Australian KFC Franchisee Forced to Close Doors
Yum Brands Takes Advantage of Void in Law ROCKINGHAM, Western Australia (Blue MauMau) - A 46-unit KFC franchisee was forced to close his doors at midnight after an unsuccessful showdown with U.S. food giant Yum Brands International. The Rockingham restaurant is the first to close because of non-renewal by the U.S. franchisor (see video by WA Channel 7). Jack Cowin, owner of Competitive Foods Australia, operates other restaurant concepts as well. Yum, which owns over 34,000 restaurants in 100 countries, had offered to buy all 46 units from Competitive Foods for significantly less than their market value. The 10-to-20 year contracts do not provide for renewal. Yum told Cowin they wanted to take over Western Australia for a company operation. They offered to buy the physical facilities of restaurants at their depreciated book value with no going concern value, even though they are $2 million a year stores. Cowin emphatically said no.
Government Intervention
But this one-restaurant closure is part of a bigger battle brewing in Australia. Although asked to intervene, State Government officials do not have power under present legislation to help franchisees. The Premier has been asked to help in the issue of franchisors having the right on non-renewal of contracts. In an interview with The West Australian Cowin said, "This strategy is trying to take advantage of a void in Australian law that allows this kind of behavior, which ironically is outlawed in many parts of the U.S. If a franchise agreement agreement expires, the franchise must simply close the store, no matter how profitable or successful it is." Cowin said franchisees do not even have the right to compensation for the loss of business.
Until now, franchises under Competitive Foods have been renewed under the ordinary course of business. The Rockingham closure could be the first over the next twenty-year period of contracts coming up for renewal. Cowin's restaurants have had the reputation of being successful, well-run award-winning units.
According to one insider who did not want to be identified, "Yum is behaving appallingly badly here. Whatever it is they think they are doing they are provoking profound change in the legal landscape in Australia." And he added, "Jack Cowin has political pull down there that Yum Brands can only dream about. They are going to spoil the pot for every other franchisor."
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