Australian Franchisor Lobbyists Argue Franchisees Expect Too Much
MELBOURNE, Australia (Blue MauMau) - The public hearing of the Federal Inquiry on November 5 into the Franchise Code of Conduct has seen the Franchise Council of Australia, the Australian Retailers Association and the Australian Competition and Consumer Commission unload the best they have to offer, publicly.
The Committee members, headed by Bernie Ripoll, have now been asked to rationalize complaints to the Committee as being based in a misunderstanding of the franchising relationship by an insignificant number of franchisees. To basically suggest that franchising needs should be evaluated on the basis that “Fred’s franchise is doing well, and there are a lot of ‘Freds’, and Bob just expected too much” is a desperate contention to an educated Committee.
Evans (ARA): “The code asks franchisees to seek out advice and understand the expectations prior to going in. A lot of folks do not.” [pg 16]
Giles (Deacons/FCA): “It is just that mismatched expectation which causes the tension.” [pg 48]
Samuel (ACCC): “There are many out there who claim that we ignore small business and we do not assist them. I have to say to you that results as much from an expectation gap as to what the ACCC is empowered to do under the Trade Practices Act versus what some in small business expect that we might be able to do.” [pg 91]
This topic of the “expectation gap” was monotonously referred to until the ACCC moved on to further defend a lack of enforcement.
Senator MASON: “Do you believe you have sufficient quivers in your legal armoury to sufficiently protect franchisees except, as the chair has pointed out, with respect to monetary penalties?”
Samuel; “Yes. I would say that is so.” [pg109]
Ridgway (ACCC): “I am talking about the bad ones, the ones who want to do the wrong thing quite deliberately for their own purposes.” [pg 94]
Samuel: “Show us circumstances where the ACCC has said, ‘We’re not going to pursue that matter because we just are not interested’, and I will come out and publicly apologise. There is the challenge. I just do not believe it is happening. I hope that is safe.”
CHAIR – Mr Ripoll; “Too late now if it is not.”
Samuel: “I am happy to apologise if that can be demonstrated.” [pg 102] (And it will be) Then there was a reality check.
Rodney Hackett (McDonalds): “I expect a little bit of silver coating to come out of this, but parliament is where the real lobbying starts. After this inquiry, even if it is a really good report to parliament that is able to see that reform is overdue, I cannot get to have lunch with [Prime Minister] Kevin Rudd.” [pg 72]
Rodney Hackett on FCA: “If you like, I might be able to compile a list of suicides for you so you can understand how serious it really is. It is not with the judges. It is not with the lobby groups. It is with the politicians. I understand you have to make inquiries and I think that is very worthy, but what goes on then is this whole lobbying process where all sorts of things can be derailed.” [pg 72]
Howard Bellin (IF Consulting): “I have got letters here from when I requested franchise legislation in this country in 1971.” [pg 78]
Tony Piccolo (South Australian MP): “The proposed changes by my (SA Inquiry) committee will importantly deter rogues and charlatans from entering the industry and equally will perhaps force out those rogues and charlatans so that we have an efficient, effective and competitive industry.” [pg 59]
Tony Piccolo: “When you put the disclosure document on the web page, for example, you are not putting up any intellectual property. The intellectual property is in the operating manual.” [pg 63]
Some classic FCA .......
Giles: “What works in franchising which is different from any other area is the economics; the market sorts the situation out. As a parliamentarian, you are perhaps sitting here thinking, ‘How do I find a legislative solution to this potential unfairness?’ What we are saying is that in 98 per cent or 99 per cent of the cases the problem does not arise at all. Secondly, the fact is that the last thing most franchisors want to do is actually end the relationship there, because they have to find a new franchisee, which is at the world’s lowest level at the moment. They then have to train them, recruit them and get funding. Why in your right mind would you do that ...”
CHAIR – Mr Ripoll: “There are some people who are not in their right mind. That is the answer. What do we do about the unscrupulous ...” [pg 46]
Clearly the Committee understands current franchising ... 
