COBS Under Scope in Australia

Ms. De Leeuw alleges Bakers Delight fabricated breaches and claimed she was behind in royalty payments, among other complaints, in order to 'churn' her business. She says she lost all three of her stores on Christmas Eve, 2004.When new franchises open, a master franchisor's revenue increases, both from initial franchise fees and from ongoing royalty payments.

The Financial Post
May 25, 2007

COBS Under Scope in Australia
Hollie Shaw

COBS Bread is hoping a growing controversy involving its parent company and several ousted franchisees over allegations of faulty business practices in its home nation of Australia will not hurt the bakery chain's ability to expand in Canada, where its units have been multiplying rapidly. Bakers Delight Holdings Pty Ltd., COBS' parent company, is under investigation by the Australian Consumer and Competition Commission (ACCC) for alleged violations of the country's Trade Practices Act. The issue came to light in March after a member of federal parliament, Joanna Gash, voiced concerns about a legal case between Bakers Delight and one of her constituents, former franchisee Deanna De Leeuw. "Small business is the backbone of this country and needs to be protected by the full weight of the law," Ms. Gash told Parliament. Ms. De Leeuw is suing Bakers Delight for unfair business practice and a hearing is scheduled in Industrial Relations Court later this year. No similar complaints have been voiced in Canada, where the company has close to 50 COBS stores.

"I think you are seeing [complaints from] a vocal minority," said Braeden Lord, president of COBS Bread in Canada and the head of international development for Bakers Delight. "It's very much a concern for us — any type of publicity in that regard is of concern to our business. With any business that runs for 35 years there will be a certain percentage that have a difficult run because of location, and it's unfortunate. But we have got some really happy franchisees that are running bakeries [in Canada] and we just need to keep our heads down and doing the best for a good future." In Canada, about 20% of the COBS network is franchised, according to Mr. Lord, and the remaining stores are corporate. Bakers Delight is hoping to convert solid corporate locations into franchises to increase that figure to 40% over the next year or two, he said.

In Australia, as in Canada, a franchisor can end franchise agreements if a franchisee breaches his agreement and fails to remedy the breach after warnings. Ms. De Leeuw alleges Bakers Delight fabricated breaches and claimed she was behind in royalty payments, among other complaints, in order to 'churn' her business. She says she lost all three of her stores on Christmas Eve, 2004.When new franchises open, a master franchisor's revenue increases, both from initial franchise fees and from ongoing royalty payments. The temptation to 'churn' occurs, experts say, when a company is maturing in a market and has fewer opportunities to expand the franchise by opening new stores. Bakers Delight has 625 outlets in Australia and 35 in New Zealand. 'Churning' is a practice in which a franchisor sells a store to a franchisee for full price but later terminates the franchise agreement. The franchisee goes into liquidation and loses the business. The franchisor pays the liquidator for the franchisee's equipment for a nominal price and then resells the business to a new franchisee, at the full original price.

"It is my strong desire that this sort of conduct does not filter over to Canada and into the United States," said Narelle Walter, a former franchisee who complained to the ACCC after Bakers Delight terminated her franchise agreement in February. The ACCC has received complaints and submissions from a number of franchisees, including Ms. De Leeuw and Ms. Walter. COBS, which will have 60 stores by the end of this year in British Columbia, Alberta and Ontario, opened its first outlet in Canada in late 2003 with an eye to becoming the Starbucks of bread. It sells a range of fresh baked products, from basic loaves to more upscale varieties such as the $5 Apricot Delight. The company hopes to open up to 500 outlets across Canada.


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Risks: Deanne de Leeuw, Deadbeat systems exported oversees to the unsuspecting, Follow the money: franchising re-distributes (not creates) wealth, Australian Consumer and Competition Commission, ACCC, Trading abuses, Churning (serial reselling), Designed to fail as franchise investment, Wealth is meant to be re-distributed (not created), Blame the franchisee, Just a few bad apples, No justice in leg, Canada, Australia, 20070525 COBS Under

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