Franchisees in distress

MANY Red Rooster outlets are on the verge of bankruptcy due to the poor business model of franchisor Craveable Brands, a Senate inquiry has been told.

Franchisees complain Craveable, owned by private equity house Archer Capital, is putting many franchisees in distress.

Craveable operates 570 fast food restaurants across its Red Rooster, Oporto and Chicken Treats brands.

“There have been recent insolvent (Red Rooster) franchisees,” said the Franchisee Association of Craveable — which was set up nearly a year ago to protect the interests of franchisees — in a submission to the Senate inquiry into the franchising code of conduct. “There are many more on the verge of bankruptcy. The business model needs to be questioned and rectified prior to more franchisees becoming bankrupt.”

The franchisees are questioning whether Archer and Craveable met their obligations to act in good faith and whether they adhered to disclosure requirements before entering into franchise agreements.

They are also questioning whether Archer and Craveable have followed other parts of the franchising code, which is a mandatory industry code.

The Senate launched the inquiry into the code in March following complaints about franchise companies including Domino’s Pizza Enterprises, Caltex Australia and Retail Food Group, owner of brands including Gloria Jean’s Coffee, Brumby’s Bakery and Donut King.

The association said Craveable might be violating its obligations to act in good faith, with the cost of goods it supplies to restaurants higher than for competitors and in some cases, more expensive than in local supermarkets.

Its submission gives examples such as that of a carton of Mount Franklin water bottles, which was sold for about $11 at IGA supermarkets but cost franchisees $18 through Craveable suppliers.

“It is the belief of franchisee that the franchisor is not acting in good faith whilst determining prices,” the association said.