CHAIR – Bernie Ripoll to ARA: “It is interesting that you say there is no management of that because in your opening remarks you said: ‘The Franchising Code of Conduct and the Trade Practices Act provide important protection for franchisees, and the Australian Competition and Consumer Commission has been a highly effective industry regulator.’ I was going to ask you by what measure, but you have explained to me that there is not a highly effective regulator.” [pg 15]
CHAIR - Bernie Ripoll to ARA: “The franchisor has an enormous amount of weight within the operations manual, and in the end can terminate. That is a very powerful act. There is power there. Where a franchisor decides to go off the rails and decides that they are going to terminate someone and use bullying tactics for whatever reason - they might want to bring that store back in house and not pay for it, and there have been circumstances of that happening - how does that play? This does happen. This does exist.” [pg 39]
CHAIR - Bernie Ripoll to ACCC: “Let us get down to the nuts and bolts and the reality of what happens on the ground. If somebody decides through phone calls and verbal communication - we have plenty of evidence this is often what happens - then you cannot really establish that. Once they sign, the contract does not really protect them in any way. That is why we have a code. But the code really just deals with disclosure, which is taken care of as pre-contractual. Post-contractual behaviour becomes the issue. Breaches can be really for anything. It just seems from the ACCC’s view and from your submission, apart from a number of suggestions about pecuniary penalties and so forth, that there really is not much of a problem and we should not tinker with it too much.” [pg 95]
CHAIR - Bernie Ripoll to ACCC: “I would say it is worse than that, because they can take it at any time. Every franchise agreement is not that at all. It is at the bare minimum just seven days. Your contract is actually for seven days or 30 days (termination) notice. Again, it is nuts and bolts and practical on the ground. For the rogue that is quickly manufactured and done. I am not saying that is the case all the time, but we are trying to deal with the ones that fall through the crack, the bad behaviours that are not accountable.” [pg 99]
Refer: Melbourne Transcript (PDF 651kb)
Comment moved to forum
This comment is off topic and has been moved here.
FCA email on inquiry
Some readers might be interested in extracts from an FCA email which don't seem like the views of a franchising "peak" body. Check out the last sentence quoted.
Email from: John O'Brien - FCA Chairman
To: Members
Date: Thursday 11th September 2008
Subject: Message from the Chairman on “Parliamentary inquiry – your voice”
Aussie poultry fixation
... and I thought the Aussies were beef people...
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
And I thought the marsupial population made them partial to
pita pocket sandwiches - you know - the Skippy special sauce and all.
--
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Not funny Richard
You’ve done better. You should both remember you are talking about a proud people who love their beef and their seafood and one where few other nations are prepared to eat their own national emblem ...
Paul, poultry isn’t as much an FCA fixation as it is an FCA fetish ...
Houston poultry opportunity
On a non-franchise matter, someone coincidentally sent me this clipping from the morning paper and in both New York and Houston, the citizenry can raise chickens in their backyard.
Solomon and I will be starting a side business. Aussies can place orders with our local agents Cee B or Jenny Buchan.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
You think you're joking, but Belinda is a farm gal who has
raised thousands of chickens and who still owns the property that used to be their farmstead - now she "runs" cows on it to preserve her Ag Exemption from property taxes until she gets it platted and subdivided.
I am certain, however, that she will not be amenable to doing business with any man by the name of Klienpeter - Gawd! Is that a disease?
So if you know some suckers/investors who wanna securitize chicken ranchin, I'm yo huckleberry. Yee Haww!
--
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Hilarious
You only have to read the last 20 or so submissions to see how the franchisors reacted to that email.
They all read; "I wish to reinforce the concerns of our representative body, the Franchise(or) Council of Australia, regarding emotional and inaccurate statements ... ". They all say the same thing over and over and I doubt very much that the Committee missed the prompting.
In regard to this Committee and input from those that understand franchising [below] you only have to read the submissions from Professor Zumbo, Dr Elizabeth Spensor, Dr Evan Jones, Margaret Quirk, Howard Bellin, MTAA, Robert Gardini, and then read the supplimentary submission by Competitive Foods .... and then read the transcripts of the public hearings. This Committee understands.
There are too many honest submissions to this Inquiry that clearly evidence worst case franchising.
This Committee knows what the game is and the submissions from the ACCC and the FCA and their academics and bottom-feeder respondents to the FCA email just don’t come close to passing the Committee’s "pub test".
The bigger problem for Australian franchising is not the recommendations but getting them through parliament after the FCA lobbies the rest of parliament that may not see through the smoke and mirrors.
A word to Australian franchisees; talk to your federal representatives. They need to see it in your eyes.
Trust
I am trusting that Ripoll has a group of very smart people around him with no association with franchisors, but a great understanding of franchises.
They have to understand that franchisees are doing it tough with the franchisors placing nooses around our necks and saying "off to work now."
All my fingers and toes are crossed.
