS network last year, but other sources are tipping the price could also be as low as $100 million, according to a news report.  Read more

Strong profits drive share buyback for listed franchisor

Listed franchisor Allied Brands, owner of the Baskin Robbins, Kenny’s Cardiology, Cookie Man and Awesome Water brands, has announced a $2.5 million share buyback following a recent strong profit performance. The company has forecast a five-fold increase in profitability up to $8.3 million for the financial year ended, generated from its network of 275 franchises. The share buy-back will occur over the next 12 months.

Allied Brands has also announced a new franchise division, Awesome Entertainment, which will provide home entertainment systems using a similar business model to its Awesome Water business. The company is also about launch Kenny’s Cardiology into New Zealand and is in negotiations for other overseas ventures.  Read more 1  Read more 2

New inquiry: Blood in the water for the franchise sector

There’s blood in the water of the franchise sector and the sharks are circling.

At least that’s one way to look at the developments of the last few weeks, in which the closure of the 165-store fashion accessory chain Kleins was announced, as well as the declaration of another inquiry (the third in nine months) into the franchise sector. Combine that with calls from a lobby group in the Sydney Morning Herald this week for franchising to be regulated by the Australian Securities and Investment Commission (ASIC) rather than the Australian Competition and Consumer Commission (ACCC), and you would be forgiven for thinking that franchising was in for a bumpy ride.

The current combination of events may not be the most desirable for the sector, but a brief look at history will show that franchising is remarkably resilient. Here’s why: (Read more)

Franchising an option in redundancy for NZ workers

New Zealand is already in a recession and workers should prepare themselves for redundancy, including consideration of franchising as a future self-employment option, according to a recent feature article in the New Zealand Herald.  Read more

Drunk driver and Baywatch babe cause KFC chaos

A quick-thinking store manager saved further carnage when a drunk driver collided with several cars while crossing traffic to get to a fast food drive-thru in the Queensland coastal town of Caloundra recently. The female driver, who had a blood alcohol reading nearly five times the legal limit, was arrested by police in a KFC drive-thru after the manager grabbed the keys from the ignition of her car.  Read more

Meanwhile Baywatch star and imported temporary Big Brother housemate Pamela Anderson caused feathers to fly at a Gold-Coast KFC store where she protested against Australian poultry farming practices.  Read more

Enrolments close soon for postgraduate franchising course

Enrolments for the postgraduate-level Franchising course available through Griffith University close on July 31. The 13-week course which commences in August is available through both online (distance education) and classroom format, with flexible study and assessment schedules to suit students who work full time. The course is an ideal formal qualification for franchise executives, and can be credited towards a larger postgraduate program such as a Masters of Business Administration (MBA). Click here for course details.

Franchise prospects for war-zone restaurant

A military-themed restaurant in Lebanon called Buns & Guns has already attracted strong franchising interest. Staff wear military uniforms, and menu items include an M1 Carbine burger (an M1 Carbine is also an assault rifle), the store is decorated with camouflage netting and generally provides the aura of a war-zone in a location where military clashes frequently occur. Read more

Other franchise news:

- Cockroach in meat topping costs Pizza Hut $35,000;

- Be warned on franchises, writes VIC Small Business Commissioner;

- 20-inch pizzas create new franchise food offering;

- Mortgage misery for borrowers;

- Harvey Norman in strife over workplace agreement;

- Only memories remain for Brothers Nielsen surf shop pioneers;

- Hamburger history debunks fast food myths;

- Community banking model to deliver 20% of Bendigo Bank outlet growth;

- US sub sandwich franchisor Quiznos in court for racketeering;

Franchise Appointments & Departures:

Health Information Pharmacy has appointed advertising wiz Lawrence Denham as National Marketing Manager. The company has also appointed General Manager Brian Taylor to the newly-created position of Chief Operating Officer.

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

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