As John Livy and ANZ Private Equity work on finalising their deal to sell Michel’s Patisserie to ASX-listed franchise consolidator Retail Food Group, the last thing they need is bad publicity from disgruntled franchisees.
Last month Retail Food Group, the owner of the bb’s café and Donut King chains, announced a conditional deal to acquire franchised bakery chain Michel’s Patisserie for $50 million cash and scrip. The deal follows the company’s purchase of the Brumby’s Bakeries chain in May.
Michel’s Patisserie franchise system, which sells cake, coffee and patisserie-related products, has 340 franchised outlets in Australia, and six in New Zealand.
But a few disgruntled franchisees in Michel’s Patisserie chain are emerging. Three franchisees and former franchisees have approached SmartCompany with complaints about the patisserie chain’s franchisors.
Two of them, Ron and Narelle Anderson, bought their Michel’s Patisserie franchise in 2002, having emigrated from South Africa. To qualify for a permanent residency visa they had to buy a business. After looking around they paid $250,000 for a 10-year franchise for a Michel’s Patisserie outlet at Toowong, in Brisbane.
Their lease (held by the franchisor) was due to expire three years into the agreement, but they claim that the franchisor assured them that it would be renegotiated on their behalf at the end of the term. But when the time came, the lease was not renewed.
The Andersons argue that the landlord made an offer to the franchisor, but they say it was not accepted because Michel’s Patisserie could make more money by forcing the Andersons to set up a new shop at a lesser shopping centre (about $250,000) and re-selling the Toowong site to a new franchisee later for about $350,000, the Andersons claim.
As a result the Andersons had to pay $10,000 to decommission their premises and lost their business. They still hold the franchise rights to the Toowong area, but they have no lease, and therefore no business. They describe it as a case of “churning”.
Corinne Attard, general counsel of Michel’s, denies categorically that churning happens at Michel’s Patisserie. She says in this case, the Toowong lease was terminated by the landlord without consultation with Michel’s and the store was lost to the franchisor as well as the franchisee – “…and there was an effort to find a suitable alternative location for the Andersons”.
Attard says Michel’s has undergone a change of management since the events in question, but the current management is prepared to go to mediation with the Andersons.
The Andersons do intend to go to mediation with Michel’s Patisserie, but they are also seeking advice from lawyers. They have complained to the Australian Competition and Consumer Commission and their local MP Michael Johnson.