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Australia Post 'misled' franchisees, Senate inquiry told

12 Jun 2018, 16:51

https://www.afr.com/business/retail/aus ... 608-h115vm

Australia Post misrepresented the growth potential and banking accreditation to licensed post office owners in 2006, but the aggrieved franchisees have no affordable recourse, a Senate inquiry into franchising has been told.

The first day of the Senate's inquiry into the "operation and effectiveness of the Franchising Code Of Conduct" also heard from disgruntled franchisees of parcel courier Pack & Send and coffee shop franchisor Foodco.

The franchisees called for reforms, including an end to unilateral changes to franchise agreements, the banning of supplier rebates, the right for franchisees to collectively bargain, and easier access to arbitration as an alternative to expensive litigation.

Three former postmasters, John Christensen, Robert Rippin and Mark Bailey, claimed they were convinced to convert their licensed post offices (LPOs) into franchised "PostShops'' because of Australia Post's stated ambitions to grow the network to 150 franchised outlets within four years. They claimed Australia Post's representative verbally assured them this would include the conversion of 100 company-owned post offices into PostShops.

They said they were also told by Australia Post's franchising salespeople that the concept had "accreditation" with all four major banks. A privilege usually reserved for established franchise networks such as McDonald's, accreditation means franchisees can borrow to buy a franchise without having to put up their home as security.

Mr Rippin said he soon discovered this was not the case at ANZ, when he was required to mortgage his house to invest in a PostShop in 2007.

Franchising 'the golden fleece'
"That set off some alarm bells, but I was still looking through the rose-coloured glasses. Franchising was seen as the golden fleece by Australia Post at the time because it gave them control," he told the inquiry.

"The reality is in an LPO you can be selling burgers and milkshakes and they can't stop you."

Whatever Australia Post's enthusiasm for franchising, the number of PostShops never exceeded 29 by the time it announced the closure of the network in 2013.

That was a preordained outcome, the three told the inquiry. They said they were not informed by Australia Post that it was bound by an enterprise bargaining agreement (EBA) that limited to just 20 the number of conversions of company-owned post offices to franchised PostShops.

This agreement expired in December 2006 but held until a new EBA was struck in 2010, which an Australia Post spokesperson admitted maintained "the existing mix of outlets within our network".

Mr Christensen claimed Australia Post capitulated to "union pressure" to not pursue franchising as they had promised.

Reduced terms to reconvert
While all three said they had derived good income from their PostShops, Australia Post's closing of the franchise destroyed any resale value. They were offered a reconversion back to the LPO model but Mr Christensen said this was on reduced terms.

"In fact, the whole financial viability of the LPO network was in doubt at the very time Australia Post was encouraging franchisees to convert," he said.

After Australia Post didn't renew his PostShop's lease in 2011, Mr Christensen said he was offered a new LPO site 2 kilometres from the business heart of the suburb he had previously serviced.

Only five years into the 10-year term of his franchise agreement, he said was offered $300,000 by Australia Post to take back the franchise for which he had paid $490,000. The negotiation went to mediation and Mr Christensen claimed he settled after a representative from the Commonwealth Bank – which he said also never accredited the PostShop model – "waved the deeds to my house in my face".

Mr Rippin said he had lost his house after not being offered an LPO reconversion, while Mr Bailey said he had "wasted nine years of my life that I could have invested in something that contributed to my retirement savings".

An Australia Post spokesperson said it had "honoured all contractual terms" and that the EBA had never of itself limited PostShop's potential expansion, as LPO conversions and greenfield sites were always part of the strategy.

He blamed PostShop's failure on "unprecedented changes in the retail environment and postal industry" between Australia Post's development of the franchise model in 1999 and establishing the first franchise in 2006.

The spokesperson did not confirm whether all four major banks had accredited the PostShop model as represented.

"Australia Post has relationships with a number of financial institutions whereby they will recognise through their lending practices their accreditation of the licensed post office or franchise post office business models," he said.

The three former franchisees admitted they would have recourse through The Corporations Act's provisions for unconscionable, misleading or deceptive conduct, but none had the money to litigate.

They echoed calls heard earlier at the inquiry for a small business arbitrator that could make binding decisions. The government-appointed franchising mediation adviser, Derek Minus, told the inquiry that few franchisees had ever heard of him.

A body able to subpoena witnesses and documents and making binding decisions was required to address the power imbalance of large franchisors over their franchisees, Mr Minus said.

The former postmasters told the Senators that franchisees entering a contract with a government business enterprise should be assured that its conduct will be "beyond reproach" and that Australia Post's conduct had fallen short of this benchmark.


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