The $170 billion franchise industry needs the blowtorch put on it. "There are suicides, marriage breakdowns and bankruptcies. There is a huge problem in the franchise sector and we need to have a proper inquiry to fix it," Nationals senator John Williams says.
Senator Williams wants a parliamentary inquiry into the sector next year. "Clearly there are small businesses being done over and going broke," he says.
Over the years, there have been a number of inquiries into the sector, but they clearly haven't worked. There is a franchising code of conduct and the ACCC is the regulator.
But given the number of franchisees suffering, there's a lot that isn't working.
Some describe it as a financial trap or indentured servitude.
Since Fairfax broke the story on Retail Food Group at the weekend with revelations that showed many franchisees were going to the wall due to a brutal business model, many more have come forward with tales of woe.
They feel they have nowhere to turn. They feel they have no voice.
Senator Williams says he wants to take it to the parliamentary joint committee to ask for a fresh inquiry.
In the past two years, Fairfax Media has exposed a series of scandals in the franchise sector, including 7-Eleven, Domino's, Caltex, United Petroleum and now Retail Food Group.
Each time a scandal breaks, it prompts franchisees from smaller operations to make contact and request help.
The Franchise Council of Australia emailed members on Monday saying it didn't condone churning or any of the specific conduct alleged in the series of articles on Retail Food Group.
"But we simply do not know if the allegations have substance as the FCA is not a regulatory body and therefore does not have knowledge of the internal operations of any individual franchise system."
It said franchising was unique because of the "protections afforded to franchisees" under the Franchising Code of Conduct. These include good faith dealings requirements and avenues for dispute resolution.
There are some franchisors that do the right thing and look after their franchisees, but too many aren't. It is why there needs to be a proper investigation into the sector.
The Turnbull government introduced the Vulnerable Workers Bill to put franchisors on the hook if they had significant control and their franchisees were caught underpaying workers.
That is a good start but it doesn't go to the heart of the problem, which is the franchise model itself.
A key issue is the power imbalance, which can and does get abused.
Caltex is doing a wage compliance audit of its network of franchised stores. Under Caltex's franchise agreement, it can seize control of a station when there is even modest underpayment of wages without paying any money to the franchisee. So far it has taken over more than 100 stores and the franchisees have lost everything. Some franchisees paid more than $500,000 for a store.
In the case of Domino's, the business model is based on franchisees growing sales, not profit, and head office takes a royalty from every sale. It means when labour, food or rent increase, or Domino's introduces a new fee or charge, the franchisees have to wear it.
They have to fund $5 pizzas, new pizza ovens, thick shake machines and cop many other fees.
At RFG, which houses brands including Donut King, Brumby's, Michel's Patisserie, Gloria Jeans, Crust Gourmet Pizza and Pizza Capers, franchisees have to pay royalties and marketing fund fees, which can add up to 10 per cent or more depending on the brand. They have to source most of their products from RFG and many claim the products are overpriced. Industry sources suggest RFG collects rebates in the tens of millions of dollars a year. These are earned on the backs of franchisees, who have no choice.
Since the stories on RFG broke at the weekend, there have been more than 300 emails and phone calls, mostly from former and current franchisees who have been burnt alive in one of the numerous franchise brands.
Some of the tales are heart wrenching. Shareholders are voting with their feet. In the past two days, the share price has plunged 30 per cent.
On Tuesday afternoon, FCA executive chairman Bruce Billson admitted on ABC radio that the FCA had "heard chatter" for some time about RFG and the way it treated its franchisees. But how many other franchisors are doing the same thing to store owners and when will it stop? It's time for the regulator, the government and the FCA to step up.
