Changes to franchising law announced by the government today are too late to help Peter Coventry, who is embroiled in a $1 million claim against the Wendys ice cream franchise.
Coventry told SmartCompany his complaints against Wendys are typical of the problems faced by franchisees around the country.
“That’s why I set up the National Franchisee Coalition because it wasn’t just about me and Wendys, it’s about other franchise systems,” Coventry says.
“I was horrified by what I heard from those who came forward and they would be a miniscule percentage of the Australian market.”
“What franchisors do is typically always paint the franchisee as a bad franchisee, a disgruntled franchisee. Nothing could be further from the truth in most cases, franchisees simply want fair play and to be able to get a return on their time and money.”
Coventry says Wendys approach is typical of how the franchise model works with franchisees purchasing a store, which the franchisor has built at the price which the franchisor tells the franchisee.
“The franchisee pays all upfront legal fees, franchise upfront fees, franchise upfront lump sum fees, initial training fees and then works in the store selling the products at the recommended price dictated by the franchisor and is forced to buy products of questionable quality at inflated prices because the franchisor receives rebates from its negotiations with its suppliers,” Coventry says.
“At Wendys this extends to the contractors Wendys engages to do the shop fitout, most if not all ingredients, packaging and delivery and other services.”
He claims Wendys also dictates what equipment franchisees must purchase, on which the franchisee is often paying way more than market price because the supplier is forced by Wendys to sell his or her particular machine to the franchisee at the “Wendys price” and the supplier then provides rebate to the franchisor.
“As soon as you put your hand up that you want to complain you are bullied and intimidated,” he says.
“They hold all the cards. But they have bitten the wrong dog this time.”
West Australian MP Peter Abetz, who has supported Coventry in his battle against Wendys, told SmartCompany the problem of rogue franchisors is widespread, but there are particular issues with Wendys.
“I would have thought the fact that so many Wendys franchises are for sale (23 on Seek.com and Gumtree alone – that is over 10% of all Australian stores are advertised in just those two forums on 1/4/2014) indicates that all is not well with the Wendys franchising system,” Abetz says.
“How many [Wendys’ franchisees] have had to declare bankruptcy after Wendys either took the store from the franchisee, or failed to renew a franchise agreement?” he says.
But Wendys chief executive Rob McKay says after the establishment of a National Franchise Coalition, Wendys engaged in a lengthy mediation process which formally resolved the matters between the parties.
“Wendys has also worked through a review process with the ACCC and consulted with the South Australian office of the Small Business Commissioner – both of whom found no fault with Wendys and the Wendys system,” McKay said in a statement provided to SmartCompany.
McKay is backed by Wendys franchisees Jim Carter who has the Wendys Nowra franchise and Dale Murrie who has the Wendys Clifford Gardens franchise.
They say the actions of two disgruntled former Wendy franchisees are harming hard working franchisees around the country and doing “significant brand damage”.
“The suggestion that Wendys is churning stores is fundamentally flawed – if we don’t succeed, the company doesn’t succeed,” Carter says.
“Retail across the board has been a tough sector in Australia in recent times and our business faces the same challenges everyone else does. Blaming the franchisor for things that are beyond its control isn’t going to help anyone.”
Cara Waters is the editor of SmartCompany. Cara was previously a senior reporter at the Financial Times website FT Adviser in London and has also worked for The Sunday Times.
