Australian Franchise sector under scrutiny post the parliament enquiry

The recent parliament enquiry into the Australia’s $ 170-billion franchise sector has recommended a completed overhaul of the franchising system, calling it highly disappointing and in a dire need to be revolutionised.

The enquiry was prompted by a couple of media investigations by The Age and the Sydney Morning Herald into Domino’s Pizza, Caltex, 7-Eleven and the Retail Food Group, that revealed that the sector dynamics exhibited indentured servitude. The report developed in the process is an eye-opener to the longstanding issues with the franchising code of conduct.

The findings include a poor corporate governance structure as well as extensive cultural problems that would not be solved by replacing a few senior executives, comparable to the shortcomings of the financial services sector identified by the Royal Commission’s banking report.

In order to deal with the ordeal of the stakeholders, a series of recommendations have been put forward which includes establishing a franchising taskforce including members as representatives from the Treasury and the Department of Jobs and Small Business to execute its recommendations.

Moreover, these also suggest strengthening the enforcement powers and responsibilities of the Australian Competition and Consumer Commission (ACCC) to exterminate delinquencies and condescending exploitative behaviour.

As per the report, the parliamentary joint committee had received over 400 submissions, out of which franchisees constituted 80% of the respondents. The submissions that identified a particular franchise system had 40% of them coming from the likes of Domino’s Pizza, RFG, Foodco, and Caltex. To their astonishment, in some responses, the franchisees explicitly expressed their fears around possibility of retaliation from franchisors, irrespective of the protective provisions available under parliamentary privilege.

The enquiry has specifically targeted at the Retail Food Group (ASX: RFG) for being at the forefront of the entire tribulation. Moreover, the report also further speculates potential breaches of the franchising code of conduct, market disclosure obligations, insider trading, compliance with directors’ duties, audit quality, asset valuation and tax evasion at the company’s end. Meanwhile, RFG has disapproved all these allegations declaring that it has a new executive team in place.

In light of the circumstances, the report has advised the ACCC, the Australian Taxation Office and the corporate watch-dog Australian Securities and Investments Commission, to carry out an investigation into the operations and dealings of RFG as well as its current and former senior management executives.

Currently, the RFG Group is under tremendous pressure to reduce its debt and stabilise the business and the balance sheet, for which the company’s turnaround programme is underway. However, it seems like it is happening at the cost of the franchisees involved with the Group. Thus, recommendations by parliament committee comprise a plethora of imperative regulator changes to address the requirement for transparency, accountability, justice and protection for the franchisees.

Also, under scrutiny is the Franchise Council of Australia which has not performed in the best interests of the stakeholders nor has provided a balanced representation of the industry. The industry analyst expects a higher compliance costs for the franchisors.


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