The heartbreaking truth behind buying a franchise: "They're ruining lives"
The truth behind buying and operating a franchise is being exposed as the Senate undertakes an inquiry into the industry, reading the heartbreaking submissions Australians have sent in.
“Being a franchisee has destroyed the lives of myself, my family and caused severe financial distress at 70 years of age,” one person wrote.
“I am … now working to try and keep the family home and repay significant loans incurred in relation to the franchise business.”
An Australian-wide study asked franchisees if buying a franchise was the worst thing they ever did. 70 per cent of those who had franchises that failed, agreed. Surprisingly, 60 per cent of those whose franchises didn’t go broke, also agreed.
Some franchisees become very rich from the companies, with restaurants like McDonald's running so smoothly that there are rarely ever complaints.
However, other franchisees have found themselves in unimaginable financial hardship due to the parent company’s unfair business practices.
Muffin break
Certified practising accountant, Faheem Mirza, started looking for a job where he didn’t have to work full-time so he could care for his child, who requires full-time NDIS support.
However, Mr Mirza claims when he bought a Muffin Break franchise, he was told the cost of labour wold be between 21 to 30 per cent of sales. The franchising company denies this claim.
“No actual store data was made available prior to the actual commencement of the store operations,” wrote Mr Mirza in his submission to the Senate inquiry.
“Once the operations started in June 2016, the labour costs were much higher than anticipated.”
Although the sales were going well, Mr Mirza found that running the franchise above board and legally was going to put them in a difficult financial position.
The franchising company that owns Muffin Break, Foodco, told Mr Mirza to work up to seven days a week in the café without drawing any wages.
“They told me to consider underpaying staff,” he also said.
Foodco denied the allegations and there is no external evidence to support the claims about the cost of labour.
“We strongly refute the false allegations made by Mr Mirza,” said a Foodco spokesperson.
“Our success is entirely underpinned by the success of our franchisees and we are committed to high levels of transparency.”
Gloria Jeans
Elke Meyer worked as a contractor at Retail Food Group, the brand that owns Gloria Jean’s, up until 2016. She would collect the money owed from the coffee chain franchisees.
She recalled the most haunting story that one franchisee told her.
“I became deeply concerned with the situation among an increasing group of franchisees when a female franchisee of a Gloria Jeans franchise advised me she and her husband and two young sons had sat on the floor the night before and hugged, and her husband had decided to take his own life so they could get the life insurance and pay out their debt to [Retail Food Group],” wrote Ms Meyer in her submission to the Senate inquiry.
“There was an overwhelming sense of hopelessness among a lot of the franchisees I dealt with, but this instance was the most extreme.” (The man did not take his own life in the end.)
A spokesperson from Retail Food Group said company’s franchises survive longer than the average small business in Australia’s tough economy.
“Indeed, latest Australian Bureau of Statistics data indicates that new small businesses suffered from a failure rate of circa 45% during [the 2014 to 2017 financial years]. By way of context, average franchisee tenure within [Retail Food Group’s] brand systems well exceeds the timeframe contemplated above,” the spokesperson said.
Did you or someone you know buy a franchise? Tell us about your experience in the comments below.