The owner of a number of high-profile brands is under investigation for alleged abuse of power and disclosure failures among its franchisees.
Retail Food Group (RFG – which owns a number of well-known food brands including Gloria Jean’s Coffees, Michel’s Patisserie, Donut King and Brumby’s Bakery – is the subject of class action proceedings by franchisees.
Bannister Law, which is already leading a shareholder class action against the group, announced last month that it is representing disgruntled franchisees who alleged repeated disclosure failures, including of the company’s financial performance, terms of operation and financial contributions required of franchisees. The law firm is seeking other franchisees to join the action before it goes to court.
“Accounts by many franchisees suggest that some franchisees may have been forced into severe financial hardship. Many have been left devastated – financially and personally,” Bannister Law founder Charles Bannister said.
The move was prompted by “over 100” complaints from franchisees to action group Franchise Redress.
“We’ve had contact from over 100 franchisees, many of whom have raised concerns around RFG’s conduct. They allege issues around the company’s goodwill, the viability of stores at sale and the lack of appropriate disclosure on a range of matters including the prior performance of stores at purchase,” said Franchise Redress co-founder Maddison Johnstone.
“Given the accounts of hardship, it is important to us that franchisees have an avenue of redress for the severe financial distress they’re living with. Franchise Redress strongly encourages all disaffected RFG franchisees to express interest in a potential class action with Bannister Law.”
RFG did not respond to requests for comment on the matter.
It comes as insolvency specialist Andrew Spring of Jirsch Sutherland – who was appointed as voluntary administrator for retailer Kangaroo Tent City & BBQs – warned of likely collapses of franchise businesses in the near future.
“The retail sector is really struggling. In the last six months we’ve seen a number of high-profile brands collapse – painting a gloomy picture for Australian retailers. But the franchise sector has additional pressures,” he said.
“The challenge is a question of balance. All franchise models must find the right balance between the cost structure established by the franchisor and the support expectations of the franchisees. If the franchise relationship cannot find its equilibrium, then the model will impede the success of both franchisor and franchisee.
“This, coupled with the difficulties associated with an already challenging retail environment, is likely to continue to mean that we will see further insolvencies in the franchising sector.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.