Wendys freezes MPs out of $1 million mediation with franchisee: “Too many franchisees have lost everything”, Cara Waters

Its always been a churn industry , and until a whole new review process is established urgently ,as an example, there should always be a third party in the room when mediation accrues , just like any court room in Australia , some type of witness to the whole process should be mandatory , I think a full investigation should be done on all major franchise systems with in Australia

www.smartcompany.com.au
April 1, 2014

Wendys freezes MPs out of $1 million mediation with franchisee: “Too many franchisees have lost everything”
Cara Waters

A mediation between Wendys and a former franchisee turned sour yesterday as the ice cream chain locked MPs out of the negotiations.

Former Wendys franchisee Peter Coventry is claiming over $1 million from Wendys and alleges the locks were changed on the two Wendys stores in Alice Springs he was operating and the stores “churned”.

Coventry invited MP Peter Abetz, Senator Nick Xenophon and Peter Strong, the executive director of the Council of Small Business of Australia, to the mediation yesterday so they could witness the way Wendys conducted itself.

Abetz told SmartCompany as the mediation was about to begin the in-house counsel for Wendys, who was heading up the negotiating team for the franchisor, refused to allow the trio to witness the mediation, even though they all agreed to sign a confidentiality agreement.

“This clearly indicates the franchisor had a lot to hide,” Abetz says.

“Too many franchisees have lost everything by buying Wendys franchises.”

Abetz is urging anyone considering purchasing a Wendys ice cream franchise to speak to the Wendys Franchisee Coalition before proceeding.

“I have known Peter for five years, he has been the one batting for the Wendys franchisees, they have obviously targeted him, I’ve seen the correspondence, it is unbelievable the way he has conducted himself.

I would have thought the arrogance of Wendys to not allow Nick Xenophon and myself to sit in on the mediation, the only thing they had to hide was their tactics in how they bully their franchisees in the mediation,” Abetz said.

Two of the government’s election promises were to introduce an obligation for franchisees and franchisors to act in good faith with one another and to introduce penalties for breaching the Franchising Code of Conduct.

So far the government has not yet acted to amend the Franchising Code of Conduct, nor introduced legislation to introduce penalties for breaches of the code.

“I hope that this case highlights to the federal government the urgency of introducing these changes,” Abetz said.

“Until these changes are introduced families will continue to be destroyed with impunity, because most franchisees simply do not have the financial resources to sue the franchisor.”

Strong recently met with representatives of the Federal Minister for Small Business, Bruce Billson, and was advised that the changes were “close”.

He told SmartCompany it was disappointing to be locked out of the mediation.

“It sums up the approach of that particular franchisor; there’s not a lot of good faith going on there.”

Coventry says he is unable to discuss what happened during yesterday’s mediation due to confidentiality agreements but can confirm “it has ended with no result”.

He says he will “continue the fight” and will be forced to litigate against Wendys.

“Wendys have done the wrong thing; they’ve acted in bad faith and continued with their myth that they are running a profitable business for franchisees. People should look on Gumtree and the internet to see for themselves how many Wendys stores are for sales because franchisees are desperate to sell and get out,” he says.

Wendys chief executive Rob McKay said in a statement that Wendys was "disgusted" with Abetz's criticism and warned the MP was damaging the businesses of 220 mum and dad franchisees around Australia by attacking the Wendys brand for his own political purposes.

McKay said Abetz, Xenophon and Strong were excluded from the mediation process because the appropriate notice was not provided to Wendys.

“Wendys respects the confidentiality surrounding the mediation even if it is clear that others do not," he said.

McKay said following the establishment of the "so-called" Wendys Franchise Coalition, Wendys engaged in a lengthy mediation process which formally resolved the matters between the parties.

"Wendys has also worked through a review process with the ACCC and consulted with the South Australian office of the Small Business Commissioner – both of whom found no fault with Wendys and the Wendys system.”

Comments

1. Trevor Banks
Hi Bushie, just to clarify Wendys in Australia is not related to the Burger and Fries chain in USA, but is owned by Navis Capital, a private equity company in Kuala Lumpur. If you want to contact me for further discussions email me at ua.moc.tensutpo|ntsknab#ua.moc.tensutpo|ntsknab

2. Trevor Banks
When Mr McKay says "Wendys has also worked through a review process with the ACCC and consulted with the South Australian office of the Small Business Commissioner – both of whom found no fault with Wendys and the Wendys system", he means no legal fault, he doesn't mention the moral argument.

3. Narelle Walter
Jim, you should know that Wendy's took in excess of $ 3million in advertising/marketing funds last year. This combined with a considerable payment for rebates (kickbacks). Has anyone reading this article seen $3million worth of Wendy's brand advertising? What did this money pay for and who did it benefit ? After the “so called” lengthy mediation process, it took Mr Mckay less than 6 months to manipulate the fine print and the spirit of the agreement between the parties that was until then certainly heading in the right direction.

