Posted by Elizabeth Gore-Jones
on 29 August 2019
In August 2019 the ACCC released its review of the disclosure practices of food franchisors*.
The review found that the majority of franchisors:
1. made it too difficult to contact past franchisees. Most mobile phone numbers and email addresses of past franchisees were not disclosed
Only providing contact details for the former franchise location is unlikely to comply with the Franchising Code of Conduct requirements when the former franchisee cannot be contacted there.
2. did not adequately disclose details of supply restrictions in relation to where a franchisee could source products from.
For example, if a franchisee was required to purchase an item only from the franchisor then the franchisor needs to disclose that in the disclosure document.
3. had the ability to require the franchisee to purchase goods from a certain supplier, may receive a rebate on that supply (and may not be required to share that with the franchisees) and had the ability to set a maximum price for goods sold by the franchisee.
4. did not adequately disclose the costs of doing business for the franchisee (only 1/3 of the franchisors reviewed did not give adequate information).
The franchisors did not give costs of rent, labour costs, inventory and other essential costs so that a franchisee could calculate the costs of owing and operating its business.
The ACCC also found that too many prospective franchisees did not get independent advice (40%).
The ACCC said it is concerned about:
A. the poor disclosure practices of the franchisors reviewed and fears it may be reflective of the food services industry or franchising as a whole; and
B. the low rates of advice seeking by potential franchisees.
The ACCC reminds franchisors it can take enforcement action if the Code is not complied with.
ACTION:
Franchisors - in light of these guidance principles you should improve and review your disclosure documents and practices
Franchisees - obtain advice - you don't know what you don't know.
The Franchise & Business Lawyers can review your disclosure documents and can give advice to franchisees.
This blog is not a complete summary of the ACCC findings.
You should seek advice.
*ACCC "Disclosure practices in food franchising key findings of targeted compliance checks of franchisors in the food services sector" August 2019 https://www.accc.gov.au/system/files/1620_Disclosure%20of%20practices%20in%20food%20franchising_D05.pdf
