Food group burned by report
Inquiry recommends three-pronged federal investigation into Gold Coast retail giant
PAST and present bosses of Gold Coast’s Retail Food Group should be investigated for possible insider trading, short selling and tax avoidance, a scathing report into the franchise sector has recommended.
RFG is the centrepiece of a joint parliamentary inquiry that found “systemic” exploitation of franchisees, enabled by legislation that is patently inadequate.
The inquiry recommended the nation’s federal agencies – including the tax office, competition watchdog and corporate regulator – scour related companies and investments of past and present directors of RFG and comb the company for evidence it had breached consumer law or the Franchising Code of Conduct.
The bipartisan inquiry’s committee, made up of senators and lower house MPs, was formed in March to look at the operation and effectiveness of the Franchising Code of Conduct.
Small and Family Business Minister Michaelia Cash said the Federal Government was considering the report and its 71 recommendations.
The committee recommended a multi-agency Franchising Taskforce to consider the implementation of the recommendations.
The inquiry found RFG had “churned and burned” individual franchise sites by repeatedly selling them to new franchisees despite previous owners failing to succeed.
Former Retail Food Group managing directors Tony Alford
and Andre Nell were among those forced to front the inquiry.
Mr Alford frustrated the committee by unnecessarily prefacing every statement he made with the word “privilege” and by frequently stating he “had no insight” or “recollection” of the operations of the franchisor.
That was despite his tenure at the company lasting decades, including stints as CEO and managing director before he left his position as a nonexecutive director in 2017.
The inquiry tore shreds off RFG for failing to provide adequate information to the parliamentary committee as requested. “The lack of co-operation by both current and former RFG officers is striking, and indicative of a poor corporate culture at the company,” the report said.
However, RFG yesterday said it supported any changes that would benefit the industry and that it was already working to strengthen its franchise network.
“The current management team and board completely understand that RFG’s future success is directly linked to the profitability of its franchisees,” executive chairman Peter George said.
“We have instituted a comprehensive program of investment and improvement to help existing and new franchisees grow and prosper.”
The inquiry found existing legislation can exacerbate the power imbalance between franchisors and the small business owners they are supposed to support.
The committee found franchise agreements were largely designed by franchisors to protect their interests and that “exploitation” of contracts had caused “significant, and often life-changing, detriment” to franchisees.
It also found that while cases of franchisee exploitation were isolated when it was last examined in 2008, it had since become systemic.
“As a business structure, franchising exhibits a substantial disparity in power between franchisors and franchisees,” the report said.
“This power imbalance is inherent to the structure, given the franchisor owns the business model and has control over operations and franchisee contracts, as well as their tenancy in many cases.”