Disclosure practices by food-industry franchisors
By admin on November 26, 2019
In late August 2019, the ACCC released a report on its findings into disclosure practices by franchisors operating in the food industry.
The report highlighted several key areas where greater transparency and compliance is needed across many franchised industries:
Franchisors are making it difficult for a prospective franchisee to contact former franchisees by failing to include practical contact details such as a mobile phone number and email address.
There is a failure to adequately disclose what essential goods and products are subject to supply restrictions, meaning franchisees are not realising the full extent of what they can buy and who they can buy from until after they start operating their business.
In many circumstances, franchisors are receiving rebates from suppliers, but whether or not the rebates are being shared with the wider franchise network is not being made clear.
Unavoidable ongoing costs that franchisees will incur, such as rent and wages, are not being sufficiently disclosed, meaning franchisees are not realising the full extent of the cost of operating their business until after the business is up and running.
It was also found that over 40% of franchisees are not seeking independent professional advice from a lawyer, accountant or business advisor before entering a franchise agreement. This shows that franchisees are placing a high level of trust and reliance on the information disclosed by their franchisor, meaning a greater need for that information to be comprehensive and accurate.
Luke McKavanagh of the Stone Group Lawyers team recently discussed these findings and the implications for the franchising industry with Coast Business Radio. Listen to the podcast here: