Pick n Pay’s franchise model unfair, say traders From Fire to Flowers
Chain’s court bid to repossess store met with claims of bullying
PICK n Pay is at the centre of a heated row with franchisees who accuse the supermarket giant of resorting to bullying tactics and holding them to an unfair franchise model that contravenes the Consumer Protection Act.
The allegations are contained in court documents that have been filed in the High Court in Pietermaritzburg, where Pick n Pay is seeking an order to repossess one of the franchised stores. The documents were filed about a week ago.
The legal challenge is against National Pride Trading 267, which trades as Pick n Pay Ulundi and which Pick n Pay claims is more than R10-million in arrears for stock, services and interest on arrears. Pick n Pay said the franchisee missed payment deadlines or made short payments only after notices of the breach of agreements had been issued.
It is seeking an urgent order to exercise its right as a bond holder for money it lent to the franchisee and to protect its financial interests by reclaiming the store.
But the franchisees claim that allowing owners to fall into debt is a recurring modus operandi of Pick n Pay, which later repossesses the stores with little or no compensation to the franchisee and then often sells them to third parties at below market value.
In an affidavit, Harold Truter, legal manager of the corporate division of Pick n Pay Retailers, said that in the case involving National Pride Trading 267, Pick n Pay had issued a bond for R6-million as a capital sum and another R1.2-million when it signed up the franchisee in 2005.
Debt had accumulated in the business and the franchisee had fallen into arrears and missed certain payments. Pick n Pay was seeking to protect its brand and manage the store.
“The fact that the applicant has successfully relied on its security in other matters has no bearing on this matter,” said Truter
But Duncan Khomo, a shareholder in Pick n Pay Ulundi, said in court papers that “structural and systemic problems with the Pick n Pay fran- chise arrangement” had led to Pick n Pay’s “emerging-market stores” collapsing under debt and being repossessed. His claim is supported in affidavits from several store owners.
Emerging-market stores were formerly branded Score stores, but were later rebranded and offered to black entrepreneurs, according to Pick n Pay’s website.
Khomo and other entrepreneurs claim they are unable to achieve the 16% gross profit they were promised by Pick n Pay when they entered into franchise agreements.
They blame Pick n Pay’s control of franchisee margins and claim it sets prices unilaterally for stock that may only be ordered through Pick n Pay.
“This is especially problematic for emerging-market stores, whose margins are lower than the Pick n Pay Family stores due to the nature of the products they stock,” said Khomo.
Pick n Pay also failed to pass on rebates, discounts and other savings it negotiated with suppliers — one of several accusations rejected by the company.
“Although the suppliers are squeezed by the applicant, the franchisees’ buying prices are higher than they need to be — and higher than they could be if franchisees were permitted to negotiate with the suppliers independently,” Khomo said. “This arrangement is also one of the number of instances of the Pick n Pay franchise arrangement falling foul of the Consumer Protection Act.”
National Pride Trading 267’s franchise agreement, although concluded before the act was passed, has been amended to comply with changing legislation.
Khomo said that should the court rule in Pick n Pay’s favour, his debt could rise and he would still be held liable — despite having no control over the fate of the business.
The matter is scheduled to be heard next month. COURT CASE: Several franchisees claim that allowing franchisees to fall into debt is a recurring modus operandi of Pick n Pay