McDonald’s Licenziatari Australia 22 ottobre 1996

A Disturbing Submission to a Government Inquiry

What follows, is the testimony of a former McDonald’s franchisee, on his treatment by the McDonald’s corporation. This Inquiry was conducted by a standing committee of the House of Representatives of the Parliament of the Commonwealth of Australia.

Make your own assessment on whether corporate officers you have known could behave as described, when intent on driving a franchisee out of his, or her business.

Then, reflect upon the nature of McDonald’s corporate governance!

— oOo —
HOUSE OF REPRESENTATIVES
STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY
Reference: Fair trading
BRISBANE
Tuesday, 22 October 1996
OFFICIAL HANSARD REPORT
CANBERRA
Members:

Mr Richard Evans (Chair)
Mrs Bailey
Mr Baldwin
Mr Beddall
Mr Martyn Evans
Mr Forrest
Ms Gambaro
Mr Jenkins
Mrs Johnston
Mr Allan Morris
Mr Nugent
Mr O’Connor
Mr Reid
Mr Zammit

The committee will inquire into business conduct issues arising out of commercial dealings between firms, including claims by small business organisations that some firms are vulnerable to and are not adequately protected against harsh or oppressive conduct in their dealings with larger firms.

1. The committee is asked to investigate and report on: the major business conduct issues arising out of commercial dealings between firms including, but not limited to, franchising and retail tenancy; the economic and social implications of the major business conduct issues particularly whether certain commercial practices might lead to sub-optimal economic outcomes.

2. The committee is asked to examine whether the impact of the business conduct issues it identifies is sufficient to justify Government action taking into account, but not limited to: existing State and Commonwealth legislative protections; existing common law protections; overseas developments in the regulation of business conduct.

3. The committee is asked to examine options and make recommendations on strategies to address business conduct issues arising out of dealings between firms in commercial relationships, taking into account, but not limited to: the potential application of voluntary codes of conduct, industry self-regulation and dispute resolution mechanisms, including alternatives to legislation and court-based remedies, and mechanisms to support these measures; legislative remedies.

4. In developing options, the committee will seek to ensure certainty in the market place, contract dealings and other commercial transactions, minimise the regulatory burden on business, and keep litigation and costs to a minimum.

WITNESSES:

GRANT, Mr Graham Lauchlan, Lot 11 Grays Road, Halfway Creek, New South Wales 2460 …. 244

HAMILTON, Mr Charles Peter, Executive Officer, Queensland Chicken Growers Association, PO Box 3128, South Brisbane, Queensland 4101 …………………………… 263

MURRAY, Mr Laurence James, Business Liaison Officer, Queensland Chamber of Commerce and Industry, Industry House, 375 Wickham Terrace, Brisbane, Queensland 4000 …….. 229

NATOLI, Mr Joseph Anthony, Chairman, Queensland Fruit and Vegetable Traders Association, PO Box 277, Moorooka, Queensland 4107 ……………………………….. 273

OVERELL, Mr Mark Alan, Business Liaison Officer, Queensland Retail Traders and Shopkeepers Association, Unit 3/321 Kelvin Grove Road, Kelvin Grove, Queensland 4059 . . 218

PEAK, Mr Douglas William, Principal, H&F Educational Services, 11 Fitzgerald Court, Clear Mountain, Queensland 4500 ………………………………………… 255

RANSON, Mr Peter David Leo, Small Business Officer, Queensland Chamber of Commerce and Industry, Industry House, 375 Wickham Terrace, Brisbane, Queensland 4000 ……….. 229

SANSOM, Mr Gary William, President, Queensland Chicken Growers Association, PO Box 3128, South Brisbane, Queensland 4101 ………………………………… 263

EDWARDS, Mr Peter Richard, 28 Panitz Street, Sorrento, Queensland 4217 …………….. 284

Present:

Mr Richard Evans (Chair)
Mr Beddall
Ms Gambaro
Mr Jenkins

The committee met at 9.28 a.m.

