Australian franchisor Foodco has been questioned over allegations of misleading franchisees at the latest hearing of the parliamentary inquiry into the Franchising Code of Conduct.
The company, which operates franchise brands Muffin Break and Jamaica Blue, first came under fire in June following a submission from Jamaica Blue franchisee Maggie Xu.
Xu suggested that Foodco’s decision to open a Muffin Break store within close proximity to her franchise resulted in a 40 per cent loss in sales, a downturn that left her with little chance for survival.
She told the inquiry when the lease was up for renewal, Foodco refused to renew, refused any new buyers and forced her to vacate the site for no compensation, before billing her $43,000 to de-fit the store.
On Friday, Foodco managing director Serge Infanti was forced to defend the actions of his company at the Senate inquiry in Canberra.
Leading questioning, Senator John Williams asked Infanti whether the company was aware that Xu’s Jamaica Blue franchise was struggling sales and profit-wise when Foodco set up the Muffin Break store just one floor away.
Infanti confirmed the company was aware of Xu’s situation, however suggested that the Muffin Break store was “on a different floor, in a stronger location” and targeted a different consumer market that Jamaica Blue.
Infanti and executive director Robert Fitzgerald were also asked whether Xu had been made aware of the Jamaica Blue’s site’s profitability struggles prior to purchasing the franchise.
Both confirmed that it was not a requirement for the selling franchisee to include profit and loss information in the sales contract, with Infanti suggesting it was up to the franchisee to “ask for the details”.
Infanti’s response follows a consistent pattern of thought identified throughout the public hearings, with franchisees urged by franchisors to perform greater due diligence and research prior to committing to a franchise purchase.
An earlier submission from former Muffin Break franchisee Faheem Mirza claimed that the breakdown of wages presented in the initial agreement differed from the true costs he experienced.
In Mirza’s submission, he claims that the true cost of wages to operate a Muffin Break store would total 55 per cent of sales, rather than the 27 per cent outlined to him in franchise discussions.
While Infanti reiterated that operational costs for stores were between 27 and 28 per cent, he admitted that this figure excluded the franchisee.
With most franchisees, particularly in the food-retailing industry serving as owner/operators, the decision to exclude their wages is a particularly poignant one.
In previous hearings, industry giants Retail Food Group, Domino’s and Caltex have been accused of operating models that promote underpayment and lead to bankruptcy.