Senate report says Australian franchising activities requires drastic overhaul

A report from the Australian Senate has called for a radical overhaul of the entire franchise sector, recommending civil law penalties be included in a stronger industry code along with greater enforcement power for the Australian Competition and Consumer Commission to help eradicate "exploitative behaviour".

Released this week, the damning Senate committee report has called for better disclosure, particularly around financial performance when franchises are sold, and it has demanded greater accountability about how compulsory marketing levies are spent.

With an estimated annual value of over $135 billion, Australia now more than 1250 franchise systems, and with more franchising outlets per capita than the USA, is now known as the ‘franchising capital of the world’.

Having grown from food and family restaurants, franchising has grown to include practically every type of product and service imaginable, with home-grown concepts accounting for around 90% of the franchise market.

With franchising common in many leisure industry sectors - notably fitness clubs and swimming pool equipment supply - the committee’s call for the Federal Government to establish a taskforce to oversee and implement its recommendations is likely to have some impact.

However, it was the Retail Food Group - which owns the Michel's Patisserie, Gloria Jeans, Brumby's Bakery, Donut King and Crust Pizza franchises – that was subject to the most criticism, with a whole chapter of the 369 page document focusing on its activities and one of the report’s recommendations being for an inter-group investigation by the competition regulator, the Australian Taxation Office and the Australian Securities and Investments Commission into the franchisor’s operations and dealings.

The report cited concerns over issues such as tax avoidance, compliance with company director duties and the Franchising Code of Conduct, Australian Consumer Law, and insider trading.

The report also suggested a new group should be charged to take the committee’s recommendations to the next stage, advising “the committee recommends that the Australian Government establish an inter-agency Franchising Taskforce to examine the feasibility and implementation of a number of the committee’s recommendations.

“The Franchising Taskforce should include representatives from the Department of the Treasury, the Department of Jobs and Small Business and, where appropriate, the ACCC.”

The Franchise Council of Australia welcomed the report, telling its members “two key initiatives that the FCA is supporting is the establishment of a registry of all franchises in Australia, and the mandatory requirements to obtain legal and financial advice prior to entering a franchise agreement.”

According to the Franchise Business website, owning a franchise is “the second great Australian Dream”.

Images: F45 has beein one of Australia's most succesful fitness franchises of recent years (middle) and Jump! Swim School was criticised by a number of dissatisfied franchisees earlier this year (below).