Mr Richard Evans took the chair.

Tuesday, 22 October 1996 REPS~Standing IST (at page) 277

    THE WITNESS at 3.43 p.m:- EDWARDS, Mr Peter Richard, 28 Panitz Street, Sorrento, Queensland, 4217.

      CHAIR: Welcome. Committee proceedings are recognised as proceedings of the parliament and warrant the same respect that proceedings in the House of Representatives itself demand. Witnesses are protected by parliamentary privilege in respect of the evidence they give before the committee.

      You will not be asked to take an oath or, in fact, make an affirmation. You are reminded, however, that false evidence given to a parliamentary committee may be regarded as contempt of parliament.

      The committee prefers that all evidence be given in public, but should you at any stage wish to give evidence in private you may ask to do so and the committee will give consideration to your request. I would also remind you that in relation to your confidential submission there were some names identified there. We would be concerned about discussing particular individuals in a public session and therefore may need to go into an in camera session if you want to do that. We are happy to consider that if that is the case. I am just making you aware that it may be difficult in a defamatory sense to be doing it in a public session. In what capacity are you appearing today?

      Mr Edwards: I am appearing as a private citizen.

      CHAIR: The committee has received your written submission as a confidential submission to this inquiry. Would you like to make an opening statement before we commence our questioning?

      Mr Edwards: I was 12 years as a franchisee of McDonalds family restaurants. I had a restaurant in Clayton, Victoria. For probably 10 of those 12 years, it was a very acrimonious association, for a whole variety of reasons. Without making it a my story submission, a lot of the problem is that McDonalds as the franchisor have tremendous power. The franchise agreement gives them a lot more power, I think, than the law realises and to fight them is just financially crippling. There are so many of them and they attack you in many different ways. While you are defending yourself in one area, they are attacking you in another. They go into harassing your staff. You are constantly either replacing or trying to keep your people happy.

      McDonalds is a very stressful business at the best of times. We are open a lot of hours. The hours are gradually increasing, they virtually never close any more, and, if you have unhappy staff, especially people who are unhappy through no fault of their ownthey are being harassed to cause me a problem, not to cause them a problemit is a very bullying way of doing things.

      They have the ability to build a store very close to you and impact you with sales. They not only destroy your business by opening other stores very close to you, they cause you a problem with your staff, they cause you a problem with legal. They consistently attack you, which causes you to have to defend yourself, so you are losing every which way. You are losing because you are being drained financially with legal fees, you are being drained of staff that you have to keep retraining and keep re-employing and you are being drained by having your business impacted.

      McDonalds revenue is made up of a percentage of your sales, so they have no vested interest in making you profitable. For instance, they opened a store in Frankston many years ago and that store, when it was last sold, was doing around $85,000 a week in sales. They have opened five other stores around that particular store and, without naming names, the particular fellow who bought that store for $1.3 million on the assumption it was doing $80,000-odd, is now in a situation where that store is doing in the thirties.

      Around about two years ago, they opened a store only a few hundred metres away from where he has this particular store. He actually purchased that store, they allowed him to purchase that store. But at the end of the day, the new store opening did $13,000, his existing store dropped $6,000, so there was a net gain of $7,000. So McDonalds gained a percentage of $7,000. The fellow who owned the two stores had his overheads not doubled but certainly towards being doubled for a net gain of $7,000. That is crippling. He consistently loses money on that deal.

      The other thing that they do, and it is all legal, there is no illegality involved, but when, for instance, my store was sold and when other stores have been sold by operators and franchisees that have been in the business a long time, they can then force a new rental agreement. For instance, I had eight years of a 20-year licence to go. The person that bought that from me was forced into a new rent negotiation, and it is all fixed beforehand, of 2 per cent of turnover. In other words, for every person they force out of the older existing rental agreements, they get two per cent of turnover as additional rent. If you understand that the average McDonalds store does $2.4 million, that is a net gain to them of approximately $50,000 a year for no outlaythere is no additional outlay on their part. So they have a vested interest to force people with the older style agreement out of the business.

