Franchising

Former franchisees say Wendys took out a caveat on their home

Andrew Sadauskas /

Another former Wendys franchisee has come forward with a horror story, claiming the hot dog and ice cream chain took out a caveat on their house and eventually cost them their superannuation and life savings, after it convinced them to take on two failing stores.

As SmartCompany recently reported, 116 Wendys stores have either collapsed or been taken over by management over the past eight years. By late last year, Victorian stores were being advertised with an asking price as low as $59,000.

Former Wendys franchisees have told SmartCompany they have had locks on their Alice Springs stores changed during a dispute with the company and received letters stating their contracts with the company would not be renewed after speaking out. Another franchisee claimed Wendys repossessed all his stock, fittings and equipment without paying him any compensation after it failed to renegotiate a lease.

The incidents appear to have taken place between 2006 and 2014, when Wendys was owned by Malaysian private equity firm Navis Capital. In September 2014, the company was purchased by current owners Global Food Retail Group.

Tragically, in at least two cases, the failure of a Wendys franchisee eventually led to a suicide.

Jenny Bruce told SmartCompany that she and her husband Graeme were previously the franchisees of Wendys stores at Charlestown and Maitland on the NSW coast. As of 2009, the couple had notched up 11 years as franchisees for the company.

“We had just won GPT’s coveted ‘Retailer of the Year’ award for the Charlestown Shopping Centre coming ahead of Myer and other stiff competition. We had seen the profitability of our businesses dwindle significantly over time but continued on,” Jenny Bruce says.

 

‘Caveat on our house’

 

However, the Bruce’s fortune was set to change for the worse in 2008, when the couple found out Wendys was planning to put a second store in the nearby Kotara Shopping Centre, which was owned by Westfield.

“The franchisee at Kotara did not want to buy a second store as she considered it not financially viable. So then Wendy’s offered this site to my husband Graeme and I,” Bruce says.

“We presumed that this was to put pressure on the existing franchisee to take up the site or face being in direct competition with another Wendy’s store in the same centre. The existing franchisee acceded to the pressure placed upon her and reluctantly increased her home mortgage to purchase the second store.”

But in November 2009, the Bruces received a surprise phone call from the general manager of Wendy’s, Russell Stone, saying that franchisee had walked out of both Kotara stores.

“[Stone] said we could simply walk in at no cost or fee and take over the running and pocket the profits of both these stores,” Jenny Bruce says.

“Graeme asked for the turnover figures but Wendy’s put up the excuse that they didn’t have the full figures because the second store hadn’t been operating that long. This flies in the face of the fact that the cash registers of all Wendy’s stores are hooked into Head Office and they can see day by day exactly what sales all their stores are doing.”

“Alas, we decided to take up the challenge thinking that getting them for free and without having to repay any debt on them, that they surely would make some money. We took over on Monday January 4, 2010 and soon realised that this was not the case. The upstairs store known as Kotara 2 had a rent-to-turnover ratio of 63% and downstairs (Kotara 1) was around 38%. We persevered for five months but in May having given it our best, tried to hand the stores back to Wendy’s.”

According to Bruce, it was not until the end of November 2010 that Wendys agreed to retake possession of the stores. The couple continued to operate the Charlestown and Maitland stores, but say they had incurred a significant amount of debt by helping Wendys out by running the two Kotara stores for 11 months.

“In early 2011 having turned 55, I drew down my superannuation to pay down some debt,” Bruce says.

“Later that year in July, Russell Stone phoned to advise that Wendys would be invoking a clause in the franchise agreement to take over our finances. As part of this arrangement Wendy’s Head Office would administer everything and pay the bills,” she says.

“They allowed Graeme and I to draw a wage of $250/week each and had us both working in store from open to close six days a week. When we asked what would happen if the costs exceeded the sales, they advised: ‘that’s not your concern, we’ll look after that’. They paid all the bills and had control of our bank account.”

“Then in April 2012 Wendys phoned to say that they would be handing the financial management of our stores back under our control and here’s a bill for $85,676.96 being the shortfall. Our protests about this fell on deaf ears and they continued to badger us for payment and put a caveat on our house.”

 

Dire financial position

 

The Bruces had sold their Maitland store in September of 2011, leaving them only with the Charlestown store.

“Our financial position was now dire with a business mortgage of $315,000 against our house which we were trying repay from the proceeds of Charlestown, which had a turnover of $350,000 and a rent of $110,000 (negotiated by Wendys),” Bruce says.

“Needless to say this was unsustainable and the bank foreclosed on our house. At settlement, Wendys lined up to claim their caveat and we were left with nothing.”

“We look back with sadness and disappointment reflecting on how badly Wendys treated us. We started our Wendys journey owning our house outright and now Graeme and I are broke, living in a rental property and have nothing.”

Wendys was unable to respond to the historic allegations due to legal reasons. However, a spokesperson told SmartCompany the new owners are continuing to review the current business operations of Wendys in Australia, as well as investing in new product offerings to strengthen the existing brand presence in the QSR (quick service restaurant) market.

Know more? Email [email protected].

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Andrew Sadauskas

Andrew Sadauskas is a former journalist at SmartCompany and a former editor of TechCompany.

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