The owners of two Jamaica Blue franchised coffee shops have told a parliamentary hearing that running the businesses was “a constant ongoing battle” with the franchise owner that ended with them losing both stores.
On the first day of hearings for a joint federal parliamentary committee inquiry into the franchise industry, former franchisees told stories of hardship meeting the obligations of their contracts, while industry observers described cases of unscrupulous behaviour.
Robert Whittet and Emma Forsyth, who together operated two Jamaica Blue coffee shops in Queensland, told the hearing that they were promised support by their franchisor when they started their business but received very little.
“This was a constant ongoing battle”, Mr Whittet said.
In their written submission, the pair said a representative of Foodco, the franchise owner, told them they had to open the second store or there would be “ramifications”.
The first store, which they bought in 2011 for $520,000 and refurbished for a further $155,000, had to be sold because it was unprofitable, and the second store was liquidated in April this year.
Franchise Redress, an organisation representing aggrieved franchisees across the industry, told the hearing in Brisbane on Friday about situations in which some franchisors had forced store operators out of their stores.
But Franchise Redress director Michael Fraser also said there are problems on both sides in the industry, with some franchisees failing to read the documents setting out the terms of their business agreement.
Mr Fraser said sometimes a franchisor will suggest that it is investigating a franchisee for underpaying employees in order to pressure them to sell the store back to the franchise at a low price.
“Some of the kinds of things we see is a franchisor who wants to move someone out of the system because they want another person to have that store who is more favourable to the franchisor,” Mr Fraser said.
He said the franchisee may be presented with an investigation that the franchisor hasn’t completed, suggesting that underpayment has taken place and that the franchisor may terminate the franchisee.
“They use the intimidation of a termination to get them (the franchisee) to agree to a lesser price for their store so that they (the franchisor) can give it to someone else.”
Mr Fraser also said that some franchisees were “foolish” by not studying their business contracts, but he added some franchisors who know this will take advantage of the new franchisee’s ignorance and still allow the franchisee to take on an unprofitable store.
“If a franchisor knows that a store is a lemon and knows that the buyer didn’t read everything, it doesn’t make it right to sell it to them,” Mr Fraser said.
The committee will deliver its final report on the franchising code of conduct inquiry by September 30.