Franchisees report years of “hell” as prospect of a Retail Food Group class action looms: Will court action fix the sector?

Franchisees at listed food company Retail Food Group have continued to speak out about the significant debts they now owe as a result of their franchises failing, as one law firm investigates a possible class action lawsuit against the company.

However, franchising experts say such legal action is unlikely to fix concerns about operations in the franchising sector overall.

Retail Food Group (RFG) owns a number of food retail franchises, including Gloria Jean’s and Michel’s Patisserie. A Fairfax investigation into the business last year uncovered stories of franchisees who say they were left stranded after buying into the businesses only to discover tough terms made it hard to build profits.

At the time, Retail Food Group rebutted the claims, saying it had taken steps to improve its support to franchisees.

However, with class action firm Bannister Law now investigating the possibility of a class action against the business and calling for information from franchisees about their experiences, more stories from franchise holders at the company have come to the surface.

One couple who owned a Brumby’s store on the Sunshine Coast told the Sunshine Coast Daily this week they are now $800,000 in debt after taking on the franchise, only to experience “four years of hell”.

Bannister Law, which is asking franchisees to register their details with the firm, said in mid-January that it had decided to gather information from franchise operators to contribute to a class action, which was originally slated as a potential shareholder class action around guidance Retail Food Group had given to the sharemarket.

In a statement, the firms founder Charles Bannister said the investigation is looking at possible “severe financial hardship” experienced by Retail Food Group franchisees.

When contacted by SmartCompany this morning, Retail Food Group said in a statement it will defend any class action “vigorously” if it occurred.

However, franchising expert Jenny Buchan, who is a professor in the school of taxation and business law at the University of New South Wales, says a class action alone will not be enough to fix concerns about the franchising sector.

“It’s really hard to force them to change their ways,” she says of the franchise sector.

Overall, challenges for franchisees come down to the fact that they have limited protection for their interests under the Corporations Act, she says, with franchisors responsible primarily to their shareholders under the act.

Australia has seen a number of alarming stories in the world of franchising over the past two years, including concerns about underpayments and practices at convenience store operator 7-Eleven and there have been calls for a parliamentary inquiry into the sector. However, franchisees have been speaking out for years with tales of lockouts, lost profits and family breakdowns at major franchise networks.

The examples show the difficulty many franchisees have when it comes to resolving disputes with franchisors, and Buchan observes a more important long-term change for the sector would be to enshrine more rights for franchisees in legislation.

The most valuable thing would be the governance duties of the directors [of franchisors] be extended beyond the shareholders to the franchisees, so they are also owed duties in the Corporations Act,” Buchan says. 

Class actions  “David and Goliath” affairs

Principal at Legalite Marianne Marchesi says when class actions do happen in the world of franchising, they tend to see small franchisees having to band together to fight big corporate companies.

Usually, those facing class actions have big legal teams and feel that they can fight it,” she says. 

While a high-profile court case like the one proposed against Retail Food Group “won’t do the sector any favours” in terms of reputation, Marchesi suggests there are other options to prevent possible poor behaviour in the world of franchising.

One option would be the Australian Competition and Consumer Commission using its powers to issue infringement notices against franchisors more readily, she says.

“They can already issue infringement notices, but I think they could do this more often, just to come in and slap the franchisor on the wrist,” she says.

Another way to put the interests of franchisees more front and centre would be to establish a standalone, independent body to represent franchisees and lobby for better deals in franchise agreements, she says.

“That would go a long way in terms of balancing the system,” she says.

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John Hutchinson
John Hutchinson
3 years ago

I cannot, for the life of me, workout why criminal proceedings haven’t been considered against RFG by legislators. It seems that they have gained by deception, misrepresented figures (Fraud), extorted monies from Franchisors, and mislead the public with the promise of fresh baked products. An investigation should already be underway. Both ASIC and the ASX should also be charged with impersonating a Regulatory Body.

Michael Ratner
Michael Ratner
3 years ago

WHAT? Another possible class action. Another attempt at rewriting the Franchise Code of Conduct? And another litigant prepared to defend something at all costs.
AND nothing will come of it except legal bills.
In this nanny state country of ours there seems to be no burden of responsibility. There are intentions but I’m not sure if intentions are enough.
Yes there are good and bogus franchisors as well as good franchisees who stand a chance and then their are the other kind, you know those with a cheque book who really not only have no reason to be in business on their own even if it’s a franchise… so here’s two rules…..
1. No franchise site may be resold or transferred by the franchisor until it has been run by the franchisor for at least 12 months.
2. Possible franchisees have to look in the mirror for three months and ask themselves a question, “Will the franchisor love me in the morning?”
Summary … In most instances the franchisees have been sold as they say a pup and the more arduous the franchise agreements are the more scope there is for lawyers to obfuscate the procedure.No legalese or small print in agreements… confirmed by a binding contract that the franchisor is bound to buy the franchise back within a period of time.
Let’s finish with a mission statement for those that read between the lines:


robert toth
robert toth
3 years ago

This highlights the issue I have been writing about for some years that the old franchise models rolled out the last 30 years where the franchisor gets a royalty on the franchisees gross revenue, margin on products or services rebates they retain and other ongoing fees is no longer a model suited to the current business environment. Times and the business world have changed .There is no real sharing of risk between the franchisor and franchisee with those models. Shopping Centres and Landlords are also responsible.Yet franchisees are still buying these franchises despite advice or maybe not getting the right advice or motivated by other reasons? That’s why we are now looking at branchising and JV models where the risk is shared,profit is shared and it is a more balanced relationship. Bottom line setting up your own business is a huge risk, buying a franchise is a risk. Robert Toth Franchise Lawyer

Darrel Lancaster
Darrel Lancaster
3 years ago

I am a franchisee who did all the due diligence required only to have the franchisor bought out by a large corporate who then despite saying business as usual, assigned us to a small local company who are only interested in taking the money. I am dealing with people I don’t know and have been advised I am in the worst position a franchisee can be in. I have been advised to get out of it at all costs, but because of the severe loss in capital, I have to work until the sentence ends May next year.

3 years ago

White collar crimes everyhere In the world are the hardest to prove and many had occurred in finance and banking sectors, businesses, contracting, investments, franchising, GFC etc . ACCC is investigating banks loan books for bad lending practices to unaffordable loans so why not “unaffordable” franchise ? Eg. If basic fitting costing SME normally 50-100k to setup a new small take away , why would franchisor allowed to charge at least $150,000 for already paid and fitted
Fittings in a shopping centre and just to pay for the brand ? Also , churning law seems to be easily avoided by Franchisor using circumstances available .