      They force them out by impact, by threatening impact, by harassing your staff and by the manufacture of false, self serving documentation. One of the ways they have of harassing you is to keep grading your storeas an A store, a B store or way down to an F storeand they use this maliciously and spitefully.

      It is a very difficult situation. The franchisee really has no alternative but to keep fighting them or to pack his bags and go. Even when you sell your store they can manipulate the sale of the store to whichever particular person they want to buy it. They are not breaking any law; they are just immorally doing this, and they are doing it in many cases.

      CHAIR: How long have you noticed this change of attitude over? You said you have been in 10 years.

      Mr Edwards: Twelve years 10 years arguing with them virtually.

      CHAIR: Was there a significant part of the McDonalds group where this suddenly happened? They had a major change of leadership, didnt they?

      Mr Edwards: Yes, but it was also ownership. As I understand it, the top 10 management team were allowed to buy 10 or 20 per cent of McDonalds Australia. From that point on they have been actively working to lessen the asset value of the franchisees by opening so many more stores.

      CHAIR: Franchise stores or corporate stores?

      Mr Edwards: The percentage is still roughly the same. But, if you have a store next door to you or across the road from you, it really does not matter too much whether it is a corporate store or another franchise store, it still impacts on your store dramatically. There is a particular fellow who owns a store down there who had had a store in Adelaide and transferred from Adelaide to Melbourne. He paid a lot of money for the store$700,000-oddand then, as part of the deal, he had to spend another half a million on the store. They have consistently opened more stores near him, and each store has impacted on him.

      His answer to that has been to open longer hours. The last time I spoke to him, which I must admit was in 1994, he said he had actually told McDonalds, I cant open any more hours. I am now open 365 days of the year, 24 hours of the day, so any more impact is going to put me out of business. They are doing it still. They have just gone on record as saying they intend to double the number of stores they have by the year 2000.

      CHAIR: Getting back to my original question, was that the reason this happened?

      Mr Edwards: That was the time when the acceleration of store openings really happenedfrom that point on.

      CHAIR: So they had a change of ownership, primarily

      Mr Edwards: Virtually, yes.

      CHAIR: Therefore, it became financially driven rather than wholistically driven?

      Mr Edwards: Yes, totally.

      CHAIR: The casual observer would conclude that McDonalds franchisees are in a highly profitable enterprise. To what extent does a franchisee share in the profits of the business?

      Mr Edwards: The rental of the stores ranges, depending on the up-front payments. They have a very convoluted and difficult to understand rental agreement with the franchisees. But depending on the up-front money that you put in and the turnover of the store at the time you purchase it, the rental ranges from probably 10 per cent at the lowest to around 21 per cent. That is 21 cents in the dollar. So the impact that you have on other stores opening near you really cripples you. Unless you are getting $35,000 to $40,000 a week turnover every week of the year, they are losing money.

      In fact, I was talking to a particular fellow who is mentioned in this report who is actually legally fighting McDonalds to prevent them opening two stores very close to him. He told me that McDonalds had now admitted that one in five stores20 per centis losing money. Many franchisees own stores that are making money, but they also own stores that are consistently losing money. One particular fellow, who was the financial director of McDonalds, for many years was in that self-same situation. He had one that was
      making a lot of money and one that was losing a lot of money.

      One particular franchisee and I will not name him because of what you saidowns four stores and he told me that he had a turnover of nearly $9.5 million in the year 1994 and he lost $100,000 on that turnover because the running costs are very high at the stores.

      They are very labour intensive, and every time you look around, McDonalds is inducing you or pushing you to upgrade. It always has to be the latest and greatest, which is very expensive. A friend of mine who works at the Commonwealth Bank told me about a year back that every franchisee that he personally knew had more debt than they had a year ago.

      CHAIR: Can I ask you one final question before passing to my colleagues: is there a franchisee association?