ACCC statements to Inquiry
Some of the ACCC statements at the Inquiry were fairly telling. Some observations doing the rounds on some statements by Mr Samuel follow:
1. "Mr Samuel—When you go to buy a house, which often involves a significantly greater sum of money, and you go to an auction, the deal is take it or leave it, that is, you stand there, the terms and conditions of the contract are read out to you by the auctioneer, you either put up your hand or you do not."
AND
"But this does bring me back to the comment I made before. I am sorry, but it is like the termites and the rotting stumps. People will look at a house, ‘It’s my dream.’ They will sign a cheque to buy the house and then afterwards, ‘Why didn’t I look for the termites? Why didn’t I look for the rotting stumps?’"
Commentary: Seems the ACCC hasn't heard of latent defects in a house being actionable post purchase.
2. "We need to be careful that we do not start imposing—by setting a lower bar—a regulatory imposition on normal contractual dealings between parties that starts to step across the bounds of allowing parties to engage in their own contractual arrangements and their own contractual negotiations."
Commentary: Here the ACCC demonstrates a lack of comprehension of the distinction between dependent contracts and independent contracts.
3. "CHAIR—Let me give you a practical example that might help to give an answer. You sign up in good faith, having done your due diligence. It is an excellent franchise system. It is all good, there is nothing wrong with it and you are going to make money. You open up in place X and a week later the same franchise decides to open up a store across the road in competition to you.
Mr Samuel—I would have to say that you have not had decent legal advice. No-one in their right mind would enter into a contract that allowed that to occur."
Commentary: Mr Samuel demonstrates a surprising level of naivete (surprising, or perhaps not!) for the head of the ACCC.
ACCC has feeble grasp on issues generally ....
Excerpt from SBS Insight programme "$2 a litre" on 8 Jul 08
Source: http://news.sbs.com.au/insight/episode/index/id/37#transcript
JENNY BROCKIE: Why does the price go up and down so often, sometimes in a single day?
RON BOWDEN: In a very quick answer, it's because of intense competition. Specifically, about once a week, normally about a Wednesday, oil companies temporarily withdraw from discounting. They raise the price to where they would like it to be, and then sit back and watch the market. Invariably, the market moves down through activity by independents, who have to compete on price, rather than brand, and sometimes supermarkets as well. So over the course of six or seven days, the price trickles down until we reach that point again, where the oil companies temporarily withdraw, and on it goes.
JENNY BROCKIE: Graeme Samuel, this is the thing people don't understand. Doesn't happen with other things in the supermarket, Doesn't happen with other consumer goods. Why is it allowed to happen with petrol, why is it possible for the price to fluctuate so much, and do you understand why it happens?
GRAEME SAMUEL, CHAIRMAN, ACCC: Jenny, after a six-month rigorous inquiry, no-one was able to give the ACCC an answer. We ended up reporting in our petrol inquiry report that the petrol price cycle was an enigma. Not a very satisfactory answer after six months is it?
JENNY BROCKIE: But you're the competition watchdog. You're supposed to get to the bottom of these things.
Re: Feeble grasp
Graeme Samuel is a wonderful speaker - I've heard him on radio, television and in person. The only problem is that while he can be quite compeling, once you evaluate what he actually had to say - he said nothing.
As a regulator he doesn't contribute to improving or fixing anything. That makes him perfect for the job at the ACCC and until an Australian government demands that the ACCC be accountable .... nothing need, or will change.
Change required
Samuel: “Show us circumstances where the ACCC has said, ‘We’re not going to pursue that matter because we just are not interested’, and I will come out and publicly apologise. There is the challenge. I just do not believe it is happening. I hope that is safe.”
Perhaps he was asleep at the wheel, but what about all the Midas complaints? Bakers Delight and Lenards too for that matter? Granted the ACCC did not actually say, “We’re not going to pusue this matter etc.” but when they sit on it for two years, stonewall, and just do nothing it comes to the same thing. The submissions show (for those in the know) just how many problems there were with these franchises alone, the tip of the iceberg, and the ACCC did nothing. Not that I expect an apology of course, and it wouldn’t help anyway. The man is, by his own words, either ignorant or a liar; maybe both.
Thinks: I wonder whether blacking out names in the submissions was done to protect the ACCC. Were that not the case you would find the majority of the submissions for change, excluding those from academia, come from the same few franchise chains.
