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House of Assembly - Fifty-First Parliament, Second Session (51-2)
2008-06-19 Daily Xml
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FRANCHISES

Mr O'BRIEN (Napier) (15:30): Franchising constitutes about 14 per cent of GDP. There are something like 62,000 individual franchises around Australia and it contributes about $128 billion to the Australian economy. It must employ literally hundreds of thousands of individuals. As such, it constitutes a major economic driver in the Australian economy and is the modern face of small business. For that reason, I was very pleased on Wednesday morning that the parliament endorsed the 65th report of the Economic and Finance Committee on franchising.

The South Australian report, which was published on 8 May, is timely because Western Australia has also conducted its own inquiry into franchising businesses in that state. It was run as a ministerial inquiry and formally reported to the Minister for Small Business, Margaret Quirk, in April of this year. Both reviews were prompted by a myriad issues but, on reading both reports, what comes through as probably the pivotal concern is the emerging issue of unconscionable conduct in relation to the termination of franchise agreements.

I have in excess of 10 years' experience in franchising. At one time I held two franchises with Bakers Delight, and I currently hold one. Bakers Delight, I think, is an exemplary franchise and anything I say should not be deemed to be a reflection on that franchise. However, the fact of the matter is that there is an issue that has to be confronted sooner rather than later, and that is the lack of any real protection for franchisees at the completion of their franchise agreement. Most franchise agreements generally run for 10 years and are structured in such a way that, at the completion of the franchise period, the franchise agreement effectively evaporates and the franchisor can resume the business and bring in another franchisee.

Probably the most illustrative example of what can happen by virtue of any firm guarantee of continuity of franchise agreement relates to a Western Australian based company called Competitive Foods Australia Pty Ltd, which has all the KFC franchises in Western Australia and the Northern Territory.

Recently, the head franchise for Australia was purchased by an American company called Yum! Restaurants International. Competitive Foods Australia, which has held the KFC franchise, I believe, for in excess of two decades, found that at the time of renewal of its first franchise agreement for a KFC site it was unable to renew that franchise. Yum! Restaurants International has come in and constructed a brand new KFC site in Perth one block away and the Competitive Foods site is currently boarded up.

Competitive Foods are now worried that this is going to happen with all of their sites and, effectively, they are going to lose literally tens of millions of dollars in goodwill. This issue, along with a range of others, was addressed by both inquiries. They also looked at the issues of franchise education, disclosure and due diligence and dispute resolution. However, what comes through most strongly in both reports is the necessity for the federal government to review the Trade Practices Act and the Franchising Code to ensure that 10 years of hard toil by individual franchisees is protected on the conclusion of the franchise agreement, in terms of there being some assurance for the franchisee that it will be able to, if the franchisor deems—

Time expired.

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