McDonald’s puts faith in franchising at parliamentary inquiry

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Inside Franchise Business: McDonald's is backing the franchise modelFast-food giant, McDonald’s has today put its backing into the franchising system, despite a drop in sector confidence.

The final public hearing of the parliamentary inquiry into the effectiveness of the Franchising Code of Conduct heard from McDonald’s chief executive Andrew Gregory, who revealed he was “shocked” by some of the evidence the inquiry has unveiled.

Gregory suggested that reported issues plaguing the sector were not a result of an irrelevant franchising code, but rather, a reflection of systematic non-compliance.

The McDonald’s boss called for a wider breadth of resources for the Australian Competition and Consumer Commission (ACCC) and the Fair Work Ombudsman (FWO), in addition to harsher penalties for non-compliance.

ACCC, executive general manager, consumer, small business and product safety division, Timothy Grimwade agreed with Gregory’s comments, suggesting that while improving document transparency would be a positive step, it may not solve compliance issues.

“Increased transparency is a good thing, what we might object to however, would be any requirement to apply to the ACCC for these documents as a condition,” Grimwade said.

“What we’ve established is that the problem is not necessarily whether the document is registered, available or transparent but in the behaviour that follows them.”

The ACCC stressed its concerns were not about the breadth of the Code’s reach but the size of the penalties. The watchdog also backed calls for a single body to manage a simpler mediation process.

Despite growing concerns over the stability of the sector, Gregory said McDonald’s franchising success was as strong as ever, with only eight franchisees leaving the system over the past few years.

"McDonald's believes in franchising. Our way of doing franchising is best summed up by what we call the three-legged stool. McDonald's is one leg, the suppliers and franchisees are the other legs. If one leg of the stool is not strong or not growing at the same pace or breaking, then of course the stool falls over and it fails,” Gregory said.

McDonald’s Australia operates 970 stores across the country, with 150 of those company-owned, providing the brand with a firm understanding of the issues faced by the brand’s 260 franchisees.

In most cases, McDonald’s owns the land, builds the store and then rents the storefront to franchisees, ensuring financial and legal security for both parties.

Under a McDonald’s franchise agreement, franchisees are required to pay a $60,000 licence fee for a term of 20 years, along with equipment and fitout costs, all laid out in the brand’s 450-page disclosure document.

Senator Deborah O’Neill later praised the franchise network on its commitment to supplying franchisees with detailed information and transparency regarding operations.

“We heard from McDonald’s earlier this morning who indicated that they were very transparent in their operations, I don’t see why that can be done more often,” O’Neill said.

The importance of providing detailed information has proven to be critical to a franchisees success, however, one major issue identified throughout the hearing has been the complexity of lengthy disclosure documents similar to McDonald’s.

When questioned by Senator O’Neill, Hank Spier, committee member, small business and medium enterprises committee, business law section of the Law Council of Australia suggested that all franchisees must have disclosure documents examined by a franchise lawyer.

“These documents aren’t necessarily complex, but they could be worded in a way that makes them easier. It’s is a complex system and the document needs to encompass everything,” Spier said.

The final hearing of the inquiry concluded on September 21, with recommendations to be handed down in December.

Nick Hall

Nick is business journalist at Octomedia, working on View More...
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