Sunday Times

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

- ASHA SPECKMAN

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

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Picture: GETTY IMAGES Comment on this: write to letters@businessti­mes.co.za or SMS us at 33971 www.sundaytime­s.co.za

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