ACCC finds food franchisors not providing sufficient information to prospective franchise store buyers

Food franchisors are dudding prospective franchisees and potentially breaching the Franchising Code by failing to disclose vital information, the latest government crackdown of the sector has found.

Prospective franchisees have been warned to walk away from franchisors who do not provide contact details of past and present franchisees.

FOOD franchisors are dudding prospective franchisees and potentially breaching the Franchising Code by failing to disclose vital information before new operators purchase their stores.

The Australian Competition and Consumer Commission today revealed its February crackdown had found most franchisors were making it difficult for prospective franchisees to speak to past franchisees and were not providing sufficient information about supply agreements and other major ongoing costs.

The watchdog said it was considering enforcement action against some of the 12 franchisors targeted in its compliance checks, which happened ahead of a damning parliamentary report into the embattled sector released in March.

Of the franchisors checked by the commission, which it declined to name, most made it too difficult to contact former franchisees; most did not adequately disclose what essential goods were subject to supply restrictions; almost all had supply restrictions and did not share rebate benefits directly with franchisees, and could also set maximum retail prices.

ACCC Chairman Rod Sims.

The checks found some franchisors did not sufficiently disclose key unavoidable ongoing costs, such as wages, rent or inventory and that 40 per cent of prospective franchisees did not get any independent advice before buying a franchise.

The parliamentary report, released after the ACCC launched its crackdown, specifically named Gold Coast franchisor Retail Food Group as a culprit in repeatedly reselling franchises “to the next prospective franchisee without revealing the full picture on the outlet’s financial history”.

It said RFG franchisees believed they were “lied to” regarding store profitability before they purchased their stores.

A spokeswoman said RFG would comment on the ACCC report in the coming week, once the company had properly reviewed the key findings.

ACCC Commissioner Mick Keogh.

The ACCC report echoed that of the parliamentary inquiry, which found some franchisors were inhibiting access to past franchisees.

“One of the key steps in buying a franchise is to talk to someone who has been there before,” ACCC deputy chair Mick Keogh said.

“Our compliance review identified that some franchisors are making it difficult to contact former franchisees by failing to disclose basic information such as email addresses or mobile phone numbers.

“Our message to someone thinking about buying a franchise is to walk away if you can’t easily contact former franchisees. You won’t get a realistic picture of the business without talking to them.”

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The revelations come as the Federal Government’s Franchising Taskforce is calling for public submissions on the sector to inform the government’s response to the parliamentary inquiry.

The taskforce, made up of senior officers from the Department of Employment, Skills, Small and Family Business, Department of the Treasury and the Department of the Prime Minister and Cabinet, this week released an issues paper to determine whether or not changes to legislation, increased fines or wider powers for the ACCC are needed to reform the sector.