Big losers in SureSlim row head to court

"Most poor bastards caught in the SureSlim net can't anyway because they have totally done their arse. And we discourage people from throwing good money after bad."…fall in business over 80 percent in 2008…. "We put a forensic accountant on the case and he has pointed out a number of things that are hugely questionable”…

Sunday Star Times
March 1, 2009

Big losers in SureSlim row head to court
Garry Sheeran

Failed SureSlim franchise owners are lining up to take legal action against the franchisor in New Zealand after 17 of the 21 SureSlim diet clinics here closed their doors last year.

SureSlim NZ says those businesses failed because people had cut discretionary spending on attempts to slim as the recession began to bite.

But franchisee business owners, themselves under fire from clients who paid money for diet regimes and now feel left in the lurch, say the SureSlim franchise model is the cause of their woes.

"We must pay 29 percent royalties and marketing fees to the franchisor it's no wonder we struggle to stay afloat," said David Masefield, who held six SureSlim franchises until things turned sour.

He said SureSlim had failed to fulfil obligations under the terms of the franchise agreement, including a failure to adequately market the product.

Max Golding will lose his SureSlim franchise in Whangarei on Thursday after he was forced to close his doors on February 13 because business was so bad.

"The franchisor claims the fall in business over 80 percent in 2008 is the fault of the market downturn," he said. "We do not accept that is a valid reason."

Golding said he was restricted in what he could say because he has legal action pending against the franchisor. "But there are real issues in the way these franchises are set up and run," he said.

SureSlim is an Australian franchise that crossed the Tasman about four years ago and initially enjoyed a bow-wave of success here.

About the same time, legal proceedings were launched in Australia against SureSlim Australia, as well as against that company's directors and International SureSlim Franchisors, Petro and Calvin Tulloch.

Sydney lawyer Mark McDonald is acting for two former SureSlim franchise holders in Australia who have a long-running case against the Tullochs (the original SureSlim Australia has been placed in liquidation) in the Industrial Relations Commission of NSW.

McDonald told the Sunday Star-Times that proceedings were being heard under unfair contracts legislation. "We put a forensic accountant on the case and he has pointed out a number of things that are hugely questionable," he said.

"We are saying that the [SureSlim] franchise agreement is grossly unfair," said McDonald. He said the SureSlim franchise agreement used in New Zealand was the same as that in Australia, "from what I have seen".

The rash of clinic closures in New Zealand in the second half of last year culminated in a meeting of disgruntled franchisees, the SureSlim NZ franchisor, their respective lawyers and a franchise mediator.

It is understood there was little resolution of issues between the two sides, and lawyer Robert Bell-Booth is now gathering information from at least two franchisees to see if there is a case for further action. He said it could be some time before that question was answered.

John Dawson, spokesman for SureSlim NZ, said he was surprised it would take Bell-Booth so long. "SureSlim NZ has been given a 100% assurance that there is no basis for legal action on issues raised by franchisees."

Dawson said people had been hurt as business collapsed with the onset of tough times (two months ago Masefield was forced to sell his $1 million "dream home" on the North Shore to meet bank debts associated with his SureSlim businesses and avoid a mortgagee sale).

Dawson said: "I empathise with that, but in the 12 months I have been with SureSlim I have seen people not take personal responsibility for failure. I have seen attitudes that say as much to me about individual business competencies as they do about the franchise itself."

McDonald said it was not correct to blame the recession for difficulties in SureSlim franchise businesses. "This has been going on for years in Australia and the place is littered with failed SureSlim franchises."

One of the big gripes with franchisees has been the 29% royalty and marketing fee they must pay to the franchisor. A lawyer specialising in franchises said that seemed very high. "Something close to 10-12% would be nearer the norm."

Dawson said different franchise models had different levels of fees, depending on the strength of the franchise brand and turnover of the total business. And the SureSlim royalties in New Zealand were in line with royalties levied by SureSlim internationally, he said.

Such a comment is only red-raggish to tormented franchisees whose fears are fed by events in Australia.

Franchisees are also angry SureSlim pulled the plug on advertising last year when things started to get really bad. "That was when we needed the support that advertising gives, more than any other time," said Masefield.

Dawson said a 12% marketing fee on all franchisee business went into a fund for advertising. As franchisee business slowed significantly last year the fund ran out of money and ads were pulled.

However, SureSlim NZ had put some of its own money into the fund, even though it was not obligated to do so.

Golding said he did not accept SureSlim's assertions that only eight of 20 franchises had closed last year. His count was 17 of 21 clinics had closed, although four had reopened, but either owned by or under the aegis of the franchisor.

Masefield said he wanted to join others in taking legal action, "but with house gone and business broke, that is not a possibility".

McDonald said legal proceedings against SureSlim in Australia had proved a long slog. "Most poor bastards caught in the SureSlim net can't anyway because they have totally done their arse. And we discourage people from throwing good money after bad."

Cold comfort for Masefield and others like him.

According to its website, SureSlim is: "An international weight loss and wellness organisation with over 100 clinics worldwide."

"You receive a personalised eating plan based on your blood test results, food preferences and weight loss goals."

"SureSlim is not a fad diet or a cult-like programme."

Risks: No franchisor support, Ineffective marketing, Business model had never created adequate investor returns, Lost homes, Bad faith and unfair dealings, Blame the franchisee, Raining litigation, Outrageous fees, Advertising fund use disagreements, Can't afford to sue, Access to justice, Churning (serial reselling), Excuse du jour, Anger, Opportunism, Franchisee revolt, Good money after bad, Incompetent or predatory: for the small business investor, the outcome is the same, Forensic accounting, New Zealand, 20090301 Big losers

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