As for the rest of the enquiry, having read most of the submissions (and I confess I did not have the stomach for the Franchise Council of Australia’s 300 pages, plus supplementary submission, to prove that black was white), it is quite obvious that major reforms are required. If you read no other, I would recommend Dr Evan Jones’s – it’s quite long, but easy enough to read with a broad coverage of the issues. It is here:
http://www.aph.gov.au/Senate/committee/corporations_ctte/franchising/submissions/sub126.pdf
... on the Inquiry blacking out names in the submissions
Very interesting observation since it hasn't been done by related federal parliamentary inquiries. For instance, see the one chaired by even the overly franchisor-protective Richard Evans at
www.aph.gov.au/hansard/reps/commttee/r6930147.pdf.
No blackouts in those submissions.
Blacking Out Names No Help for Allied Brands
While the rogue franchisors have had their names "blacked out" by the inquiry, on many of them it's easy to discern who the crooks are.
For example, in one long well-written submission it's clear that the Baskin Robins master franchisor Allied Brands is the responsible party. Baskins has had a revolving door of franchises in absolutely horrible locations while they've burned thru millions in cash raised via public float.
This is clearly the ice cream chain referenced in this submission.
RE: Blackening out names No help for
Midas Car Care, Bakers Delight or Lenards Chicken - anyone that follows current affairs on television or can read a newspaper will know these. Howards Storage, the Post Office, KFC, Fruition Tuition, Forte School of Music, Motor Dealers, Lottery Agents, etc etc - they are all there. Does anyone recognise any others?
Perhaps we should be considering the quality of franchise systems where the franchisor submission supported the FCA opinion that franchising was either perfect or only needed minor tweaking - 7 Eleven, the Cheescake Shop, Eagle Boys, Grey Army, McDonalds etc
It is a tangled secret web
The following information on Roger Gillespie has deliberatley been played down, and to the Federal Inquiry into Franchising it has never been mentioned.
The Australian Retailers Association mentioned in this blog has been very active in attempts to block law reform at the current Inquiry and recent state inquiries and have good reason not to mention Roger Gillespie as the President of ARA and one of, if not the, major franchisors at the centre of terrible complaints in the media and to this Inquiry; Bakers Delight. Many will suggest that without Roger and Yum we would not have an Inquiry.
Then we have the Executive Director of ARA, Richard Evans, of the now famous "franchise churning cannot exist because it is illegal" declaration on Sydney radio just before an entire country rolled on the floor laughing.
Dick recently held this same position at the Franchise Council of Australia while Communication Director at World Franchise Council after his political party dropped his endorsement as a would-be politician. Who said political parties don't have minimum standards?
Dick does all the talking while Rog doesn't like to go out in public any longer. He didn't even show up to Swinburn University to receive his recent Entrepreneur of the Year award after we supplied some background that the Uni may have missed. But they were not interested - must be some research funding on the way?
Thanks Paul, a good sketch artist
could combine the features of these two and guess who? ..... Richard!!
Do you see what I mean; if you don't, stand back and squint your eyes a little.
Paul pointed out that the links in the previous comment did not work so I hope these do;
Roger Gillespie
Richard Evans
If these links don't work then I'm sorry and you will have to try these [or at least I might be able to work out what I did wrong];
Rog - http://www.retail.org.au/index.php/bio/Roger_Gillespie
Dick - http://www.retail.org.au/index.php/bio/Richard_Evans
But it is uncanny isn't it?
ARA Subterfuge
I do not believe that the members of the Australian Retailers Association would be aware of the background of Gilliespie or Evans and that these two are using ARA as a platform to address personal issues in franchising.
Is it any wonder that small business is so neglected in this country when people such as these can be allowed to sneak into representation of such a large and uninformed business sector?
Don't be mistaken, this is personal for both of them even though you might argue that Evans' involvement doesn't appear to produce a direct or transparent financial gain.
In franchising in Australia you are either a good guy rarely mentioned or you are not and you have been attacked. Evans has been made to look like a complete goose repeatedly and he has been pounced on at every opportunity. Clearly, he does set himself up unwittingly and make it just too easy but ya' gotta love him for that.
This poor guy has had to face the reality that his "I'm an important" voice" ego has made him a national laughing stock so he hits back at franchising reformists to justify his absurd stand.
But there ain't nuttin poor bout ARA's Gillespie. His parent is a proud mumma.
A good read
Ripoll has a handle on this
Re: A good read
But has Senator Mason?
He was late in
but he is an intelligent man so I don't believe he will appreciate being played for a sucker and made a part of the con. He will work it out.
Razor