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Franchising ‘may no longer be viable’

Franchising ‘may no longer be viable’

Dead end, sign, warning, caution

A dramatic assertion by a group of franchisees has suggested that franchising may no longer be a viable business model, just months after a prominent franchisor lashed the government for doing an “appalling job” protecting these business owners.

Matt Wheatley, president of the Australian Association of Franchisees (AAF) — what he described as “the successor to the Franchisee Federation of Australia” — suggested that major reforms are needed to better align franchisors and franchisees on the path to mutual business success.

“Franchising, as a business model, is on life support and needs urgent changes for there to be any chance of survival,” Mr Wheatley said in a statement.

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According to Mr Wheatley, the Parliamentary Joint Committee on Corporations and Financial Services, which has held an inquiry to investigate the effectiveness of the Franchise Code of Conduct, heard many examples of people having their franchise businesses overwhelmed by an imbalance of commercial power.

“Hundreds of submissions and dozens of witnesses have testified that their businesses were destroyed by a massive power imbalance created by franchisors exploiting legal loopholes,” the statement said.

“There is universal agreement that franchising is a significant sector, employing nearly half a million people and is a vital part of the Australian economy. There is also agreement that the vast majority of franchising systems are good businesses that work well for both franchisor and franchisee.

“However, the problem is that any one of these franchises, due to the absence of checks and balances in the Code of Conduct, are a pen stroke away from becoming another catastrophe.”

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Mr Wheatley called on the committee to “make recommendations that will modernise franchising regulation and provide the balanced obligations and shared responsibilities that business partnerships require to flourish”.

“Franchising is clearly a form of capitalisation, that is, a business decides that in order to enable it to grow, that rather than raising equity or debt, it will expand by having others invest capital and effort,” the president said.

“That by any definition is a form of investment that should be afforded the same rights, obligations and protections as equity or debt capitalisation.

“If the [committee] is to go close to correcting the massive and unjust power imbalance, then it must reconsider the foundations on which the industry is built. If we don’t fix this now, we will be back in this very same place again and again.”

Mr Wheatley also suggested that the main franchise industry bodies are failing to advocate for the rights of franchisees, and are focused on maintaining the status quo for franchisors.

The Franchise Council of Australia has been contacted to respond to Mr Wheatley’s comments.

Earlier this year, Jim Penman, founder of Jim’s Group, supported the idea that franchisees have been left out in the cold, telling My Business that he thinks “the government has done an appalling job of protecting franchisees”.

“All this stuff is [overly] legalistic: if your main purpose is to be a feeding trough for lawyers, the government has done a fantastic job. If you’re talking about protecting franchisees, what they’ve done is pathetic in the extreme,” Mr Penman said.

In 2017, the Fair Work Act was amended to place more onus on franchisors to work more closely with their networks to ensure compliance with workplace laws, following a series of high-profile wage underpayment scandals.

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Franchising ‘may no longer be viable’
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