Ex-franchisees of Mr Video challenge contract

One entrepreneur said: ""When you ask for a copy of the contract, you are always told to secure a bank loan and the lease agreement first… One ex-franchisee left her job, lost R700 000 and had to sell her flat and car to settle the bills.

http://www.busrep.co.za
July 3, 2008

Ex-franchisees of Mr Video challenge contract
Slindile Khanyile

Durban - Five former Mr Video franchisees in KwaZulu-Natal want to stop the company from opening up more outlets, and they are preparing legal action in a bid to prove that the company's franchise agreement is designed to make franchisees fail.

The group, which wishes to remain anonymous for now, identified 10 issues which it said had contributed to the collapse of the businesses. It said more than half of the 17 franchisees in KwaZulu-Natal had defranchised or closed shop, mostly within a year.
They said the franchise agreement did not protect the franchisee. Other concerns were market research, training, support and shop design.

Andre Grobler, Mr Video's chief operating officer, said the firm was confident that its agreement was properly structured and would be able to address all the issues raised.

One entrepreneur said: "When you ask for a copy of the contract, you are always told to secure a bank loan and the lease agreement first. Since most of us are inexperienced when we start the businesses and are excited, we are never really suspicious because Mr Video looks like a reputable franchise."

This ex-franchisee closed his shop after nine months and said he still did not have a copy of the contract that he had signed.

"My shop opened four months after the lease agreement," said the ex-franchisee. He is now unemployed, has lost more than R500 000 and is being sued by suppliers.

The disgruntled group said franchisees had to provide at least R400 000 to set up a shop. They paid royalties of 5 percent of monthly turnover, which must be a minimum of R4 000, and a monthly advertising fee of 3 percent to 4 percent.

One ex-franchisee left her job, lost R700 000 and had to sell her flat and car to settle the bills.

The ex-franchisees said the shop designs were always outdated, forcing them to do a costly upgrade within six months of moving in.

Grobler said: "Our franchisees are very important and we take them seriously because they pay our salaries. We will address all these questions if addressed to us through the right channel, because it is very easy to generalise and make wild allegations. We have to address each case because each case has its own merits.

"The agreements are available to everyone in advance and they are fair to all parties. We have 230 shops and open three shops a month using that same contract. We have had it for years."

The ex-franchisees said they would seek free legal aid or a lawyer acting on contingency.


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Risks: Unproven business model, Designed to fail as franchise investment, Independence, Stores shuttered, No franchisor support, Unsophisticated buyers, Mask of respectability, Lender's due diligence not done properly, Lending duty breached, Loan repudiation, Never given copy of franchise agreement, Access to justice is not available, Can't afford to sue, Preying on the economically poor, Financial failure of first franchisee a material fact to the second, Lost homes, Fear, South Africa, 20080703 Ex-franchisees

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