I am certain that it has not only been Peter Coventry that Mr Abetz has been liaising with, or has known for a period of time. As a good member, and a truly genuine person, he has been trying to remedy the imbalance of Franchising for some time to save and protect the “poor Franchisees” that you are suddenly so concerned for. It is truly unfortunate that it takes a forum such as this to highlight and bring attention to the plight of Franchisees across many Franchises in Australia. Perhaps Mr McKay would be better served being “disgusted” in his, and his Franchises methods and business model. As should many other Australian franchisors.

3. a. Bushie
AFTER paying their grossly inflated executives'salaries and bonuses, what's the bet the rest was repatriated over to the parent company in the USA ?

Franchisor CEO McKay sounds more like a shonky stand over merchant/"pay day lendor"/used car salesman, rather than any sort of respectable businessman, doesn't he !

WENDY'S franchises have long been some of those that seem to cost double or more the prices that a more fair and honest valuation would have placed on them..

4. Trevor Banks
Jim, predictable that you
would side with Wendys, given that you personally have been more a contribution to the problem than any path to the solution. You will soon find that being a lap dog for Rob McKay is not a guarantee of beneficial treatment when your agreement is due. Rather than accept, and confront the
many and varied shortcomings of the Wendys operation you question the integrity of Mr Abetz with an accusation of bias. I remind you that Wendys
have closed nearly 30% of stores since the beginning of 2010 despite NAVIS,
you personally and Wendys management being warned of, and categorically
denying the Wendys business model being built to fail. (August 10, 2010 – A
sundae too far away for Franchisees by Stuart Washington – The Age) ) ”Tom Beecroft, a director of Wendy's owner, Malaysian
private equity group Navis Capital, said it was categorically incorrect to
suggest franchisees were on a hiding to nothing”. Despite mediation in December, 2010 taken by
franchisees to protest low profitability, and a forum specifically dealing with
profitability hosted by then CEO Nicola Milne in February 2011, the business
model continues to decline in store numbers & store turnover, leaving many
in financial and psychological ruin. The poor franchisees you speak of should take up their grievances with Mr McKay who has the authority to make the necessary changes, but prefers to secure a healthy profit margin for the Franchisor. There is absolutely no benefit in Mr Abetz earning short term "cheap points" if it was going to damage him in the longer term. By the way he is a Federal Minister, I think he already has a name for himself.

5. jim carter
Cheap points by a politician, that obviously wants to make a name for himself.
Shows the bias when he states he has known Peter for 5 years!
What about the poor franchisees this story is damaging.
Theres always 2 sides to a story

5. a. Peter Coventry
Oh Jim…..personal attacks again!
You have never spoken to Peter Abetz, let alone met the man. I can tell you he is one of the most genuine and decent people I have ever known.
Here's my number 0408.818 488. Send me a text or call me and I will put Peter Abetz in touch with you and then you can speak to him in person.
As for your comment on 'poor franchisees' this story is damaging……
What about the dozens of past Franchisees who have lost their homes, marriages, children and dignity thanks to their Wendy's experience? Most Wendy's stores are for sale and have been for many years. Those who aren't selling are either the lucky few at the top of the profit rankings or simply know there is not a hope in hell of selling their store so they are just treading water until the end of the Franchise term then bowing out backwards.
The home state for Wendy's (South Australia) has over 50% of its stores for sale…..if these are such great businesses then why aren't people buying them or why aren't existing Franchisees snapping them up at bargain basement prices? Stores are being advertised from as little as $10,000. So much for the capital return after years working like a galley slave in a business many franchisees purchased for hundred's of thousands of dollars!
Two sides to every story……..yes there are.
Why don't you tell your side of the storey instead of this innuendo and nothing of substance from you?
If you care to debate or discuss the Wendy's issues with me, then I would welcome your call, so please ring me.
How do you explain:

  • the loss of almost 100 stores?
  • sales trending downwards for almost 15 years?
  • franchisees following the Wendy's model - yet going bankrupt?
  • the bullying and intimidation from the Franchisor?

For far too long Wendy's have been trying to add more stores at a faster rate than they are losing them…..but the truth is now out in the market place for all to see.
I look forward to your call.
see more

5. b. observer
"The home state for Wendy's (South Australia) has over 50% of its stores for sale…..if these are such great businesses then why aren't people buying them or why aren't existing Franchisees snapping them up at bargain basement prices? "——I believe Victoria has got way more stores on the market and can't sale. Many of Wendy's franchisees are just waiting until the end of the term and shut it down. We all look forward to watching Wendy's demise.

5. c. Peter Coventry
Not far off the mark observer!
I've had many Victorian Franchisees phone me with horror stories since my story went to air. The same bullying. zero profit and apathy from Wendy's Head Office being the consistent theme. Very sad that so many people continue to be let down by a Company and a Management Team that consistently ignores the pleas for help and continues on its merry way stripping Franchisee Profitability for the sake of its own bottom line.

5. d. Bushie
Garbage, Jim…

6. Amused
I'm no journalist, but I can't help but notice that if the last two paragraphs were placed at the front of the article - it would totally change the impact of the piece. Oh, how we all love a good yarn about the victim and the bully.

6. a. Peter Coventry
Hello Amused.

