A federal parliamentary committee has recommended a wide-ranging investigation into allegations that Australia’s largest franchise owner, Retail Food Group, and its directors engaged in insider trading, short-selling and tax avoidance.
The global food and beverage company, which operates the master franchise of brands including Gloria Jean’s, Brumby’s Bakery, Crust Gourmet Pizza Bar and Donut King, was roundly criticised by inquiry’s final report and found to have “damaged the reputation of franchising more broadly in Australia”.
The committee investigating franchising has recommended sweeping reforms to the sector, including enhanced financial disclosure obligations for franchisors, greater regulatory powers for the Australian Competition and Consumer Commission, and whistleblower protections for franchisees.
The final report, released on Thursday, found the exploitation of small business owners by their master franchise operators was “systemic” and that the system gave rise to wage theft.
“Many of the public and confidential submissions received by the committee outlined the significant, and often life-changing, detriment that many franchisees endured as a direct result of being exploited by franchisors,” the report said.
“On the balance of evidence given to the committee in public and in confidence, far too many franchisors are abusing the power imbalance between themselves and their franchisees.
“The committee notes that wage theft continues to occur in many franchises: partly due to the business model franchisors operate and partly due to a range of socio-cultural problems. In some instances wage theft was encouraged by franchisors.”
Labor senator Deborah O’Neill said on Thursday the public remained unaware of a huge number of claims, made anonymously by franchisees, that revealed systemic problems with the industry.
She said confidential submissions were made by “people revealing how desperate they were, losing everything … There were terrible personal stories among this including people taking their lives.
“What we found was gross exploitation by people at the top end of town who have determined they can exploit people because they can.”
O’Neill said banks had, in many cases, enabled the business model and should also be investigated.
“What I can’t get away from is constantly saying there is a systemic problem. This is not just about a few bad apples. The reality is that there needs to be a system response. There needs to be far better policing of the sector.”
Retail Food Group on Wednesday denied speculation it was on the brink of administration.
The committee dedicated an entire chapter of its report to Retail Food Group, chronicling a long list of claims from franchisees and others. It noted the company’s share price had dived and that there was “significant doubt” about its ability to continue.
“It appears RFG has operated a particularly unjust business model in which shareholders and senior executives have profited at the expense of franchisees,” the committee found.
“While the ultimate verdict of the market probably comes as no surprise to those who have observed and experienced RFG’s operations up close, it provides scant comfort either to the franchisees whose lives have been destroyed by RFG’s business practices, or to those struggling franchisees that are still locked into RFG’s business model and would be negatively affected if RFG is unable to keep its lenders happy.
“The committee notes the ACCC, the Australian Tax Office and Australian Securities and Investments Commission are yet to conduct comprehensive, systemic and forensic investigations into the actions and operations of RFG and its current and former executives.”
It recommended those bodies launch investigations into matters “including, but not limited to, the Australian consumer law, the franchising code of conduct, insider trading, short selling, market disclosure obligations (including related party obligations), compliance with directors’ duties, audit quality, valuation of assets (including goodwill), and tax avoidance”.