      Mr Edwards: There is, but it is totally toothless. I remember when a lot of these very bad things were happening to me I actually said to the presidentand the person changes year by year as it is an elected honorary postIf you let what is happening to me happen without saying a word when I go, it will happen to you. They were not at all interested. The reason they are not interested is because McDonalds is very vindictive to anybody who does not comply with the company line. If you are in any way critical, they will literally do anything to make you sorry that you did that. So I do not think that you will find many of the existing franchisees will, unless it is a very secretive thing, come out and be critical of them.

      Ms GAMBARO: Just leading on from that, a lot of franchise groups have franchise advisory councils, and you did not have any of those formal structures in McDonalds. You have a lot of information about other franchisees. Did you meet on a regular basis and discuss your problems?

      Mr Edwards: Yes we did, we had franchise meetings. But very few of them were without company people there. In the early days it worked very well because in the early days nobody really knew of McDonalds. They were not the name that they are now. When I first went to McDonalds, the franchisees used to go around and address Rotary Clubs and all sorts of meetings to promote McDonalds.

      At that time, McDonalds and the franchisees did work very closely and it was a very close-knit association. But over time, as McDonalds became stronger and stronger, their reliance on us became less and less. In the early days, as I say, there was always somebody from McDonalds at these meetings.

      To my knowledge, there were three in 1993 and 1994 that were secretive or, if you like, held without the McDonalds people there. On each of those occasions, it was decided that one or more of these people would take their problems to McDonalds. And every time they did, the problems became watered down because at that point somebody had to say, I am bringing these problems to you. At that time McDonalds
      were able to put a name to these negative vibes and they would simply make it very difficult for that particular person. So it became the thing that nobody would speak out.

      If you are in debt for a lot of money, and the company has the ability to halve your asset value whilst you are still in debt for well over that, not many people are going to in fact, nobody is going to speak out. This particular fellow who is now doing it in Melbourne is the first person, other than myself, that I know of that has actively come out and criticised them.

      Ms GAMBARO: I noticed that when you moved to Queensland you were interested in purchasing another franchise. Why, after all the bad experiences that you had had with McDonalds, were you still keen to purchase another franchise?

      Mr Edwards: First of all, let me just say this: McDonalds itself, the system, is a great system. You know they study their business; they know more about their business than most people know about theirs. I enjoyed the business. Some of the people leave a lot to be desired. The biggest problem I had was with a guy in Melbourne and that continued for many years. I had doctors advice to move the children to Queensland and I honestly and sincerely thought that if I moved to Queensland it would get me away from that particular person and the whole thing might well change. At that time, I did not have a problem with anybody else in McDonalds. I had a very good relationship with the Sydney head office people. After trying many times to establish myself again, I finally came to the conclusion that the fellow in Melbourne was not going to let that happen, and I stopped trying.

      Mr JENKINS: In part, that answers the questions I was going to ask because I was really going to go back to the early days from 1981 when you fought hard to get a store. So that I can get my bearings: the Reservoir store was Plenty Road, Albert Street? Which was the Clayton store that you actually bought?

      Mr Edwards: On Dandenong Road, near the old South Melbourne training ground. There is a big football ovalI do not know whether you know it. There is Clayton Road and you turn left into Dandenong Road and it is only a few hundred metres along on the left-hand side.

      Mr JENKINS: So, in 1981 you had the 12-months unpaid which is part of the drill, so you had got through a lot of the hurdles that they put before you. But you made the decision which, as you say, turned out to be right given that the store no longer exists. You then had the problem with the individual but you got your hands on the Clayton store. You were able to get the Clayton store back into shape and it was economically a going concern.

      Mr Edwards: Yes. It took about two and a half years before it was what they call a full rent store. In other words, it was paying its way and could support paying full rent, but it was very run-down. It was the second store built in Melbourne, so it was old when I got it. It was built in 1973, so it was nine years old when I got it and it was badly in need of some tender loving care.

      Mr JENKINS: What was the support of the McDonalds organisation throughout that initial period?