To characterise this huge problem facing our industry as a "good yarn" is most disingenuous. I can put you in touch with any number of Franchisees across a whole spectrum of industries around Australia who will detail for you how they have followed the Franchisor's business model to the letter - but have lost everything.

I would love to hear if you have any experience in this arena?

Look forward to your next post.

7. lh1844
Mediation is a voluntary and confidential process in which the parties to a dispute are assisted by a neutral third party (the mediator) to identify and work through options with a view to the parties reaching their own decision about the outcome. It is in my experience generally interest-based and can focus on what is important to the parties rather than strictly technical legal positions.
It works best if the parties meet on a roughly equal footing: a representative or two of each party with or without their legal teams, with open minds directed towards resolution of the particular dispute in a common-sense manner that is sustainable between the parties. Such an environment minimises power imbalances and keeps the focus of the occasion on the particular dispute.
I suggest that the impact of inviting politicians and industry sector peak body executives to "see how [one of the parties] conducted itself" overlays matters extraneous to the actual dispute being mediated (general business sector enquiry, using it as an avenue for informing politicians and/or for political lobbying) and would be unhelpful to the process of resolving that particular dispute.

7. a. Peter Coventry
Thanks for joining the conversation and I encourage you to continue posting your views as it provides balance and input from someone who can articulate things from a different perspective.
You have very accurately made one comment that I agree with totally, namely: "It works best if the parties meet on a roughly equal footing".
Unfortunately lh1844, this never, or seldom happens. Mediation is usually the VERY LAST resort by a Franchisee to get some justice. Before this, they have tried some, or all, of the below remedies:

  • listened to the endless promises of change by the Franchisor,
  • talked to the Franchisor for months or years,
  • tried implementing various marketing and sales strategies in order to increase profit,
  • tried desperately to sell their store,
  • borrowed more against their home, family, credit cards,
  • and a myriad of other alternatives…..

Alas, when mediation becomes the last hope, most Franchisees are broken both financially and mentally. Franchisors know this and therefore have all the power. The Franchisee usually has the family home at risk, whereas the Franchisor will simply put another Franchisee into the store if the incumbent goes broke or walks out and then the whole nasty cycle starts all over again.
It's hard to negotiate such high stakes when you don't hold any chips!

7. b. Narelle Walter
spoken like a true FCA stooge.

7. c. lh1844
I am a mediator expressing a view about mediation as a process for dispute resolution. Any resolution - whether negotiated or litigated - of a particular dispute between two parties can only resolve that dispute between those parties, not solve everyone else's issues.

7. d. Narelle Walter
well then you would know what a complete farce the process is when there is a franchise dispute

7. e. lh1844
In many types of dispute (not at all restricted to franchise disputes) one party turns up to mediation with their own agenda and a "I know my legal rights" position. Getting behind the "position" to the underlying "interest" that the party needs/wants to protect, can produce good outcomes based on what's actually workable for the parties or, as a bare minimum, reduce the issues to be litigated.

8. Investigate
There are so many other Franchise Systems doing the exact same thing

“Until these changes are introduced ASAP families will continue to be destroyed with impunity, because most franchisees simply do not have the financial resources to sue the franchisor.”
Its always been a churn industry , and until a whole new review process is established urgently ,as an example, there should always be a third party in the room when mediation accrues , just like any court room in Australia , some type of witness to the whole process should be mandatory , I think a full investigation should be done on all major franchise systems with in Australia

http://www.smartcompany.com.au/growth/franchising/41336-wendys-freezes-mps-out-of-1-million-mediation-with-franchisee-too-many-franchisees-have-lost-everything.html


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Risks: 1st generation of investors knowingly sacrificed, 30 different programs of kickbacks, shelf allowances and inside money, Belief in a Just World (BJW): people deserve their fate, Blame the victim (Just-world effect), Business model had never created adequate investor returns, Call for franchise law, Can't afford to sue, Cannon fodder, Churning (serial reselling), Comments on article are interesting, Death, Dispute resolution, Encroachment (too many outlets put in territory), Franchise Council of Australia, FCA, Franchisee abandons their investment, Franchisor takes back high-volume store, Fraud victims changed deeply and often not for the better, Gag order (confidentiality agreement), Gag order used to conceal criminal wrongdoing, Good faith, fair dealing, Gouging on supplies, Health consequences, Indentured servants, Must buy only through franchisor (tied buying), Only 3 ways out: resell to next loser, independence & be sued or abandon and go bankrupt, Opportunism: contract creates powers which are used to strip investor value during relationship, Opportunism: self-interest with deceit, Renewal of contract denied, Stores shuttered, Strong back and weak mind, Successful for the middleman, System designed to fail for franchisees, Unilateral changes in business model drive franchisees' profits down, Unproven business model, War of attrition, Resales (after termination) seen as a profit center, Suicide, Divorce, Mediation: information gathering that aids the destruction of valid legal claims, Mediation, Termination of franchisee, mass, No franchisor support, Forced to sell, Discount programs destroy retail margins but boost wholesale profits, Clinical depression, Bullying, Unilateral fines, Sincerity, Franchisee leader, Bad faith and unfair dealings, Australia, 20140401 Wendys freezes

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