Former Brumby’s chief calls for franchise review but FCA says franchising doesn’t need a fix

Brumby’s bakery joint-founder Michael Sherlock has called for a review of the national Franchising Code of Conduct as a way to counter the continuing imbalance between franchisor and franchisee.

“We need an independent review by the parliament /Senate of the Code now in light of these allegations from the investigations by Fairfax Media into the conduct of RFG,” said Sherlock, who sold Brumby’s to RFG in 2007.

“This review needs to be forensic and address the imbalance between franchisee and franchisor that has been evident from the investigation by Fairfax Media.”

The Australian Competition and Consumer Commission which polices the Code is not empowered to conduct another review until 2020.

Sherlock believes changes to improve disclosure and transparency would only benefit the franchising sector.

He suggests:

  • Franchisors should be compelled to disclose what percentage of the advertising levy fees actually go into driving network sales

  • More clarity on the rebates franchisors receive from suppliers who franchisees are compelled to buy from

  • A register of franchise deeds and disclosure documents which can be easily accessed by the public in a similar way to commercial leases being registered

  • A disclosure document should include a table of all revenue streams to the franchisor and highlight upgrade costs such as IT and auditing

  • Franchisees should be supplied with separate tables of fees and costs upon renewal of a franchise term, and the fees to sell the franchise

Sherlock’s voice is not the only one to call for further adjustments to the Code. Nationals Senator John Williams has pinpointed an inquiry as essential.

However Bruce Billson, executive chairman, Franchise Council of Australia, disagrees.

In a statement today, Billson said “Some of the reported alleged conduct certainly warrants investigation by the ACCC and if true, would be clear breaches of the law that has been strengthened and made more enforceable in recent years.

“It is also troubling to read that available dispute resolution processes appear not to have been activated is some cases.”

But a knee-jerk reaction is not the solution, he said.

“Commercial pressures all small businesses are facing such as the impact of new entrants, input cost pressures, shopping centre rents and format replication, and local market conditions are ignored and replaced with a lazy, baseless and prejudiced assertion that ‘the problem is … the franchise model itself’.

“The FCA is bewildered about why our constant encouragement for people to make thorough inquiries and to do proper due diligence on franchise opportunities, carefully review the disclosure documents, ask lots of questions,  seek professional advice and consider if the business is right for them before investing, seems not to be getting through in some cases.”

Billson said while media attention appears focused on negative aspects and experiences, the reality for many franchisees is different.

“Franchising is the best model of entrepreneurship,” he said. “Franchising offers a three-fold increase in the likelihood of small business success compared to a standalone start-up small enterprise.”

Sherlock told Inside Franchise Business he is keen to see franchising getting a better profile and that greater transparency is the key to this.

“The vast majority are doing things right. I’m concerned there will be too much of a reaction against franchising, which is getting a bad name. Clearly franchise buyers need to see what they are getting into, and the costs they’ll incur.

 “I’m pro-franchising,” he says, “I’m speaking out against things that are unfair, and franchisees and franchisors should be equal. It’s time for good systems to stand up.”