      Mr Edwards: In that period it was good. It was very good. When I first took it over there was an $80,000 air conditioning unit on the roof that did not work. The Victorian state manager tried to say, It did work when you got it and it is your responsibility. Here I was in a store that was losing money every week and they suddenly wanted me to spend $80,000 replacing the air conditioning. The previous manager of the store, who no longer worked there but worked at another store, told me that the air conditioning had been struck by lightning some months before I took over and that was what had caused the problem. I then went to the managing director of McDonalds in Sydney and explained to him the problem. He came down and ordered the air conditioning be replaced.

      There were other problems with the store, too. I really received no help from the fellow in Victoria. He kept trying to say, You do it, you do it, you do it, its your responsibility. Youve bought what youve bought and youre responsible for it. The managing director who, I am sure, everybody knows, came down and organised it. It was all done. Again, I think that caused friction with the fellow in Victoria. He was saying no and Sydney head office was saying yes.

      Mr JENKINS: Your real problem was with the franchisors representative in the region that you were operating in. You had communication problems. Was it also that, at the time that you came to the agreement with McDonalds, there were things like whether the air conditioning worked or not that you did not actually resolve or you did not know that were going to be a problem?

      Mr Edwards: When you buy the store you literally are not allowed in it until the morning of the purchase. That was the way the system worked. You see, a lot of people get a brand new store; that is a whole different set of circumstances. In my case I was buying an existing store so you are allowed on the premises around 6 a.m. and at 11 a.m. you open as the owner. You have got roughly five hours to do all the paperwork and you just trust that everything works. There is no way you can check it or know whether it works or not before purchase. What the Victorian manager was trying to say was, You’ve got what you’ve got. If it doesnt work, thats bad luck.

      That really is not what I am complaining about. As I say, the McDonalds real hierarchy, the Sydney head office, said immediatelythey did not arguethey just said, Look, fix it. They told him to fix it.

      Mr JENKINS: So you beavered away and it was going well. What were the first signs that things were really getting rocky?

      Mr Edwards: The first signs were when I tried to move to Queensland. I was encouraged to do so well, I was not encouraged, that is not quite true. I was told that a lot of people in a poor volume store see it as an out to get a better volume store by changing states and they come up with all sorts of stories. The general manager of McDonalds at that time, who is a very well known person now, told me that when I moved to Queensland then McDonalds would take me seriously. He said, Weve been involved with helping people to move. We do all the bits and pieces and then they dont move. They change their mind. So weve now adopted the attitude that until you move until you change state we are not even going to begin to
      take you seriously.

      I did all that. We moved up here and I told them. I kept them aware of what school we had got the girls booked into and I told them that I was talking to a fellow up here, who is no longer with them, of course, because his stores are sold. I came up here three or four times to see him.

      We had an agreement on price, I had the finance, McDonalds said: We wont help, we dont hinder, we will just play a non-biased role. At that time my previous job had been as franchise salesman for a company called Ultratune and at that time Ultratune ran an add for more franchisees and there was a mix-up with the advertising agency where my name was actually mentioned in the ad. This fellow in Melbourne went berserk and said I had two jobs and spread a lot of stories around that I was working for Ultratune. Even though we had a letter from the advertising agency, we had a letter from Ultratune, we had a letter from the
      managing director of Ultratune and I signed a stat dec to say that I had no connection with them, he still went ahead and said, I dont believe that, I dont believe you, you are a liar. They used that story then on the fellow up here who was going to sell me the stores. When the final crunch came, he pulled out of the deal and he would not tell me why. He just said, I have been told not to talk to you, not to have anything to do with you.

      Years later I met him in Brisbane, almost by accident, at the business that he bought up here. He told me that he had been told by McDonalds that I had another job, I was not serious, there is no way that I would go ahead and buy his stores, I was wasting his time and not to talk to me. I offered him $2.1 million for the two stores and they bought them, as I understand it, for around $500,000 less than that. Whether that was their intention, deliberately to buy them at a lower price, I do not know, but I can certainly tell you that that was the end result.

