A report conducted in 2019 by the Australian Competition and Consumer Commission (ACCC) on franchise systems in the food services sector found a range of concerning disclosure practices. In its most recent round of compliance checks of the franchising industry, the ACCC reviewed disclosure documents from a sample of franchisors in the food services sector and found many were problematic. The ACCC has found that franchisors in the food services sector are commonly providing inadequate information to potential franchisees.
Another concerning issue arising out of the report is that a third of those surveyed didn’t sufficiently disclose key unavoidable costs such as wages, rent or inventory. These are recurring costs that are an essential part of the business.
The compliance review also found nearly half of prospective franchisees did not get any independent professional advice before buying a franchise. Unfortunately, and although the Franchising Code is a mandatory industry code, seeking independent legal, accounting and business advice is only optional although strongly recommended.
The ACCC has released this report to increase transparency now because many franchisors are currently reviewing and updating their disclosure documents, as they are required to do under the Franchising Code and by 31 October each year.