Chicken franchisees on “verge of bankruptcy”

Red Rooster2Red Rooster, Oporto and Chicken Treat franchisor Craveable Brands has driven some franchisees to the verge of bankruptcy because of its business practices, an association claiming to represent impacted businesses has claimed.

Some franchisees in Craveable’s 570-store network are said to have been crippled by costs associated with products as well as loyalty and delivery schemes implemented by the franchisor.

The claims have been made in a submission to a Senate inquiry into the franchising sector, authored by the Franchisee Association of Craveable, which says it formed nearly a year ago to protect the interests of franchisees in the chicken retailer’s network.

In its 10-page submission the association has accused Craveable and its owner Archer Captial of failing to act in good faith in relation to its Franchise Agreements, questioning whether it has met its obligations to the Franchise Code.

“Recently there have been many franchisees in distress due to the poor business model of Craveable,” the submission said. “There are many more on the verge of bankruptcy. The business model needs to be questioned and rectified.”

The association said that Craveable has failed to meet its obligations under the code related to disclosing costs for IT, finger scanners, digital menu boards and media player licenses.

Craveable Brands chief executive Brett Houldin has dismissed the accusations as” ridiculous” and false, saying that franchisees in the company’s network earn significantly more than average full time Australian workers.

“Our store owners earn on average $135,000 per year with annual sales growing by 4.3 per cent per year, which is 59 per cent more than the average $84,600 full time worker in Australia,” Houldin said, referencing ABS data.

“That makes claims of stores nationwide on the verge of collapse a ridiculous assertion,” he said.

The association did not disclose which franchisees it represents, but Craveable says it estimates that only two per cent of its network are involved in the group.

Cost of goods impacted profitability, association says

The association has claimed that franchisees are being ripped off by the cost of goods like water, plastic cutlery and garbage bags, which it says cost more from Craveable suppliers than on the open market.

It said Red Rooster’s cost of goods sold of 38 per cent is far higher than other QSR competitors such as Subway’s 32 per cent or KFC’s 33 per cent, based on samples derived from franchisees and store managers.

Craveable said recent supply tenders have delivered franchisees with a $11,000 – $25,000 annual windfall per store, but the association believes the franchisor’s national buying power is missing in action.

In one example, the association said Craveable suppliers charged $18 dollars for cartons of Mt Franklin water which could be bought at IGA for $11.

Houldin said that Craveable is committed to the profitability of its franchise partners and would consider an arrangement that would enable franchisees to procure cheaper goods.

“Of course, if store owners believe they can buy the same quality goods at a cheaper price elsewhere we are happy to consider that,” he said.

Franchisees left out of pocket, association says

The association claimed that a loyalty program started by Craveable three years ago has cost franchisees an average of $25,000 per store.

The program provides customers with rewards for purchasing products, but the association said franchisees can be left out of pocket if customers redeem points accrued at another store.

“The program is flawed as there is no contribution from the franchisor. No cost benefit analysis has been provided to the franchisees,” the association said.

Red Rooster’s highly publicised home delivery program is also said to have negatively impacted franchisees, who the association says have been pressured into introducing the service, burdening them with extra costs and causing “huge cash flow problems”.

In its submission the association said marketing has been another problem for the network, claiming that franchisees were not told about a supposed decision to move away from free-to-air TV advertising three years ago.

“It is alleged that the lack of transparency indicates there is unethically [sic] behaviour on the part of the franchisor, with regards to the marketing fund,” the association said.

Craveable has said it has a “best practice” framework for supporting its franchisees, which includes induction and development programs, ongoing coaching and training, as well as regular state meetings and annual conferences for consultation and collaboration.

The association claims it has met with senior executives from Craveable four times over the last 30 months to discuss transparency and related issues, however Craveable said on Friday that the association had never contacted the company in relation to any of its allegations.

The association was contacted for comment.

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