POLL: Should There Be a Royal Commission Into the Franchise Industry?


The Banking Royal Commission which was called by the Turnbull Government late lasy year after it caved to political pressure has exposed to the Australian public the shocking practices of our major banks and financial institution in dealing with its customers. These have included lax lending practices and excessive fees and poor advice in their financial planning and wealth management arms.

Royal Commissions are often criticised for being fishing exercises and star chambers given that they can compel witnesses to give evidence, and can destroy reputations without actually having the power to bring criminal charges. The length and expense of Royal Commissions are seen to delay action on important public policy matters. Then there is also the political aspect of the government of the day calling Royal Commissions into their political enemies.

The Banking Royal Commission, however, has put a spotlight on the banking industry that no other inquiry or regulatory investigation could. The revelations in the Royal Commission that AMP had misled the corporate regulator ASIC and charged customers fees for advice not given led to the departure of AMP’s Chairman, CEO and two of its directors.

Many suspect that the banking industry is not the only industry where corporate crimes and injustices against ordinary people have been committed. One industry whose questionable practices have occasionally made into the news and been the subject of parliamentary investigations is the franchise industry.

A quick recap on how the franchise industry works: an individual proprietor purchases a business brand name and operates their own store using that name, taking advantage of the existing goodwill and advertising reach and in return pays head office a certain percentage of sales and buys their stock from them.

The evidence gathered at a recent Senate inquiry found that many franchisees are on the verge of bankruptcy. The biggest complaints from franchisees were about Craveable Brands who own Oporto, Red Rooster and Chicken Treato. They allege they were forced to pay inflated rates for goods as a result of “unreasonable rebates” from suppliers when they could have bought the same goods cheaper at the local supermarket.

Other inflated costs alleged were delivery management software, finger scanners, media player licences, “unreasonable” IT costs, software licences and digital menu boards. The home delivery service and loyalty programs of each franchise also put a financial strain on the franchisees.

Just last night the ABC’s 7.30 program did a report on mortgage broker Mortgage Choice whose franchise holders claimed they were being squeezed dry due to aggressive monthly sales targets overworking them and sending them into debt.

A common theme out of all the submissions to the Senate inquiry about various franchise companies is that when deciding whether to acquire franchise the franchiser did not negotiate in good faith by informing their prospective franchisees of the true costs of operating their franchise licence.

An Australian study into franchising found that 70% of those surveyed whose franchise had failed agreed buying it was “the worst thing I ever did”. The same statement was put to those who had an operating franchise that hadn’t gone broke and 60 per cent of them agreed as well.

Working 7 days a week and even encouraged to underpay their own staff is not an unusal occurance. Exiting from a franchise is difficult due to the amount of debt that is taken on and some have even been driven close to suicide due to both the physical and emotional strain of being trapped in an unviable franchise arrangement.

The franchises accused of these practices all deny the testimonies in these submissions and claim they have done nothing wrong or illegal and that most of their franchise holders are satisfied with their purchase and work well with head office.

Given all of this distressing evidence and we are only seeing glimpses of it, is franchising the next industry we need to hold a royal commission to? Is it the only way, like in the banking industry that these franchising companies will admit to any wrongdoing and see substantial and fair reforms in their business models? Have your say in our poll below?

Should There Be a Royal Commission Into the Franchise Industry?

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