The Australian Competition and Consumer Commission has launched proceedings against Retail Food Group with allegations it misled franchisees into believing the stores they bought were viable businesses. 

“What happens with churn is the franchisor makes more money out of failure,” Brumby’s founder Michael Sherlock told Scott Emerson.

According to Mr Sherlock, franchisors can sell businesses and buy them back from the owners when they fail at a fraction of the price.

“It’s quite a comfortable margin there while you churn them over and get people in and out.”

Mr Sherlock stated corporations also drive up costs to franchises through finding new avenues to charge business owners.

“When some corporation gets hold of a franchise system … they see that as a revenue stream,” he said.

“The result is that you’re lucky if out of every dollar, 20 cents gets spent on driving network sales.”

While business owners should beware of franchisors acting similarly to the allegations made against Retail Food Group, Mr Sherlock believes franchises can still be a strong business move.

“I think franchising is a really good system that’s been suffering from some really greedy operators in recent times,” he said.

“It used to be that your chances of success if you bought a franchise would be much better.

“Do your research, ask people and investigate … there are a lot of good systems out there and it works really well if you’re looking at setting up your own business.”

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