Michael Sherlock

There are a lot of potential class actions being mulled over in the franchising world at the moment – all because of unchecked growth.

Growth for growth sake?

Federal Parliament passed the amendments to the franchising code this week, which will become effective from the 1 March 2008. The amendments appear to only be the first stage in what will be further Government crackdown on some of the franchising industry excesses over the past years – mainly due to inappropriate growth and churning.

A number of well-known franchising brands have set out ambitious expansion programs that ignored basic business fundamentals, such as that it is “very difficult to find good quality franchisees and sites for any system that are necessary” to achieve the growth plan. The present and future amendments to the industry have been bought about because of the actions of a number of well-known household franchisee brands. 

During my time as managing director of Brumbys, the most stores we were able to open in a year was around 35. I am sure we could have pushed it a bit harder but the quality of the finished product would have diminished. A number of brands have expanded at more than 80 stores a year for a number of years, and are now suffering the indigestion from biting off more than they could chew.

There are a number of anti-“name-a-brand” websites now appearing where franchisees who have suffered at the hands of these over-ambitious growth plans have pooled their stories and are warning potential franchisees to think carefully before investing.

Local MPs on both sides of government are aware of these many issues raised by their local constituents, which is resulting in the current and future changes to the franchising code and ACCC interest in the industry. All free enterprise franchise groups suffer when the industry becomes over regulated and is given a bad name by the actions of a few.

In my university days, I developed an interest in yoga and learned about the principle of karma – as you sow, you reap. It’s a universal principle that can’t be escaped, as your negative actions will always come back to haunt you.

I understand there is a lot of potential class actions being worked on at the moment, which has resulted from over-ambitious growth – and then the churning to cover it up. In the words of Tex Perkins from The Cruel Sea: “You better get yourself a lawyer son, you better get yourself a real good one.”

 What do you think?

Michael Sherlock was managing director of Brumby’s Bakeries, a 320 store franchise chain in Australia and New Zealand, from 1999 to 2007. Michael oversaw the growth of Brumby’s from its early days in 1975 where it was established to support the work of a health and education foundation to its recent sale to the ASX listed, Retail Food Group for $46 million. Michael is also a contributor to the book “Top Franchise CEO’s Secrets Revealed”.

Comments

Debra at Meal Magic writes: We hear much about the big companies who rip off the mum and dad investors but not so much about the new franchisors who get their IP stolen with potential investors who decide to go it alone once getting a good insight into the business. Is there no good faith around any more?

Mary Lou writes: Have followed much of your Brumby’s career. Can you provide web links to the “anti” sites please.

Steve Brown writes: Could you name the band that Tex Perkins was the lead singer of before The Cruel Sea?