A warning if you are thinking of buying a franchise

Ross Greenwood speaks to Senator John ‘Wacka’ Williams as a Senate Committee releases a report into the franchisee sector

Ross Greenwood: That the parliamentary inquiry into the franchise industry in Australia has handed down today a 369-page report on the poor corporate governance and behavior of some in the franchising industry. Now, some of that actually made parallels between this particular report and the Bank Royal Commission. Others have called for Royal Commission into franchising as a result of some of the findings of this report. I said a little earlier that retail food group has been the subject of significant criticism. Remember, this is the organization that’s got, amongst other things, Brumby’s bakery, it’s got Gloria Jean’s coffee, it’s got Michel’s patisserie, other bits of most like that. They’ve been the subject of significant criticism in the way in which they’ve managed their franchisees.

Well, the man who was instrumental in getting this inquiry set and launched was Senator John Wacka Williams, who, as we’ve told you previously on the program, is retiring from Parliament at this forthcoming election. He’s already given his valedictory speech to the parliament in a big event. He’s on the line right now. Wacka, as always, we appreciate your time.

Interview with: John ‘Wacka’ Williams, Senator

John Wacka Williams: Always good to talk to you, Ross.

Ross Greenwood: All right. This area, we have criticized this franchising area and indeed the franchising counsel for years and years, because we have felt that the Franchise Council of Australia has never genuinely represented the franchisees. It’s always represented the big businesses, the franchisors, and really, from a legalistic point of view, have allowed them to ride roughshod over the people whose money they’ve taken.

John Wacka Williams: Ross, you look at the history of the Parliament, for decades now, we’ve had numerous inquiries into franchising. That means we’ve never got it right, that’s why they have another one, hopefully, we got it right this time. The history of all the inquiries, you don’t have parliamentary inquiries when everything’s hunky dory and running well and smoothly. We’ve had this inquiry, huge report as you’ve just mentioned, and, hopefully, the government will adopt these recommendations, act quickly, and bring life back into the franchising industry even though many franchisors work very well.

Ross Greenwood: Okay, do you believe that it requires even more ability for franchisees to call something back from the franchisors? In some cases, when that’s taking place, the franchisors simply, it might be an international company goes broke, folds up the business, there’s nothing left on the bone for the franchisee to get back even if they are successful in a legal action.

John Wacka Williams: Certainly, the report clearly showed, Ross, that the franchisee, the small business has little or no power compared to the franchisor, the big high-end company as far as the contracts go. I’ll give you one example, Ross. Yum, the lion’s Pizza Hut, they were the Pizza Hut franchisee’s witnesses. Yum ordered Pizza Hut to sell pizzas for $4.95, they said, “We can’t do it.” They said, “You’ve got to do it.” They sold pizzas at $4.95 and around 100 Pizza Hut franchises went broke. They lost their livelihoods, they lost- in many cases, the family breakups, their family home. It was just deplorable, Ross. Many in the industry, they believed their game big time and I hope after this inquiry will point the industry in the right direction.

Ross Greenwood: The interesting part about that, Wacka, the ordinary person looking at something like that says, “Hang on, that’s just not fair to order somebody to sell a pizza at way below cost price, despite the fact that they’ve actually already put their 150 or 200 grand into buying the Pizza Hut franchise to then be ordered at what price they can sell it at nonprofitable price and have no choice about it, otherwise, they’re in breach of their agreement since that the agreement was actually pretty poorly conceived in the first place.”

John Wacka Williams: Certainly, and the contract means the franchisees,  when you sell more pizzas in that regard, as Pizza Hut would have, Ross, with lowering of the price, the franchisor supplies the pizza bases and the ingredients, et cetera, their turnover, their income goes up while a battling franchisee goes down. It’s just not fair.

It’s a huge report with many recommendations and, hopefully, the government will take it up soon. I don’t want to see the government sit on this for 12 months, Ross, and wait to see what happens then. I’ve got to act now and get things in play, in motion, so we can fix this industry. Even in motor vehicle industry, we know that because there are no cars manufactured in Australia today, those foreign companies will not care whether they should shut down their vehicle dealers and at what cost, and at what loss. We need to act really quickly, in my opinion.

Ross Greenwood: Given the fact that you have studied this for a long time, and you’ve been the one who was agitated for change and for these types of reports, given the fact that you are now going into, technically, I know you’re not because you have always got something on the go, but I know, technically, you going into retirement. With your retirement savings, knowing what you know about this area, would you be confident to buy a franchise in Australia right now?

John Wacka Williams: No, I certainly wouldn’t unless, Ross, I could see the true correct figures. That’s why we’ve recommended two years of business activity statements, the bank statements to show exactly the cash flow, the gross profit, the wages cost, et cetera. There’s been too much of this churning and burning, Ross, where people are buying the franchise’s, not enough detail, just buying them in hope, and then they go broke, and then, of course, the franchise is sold again. Really, you’ve got to have a good look at it, get a cans advice, get legal advice, but get the proper material and the proper figures so you know exactly what you’re stepping into. Otherwise, tread cautiously.

Ross Greenwood: The other problem also is, when people have gone and bought a franchise and thought they bought something which they have looked at the books of and so forth, then realize that there was actually a separate set of books and the whole business was predicated on a totally different model which might have included underpaying students as in the case of the 711 franchises. All of a sudden, that person, in order to make themselves survive financially, finds themselves in significant breach of the law by having to, basically, underpay students to make certain that they can get their business to survive.

John Wacka Williams: Certainly the case, Ross. We had 711 management in front of the committees, and I said to the 711, “Why are your franchisees underpaying the staff or it’s just greed?” And he agreed. I said, “What did you do? The franchisor will pay those franchisees, the 711 stores more money.” Get this straight, the greedy franchisees were underpaying the wages so the franchisor will pay the franchisee more money. I think that’s a long battle to draw there. The franchisees, many may have been doing the wrong thing but many were probably forced into that position because they couldn’t make a profit, Ross. We saw those clearly in the figures in the submissions. Let’s hope this sets up this big $170 billion industry in Australia for the future for everyone to be treated fairly, and when they work, they’ll be rewarded for their efforts. Many immigrants come here, Ross, with a dream diner and business, next thing, they’ve lost everything. It’s very sad.

Ross Greenwood: Such a true story. Senator John Wacka Williams, always great to have you in the program and also for the service that you’ve done in regards to these particular areas especially but many others as well. Good to have you in the program, Wacka.

John Wacka Williams: Thanks, Ross, always a pleasure. Thank you.

Image source: 2GB

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