What do pizza and petrol have in common?At the moment there are two big businesses making headlines for franchise disputes- Pizza Hut and United Petroleum. Around 80 owners of Pizza Hut Franchisees are currently in the Federal Court claiming the $4.95 pizza range the franchisor has required them to sell is too cheap- they cannot make any profit and remain in business. Part of their argument is that the franchisor is not acting in their best interests and it is unconscionable to require the franchisees to sell pizzas at such a low rate. Initially unsuccessful in obtaining an order to stop the requirement to sell the cheap pizzas, the matter is now chugging along towards a final decision. It is expected that the judgment, whomever the Judge agrees with, will provide much needed clarity on exactly what kind of care the franchisor owes to the franchisee.
A more recent conflict to emerge involves a franchisee of United Petroleum. While in some respects it is hard to imagine not turning a profit from petrol, the franchisee is claiming that he was required to sell gas bottles and confectionery at a high price and was forced to change electricity suppliers that charged a much higher price. United was able to terminate the franchise agreement due to Mr Nijhawin’s failure to pay electricity bills. In speaking to the ABC’s news service, the franchisee said “We’re devastated, totally. Financially, emotionally, physically…we’re finished,”.
A lawyer representing two other (now former) united Petroleum franchisees, claims that it is in the interests of United Petroleum for a franchisee to commit a breach, so they can then take back the business and re-sell it to a new franchisee, netting around $145,000.00 each time the business changes hands. Another disgruntled franchisee commented that his business struggled because United dictated what products its franchisees sold and at what price, including United Petroleum home branded products. He shut up shop in March 2015.
If you are considering a franchise you must, must, must fully understand the franchise document. You need to be aware of clauses that allow the franchisor to dictate your resale price. If you get caught in the cross fire of a pricing war, as is currently raging between Pizza Hut and Dominos, your business could be the first casualty. If the franchiser dictates your supplier and you can get a better deal elsewhere- what are your rights to go elsewhere? Read between the lines- is this document passing on all the risk of running the business solely to you, without giving you the power to make decisions that impact on its profitability? While the franchising model of business can be a profitable way of running a business, often enjoying instant brand recognition, training, support and extensive marketing, as with most of life’s decisions, your decision to buy a franchise must be an informed decision. Coutts have experience in reviewing a variety of franchising documents as well as acting for parties in franchising disputes.
If you are thinking of starting a franchise business. Coutts is hosting a FREE Webinar on Monday 7th September 2pm with the ABC’s of starting a business. Our Commercial Law expert Adriana Care can help you decide the best way to set your business up, to be a success from the start!