The high profile class action case by a group of Australian Pizza Hut franchisees against their franchisor hits the Federal Court this week and is gaining headlines across the country.
The ABC’s flagship current affairs program, The 7.30 Report, reported on the case last week and called on Professor Lorelle Frazer previously Director of Griffith University’s Asia-Pacific Centre for Franchising Excellence, for her expert insights on due diligence for franchisees.
The Pizza Hut case sees a number of franchisees pursuing a class action against their parent company, US fast food giant Yum! Brands, claiming they were forced to sell pizzas below cost, pushing many of them out of business and close to bankruptcy.
Professor Frazer’s key takeaway message in terms of what the prominent Pizza Hut case means for the wider franchising sector was to not let the romanticism of becoming a franchisee overshadow the importance of good due diligence before you buy.
The issue of due diligence is at the heart of Professor Frazer’s many research projects on the franchising sector. This encompasses both due diligence undertaken by people looking to buy their own franchise business, and by recruiters for franchise systems.
The Centre’s research on sources of conflict in franchising has resulted in the development of innovative education programs to address any gaps that may exist between franchisors and franchisees, with thousands of people have now completed these programs.
“Our research continually demonstrates the importance of ensuring that franchisee and franchisor expectations are aligned. This can only be done through due diligence and transparency from all parties,” Professor Frazer said.
A free online course to inform and educate potential franchisees is available.
“It is so important to know what’s involved with franchising before deciding which franchise to buy. It is the best start that you can give your franchise business,” Professor Frazer said.
“Knowing the right questions to ask is vitally important to help get the facts about what franchising is and, in particular, the brand and franchisor you are signing up to.”
“Our research has shown that people tend to have a fairly romantic view of what being a franchisee is like. And the sector, the franchise sector in Australia is regulated through the franchising code of conduct. And this probably even sets up a false sense of security in people, that they think franchising is safe, it’s fine,” Professor Frazer told the program.
This article was first published in 2016.