A group of Pie Face franchisees are preparing to sue the company for millions of dollars, with one franchisee alleging that undisclosed costs were a key factor in the underperformance of his stores.
Pie Face, founded in 2003 by former investment banker Wayne Homschek and his wife Betty Fong, sells savoury and sweet gourmet pies along with sausage rolls, sandwiches and drinks.
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Pie Face has also secured a $15 million investment from casino mogul Steven Wynn.
But now the company’s squeaky clean image could be compromised, after it was revealed a group of franchisees are set to sue Pie Face for millions of dollars in damages.
Three of the franchisees involved in the court action, including IT executive Prit Dutta, claim to have collectively lost more than $2 million by buying into the franchise.
Dutta, along with former commercial pilot Aleks Trajceski and lawyer Tom Bulmer, expect to lodge their claim in the Federal Court in Brisbane in the next few weeks.
Dutta estimates he has lost close to $1 million as a result of his two Pie Face stores – both located in the Brisbane CBD – one of which he sold back to the company at a loss of $170,000.
The remaining store isn’t faring much better, Dutta says.
“We were told we would do at least $25,000 a week and we’re doing around $16,000 a week,” he told StartupSmart.
Dutta says there are several reasons for the store’s underperformance, including the company’s insistence on opening other stores nearby, thus forcing franchisees to compete with each other.
But the main factor is undisclosed costs, Dutta says.
“They didn’t disclose a lot of expenses, which is mandatory. They were all missing… We have a store and storage [area] but they didn’t include the storage,” he says.
“They owned the primary lease, so they knew that, but they didn’t include that. A lot of staff entitlements were completely missing.
“They sold me a very expensive store – it was very expensive compared to others in my area. My store has less floor space – less than half of other shops.”
Dutta says the store’s worn-out air conditioner also affected the quality of his produce.
“I came to know that was a really old air conditioner from the previous tenant… I was shocked they didn’t tell me,” he says.
“Those kinds of things [became issues] – why pay so much money when they give me this kind of shop? The shop was incomplete. That’s when the whole argument started.”
Dutta says when he voiced his concerns to the company, he was told he needed to wait at least a year for the business to find its feet.
“They also pushed really hard to give a lot of discounts on food products to boost the business. But when I asked if we could share those discounts with the wholesale supply costs, they refused to do that,” he says.
Now Dutta wants a full refund from Pie Face for the losses he has suffered.
“It’s looking close to $1 million in court I’m claiming from Pie Face,” he says.
But Homschek has defended his company, telling SmartCompany “we’re in the business of franchising, and not everyone is going to be a good franchisee”.
“Not all of them are going to make the business what it could be,” he said.
This article first appeared on StartupSmart.