Franchisees at some of Australia’s best-known fast food chains have claimed they are on the verge of bankruptcy amid claims the parent company is bleeding them dry due to a “poor business model”.
In a submission to the Senate committee exploring the effectiveness of the Franchising Code of Conduct, the Franchisee Association of Craveable — the parent company of Oporto, Red Rooster and Chicken Treat — raised a number of concerns about the propriety and financial viability of the company’s franchise agreement.
It suggested the franchisor was much more interested in building its own business and the overall brand than helping to grow the individual franchise businesses.
“The association is alleging that the Franchisor is not acting in good faith in regards to the Franchise Agreement which has resulted in a poor business model,” the submission stated.
“This is highlighted by the following points:
1. Cost of goods and unreasonable rebates from suppliers
2. Customer Loyalty Program and cost to franchisee against contribution
3. Conflict of interest within own brand
4. Red Rooster Delivery
5. Lack of appropriate marketing
6. Costly and unmanaged promotions”
According to the Association, cost of goods at Red Rooster sit at 38 per cent, well above the 30–33 per cent range of competing fast food brands.
“A very good example is Mount Franklin Water carton which can be bought for $11 every day price at IGA and costs $18 through Craveable suppliers,” it said.
“It begs the question: ‘Where is [sic] national purchasing power gone for Craveable?’”
Other concerns raised by the association are that the group’s loyalty program has cost the average store “over $25,000” because individual franchisees do not benefit from the scheme, as well as a conflict of interest between the “very similar businesses that sell chickens”, and that the franchisor as the leaseholder of many premises has not disclosed the original rent, contrary to the franchising code.
Home delivery – which Red Rooster CEO Chris Green touted as an example of innovation within a long-established brand in an appearance on the My Business Podcast last year – was also criticised as eroding franchisee margins.
“All Franchisees are expected and pressurized to introduce delivery within their stores as a total brand direction. This has burdened them with the added cost of vehicle ownership (insurance, registration, maintenance, finance), plus and a higher wage bill,” the association said.
Craveable Brands, however, denied the allegations as “false assertions made by a small group of store owners”.
“Our store owners earn on average $135,000 per year with annual sales growing by 4.3 per cent per year, which is 59 per cent more than the average $84,600 full-time worker in Australia,” the company’s chief executive, Brett Houldin, said.
“That makes claims of stores nationwide on the verge of collapse a ridiculous assertion.”
Mr Houldin said Craveable Brands is “committed to the profitability and success of its franchise partners” and has a “best practice framework to support its franchisees”.
He also claimed the grievances raised in the Senate submission had not been raised directly with Craveable, and that the Franchisee Association of Craveable represents as little as 2 per cent of its franchisees.
The Franchising Code of Conduct was first introduced in 1998, which was subsequently replaced by a new code in 2015.
As an industry, franchising was also a core motivator for changes to the Fair Work Act in late 2017, in a bid to provide greater oversight of franchisees rocked by underpayment scandals at the likes of 7-Eleven and more recently Caltex.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.