ACCC to clamp down on food service franchise sector

By Nick Hall | 07 Feb 2019 View comments

The Australian Competition and Consumer Commission (ACCC) has revealed plans to target the caf_, restaurant and take away food services industries in its next proposed round of Franchising Code (the Code) compliance audits.

The announcement comes just one week out from the scheduled release date for the findings of the parliamentary inquiry into the effectiveness of the Code, which has brought many compliance concerns into the spotlight.

Mick Keogh, ACCC deputy chair said the decision to clamp down on the food services sector came in response to a rise in reports.

“The ACCC receives more franchising code related reports from caf_, restaurant and take-away food franchisees than any other sector, and for this reason franchisors operating in this sector will be the target of our next round of checks,” Keogh said.

The main concern for Keogh and the ACCC, which is responsible for the regulation and enforcement of the Code is adequate disclosure.

Earlier this year, the ACCC completed action against franchise brand Ultra Tune for breaches of its disclosure obligations, demonstrating the watchdog’s enforceable intent.

“Franchisors need to take their disclosure responsibilities seriously. The recent Ultra Tune Australia case is a warning to all franchisors to meet their disclosure obligations, or face serious consequences,” Keogh said.

Under the Code, franchisors are required to disclose certain information that may impact a franchisee’s ability to make an informed decision prior to a business purchase.

Specifically, the information must disclose set-up and operating costs, information about the supply restrictions that limit a franchisee’s potential to renegotiate supplier deals, and if applicable, site or territory history that may assist the franchisee in assessing the viability of the opportunity.

Keogh said adequate disclosure had become a primary concern for franchisees embroiled in disputes with franchisor.

“In the last six months, almost a quarter of reports we received about the Franchising Code related to inadequate disclosure. This highlights the need for improved disclosure to prospect franchisees,” Keogh said.

“This information is vital as it allows them to make better informed decisions, and a lack of disclosure may result in substantial harm to the franchisee.”

Franchisors in the food services sector can expect a stringent approach to compliance from the ACCC moving forward, with the latest initiative set to include regular assessment checks.

Important documents provided by franchisors to prospective franchisees will be assessed by the watchdog in order to check the validity and accuracy of the information disclosed, prior to agreement signing and the payment of non-refundable money.

At the completion of the project, the ACCC will share some of its findings, in an effort to educate franchisors on compliance and disclosure requirements as well as assist potential franchisees understand the information provided.