      I did not get them, they did, and the guy that I was going to buy them off got about $0.5 million less than he would have by selling them to me. I then tried to buy Cavill Avenue in Coolangatta and they told me that it would not be sold until it moved; they were moving from one location in Cavill Avenue to another location. At the end of the day, they sold it roughly six weeks later, well before it changed location. I then tried to buy Mermaid Beach, because I knew they were for salesorry, I should have said that, I knew they were for saleand I was negotiating with the guy that owned Mermaid Beach. I was then told that the
      company was going to buy it because it needed $700,000 spent on it. I then made a formal offer through accountants and solicitors to buy it and I included in the price that $700,000. I knew what they paid, and I said I forget the exact detailsbut it included the $700,000 that they said had to be spent on it. They said it would not be sold and it was sold two or three weeks later to a franchisee from Tamworth, who still has it to this day.

      CHAIR: Having gone all through that, for quite obvious reasons you decided to sell your Clayton franchise. In the process of that sale, were there things that went on that were outside of the franchise agreement?

      Mr Edwards: I did not decide then, I still tried. The general manager of McDonalds suggested that I write to all the franchisees in Queensland to see if there were any stores for sale, even seeing if any of them wanted to transfer back to Victoria, which had happened in the past. The original owner of Cavill Avenue and Mermaid Beach did transfer back to Victoria and bought stores down there. It was many years later that I decided to sell. I decided to sell because I was exhausted. I had fought them legally, my store had burnt down in 1988, I had lost staff. I had a manager at the store who was under psychiatric help because of the constant abuse he was getting. In fact, we threatened McDonalds at one stage with legal action for
      defamation. Their reaction to that was: Send your papers to this solicitor, go ahead, we are not retracting one
      word.

      This particular fellow had worked for McDonalds for 11 years before he came to work for me and then when he came to work for me he had to put up with this constant bombardment it never stopped. In 1988 the store burnt down. We rebuilt the store and in 1992 I was the victim of a very savage supposed armed hold-up. As I say, if it was an armed hold-up, it was a very non-professional job. Two men with guns did not get any money. If it was to give me a thorough beating, it was a very professional job. Whilst
      recovering from that, I still was being bullied and harassed.

      One of the things they didwhich I still find incrediblewas that when we were trying to buy Clayton originally we were offered many stores. There were quite a few stores they offered us. There were various letters of agreement, but they were never signed. They were just offers and we did not go ahead with them. They actually found an old letter that had been part of the original offer for Clayton, but it was never part of the legal agreement. The rental on that did not include the rent relief situation. In fact, there was no admission in that letter that the store was actually losing money, trading at a loss, and could not support full rent.

      They went back to that original letter and said that if I had signed that letter I had short-paid them rent of $79,000. On 30 Decemberone day before New Years Eve I received an invoice from them for $79,000. This was whilst I was receiving psychiatric help and counselling after the bashing. I had just come out of hospital after having a spinal operation as a result of the bashing. The operation was in November and I received the letter in December.

      It was an official invoice and it said, Please forward a cheque for $79,800, and may I take this opportunity of wishing you a Happy New Year. That was from a mongrel that I would not spit on. He was a guy that I had had many verbal fights with. I got a bill not long after that from my solicitor for $15,000 as part of the ongoing money that I had to keep paying over the years to keep them off my back. He said he had now reached the stage where he could not hold MacDonalds off any more. He said I should sell to this particular fellow that they wanted me to sell to. The way they do that is that they also work the price out with him. They tell you in effect what price you will sell for and who you will sell it to.

      I have got his letter here. He said that commercially he said you cannot keep going any more. My store manager had left me. He was under counselling as well. He could not fight them any more and so, at the end of the day, I left. I sold the store.

      I remember meeting the now managing director of McDonalds in the Golden Wing airport lounge in Melbourne about five years before I finally sold and he said that the people in the company were amazed that I was still there. But what do you do? You have got all your life savings in it. The company says they do not want to buy it. It is not worth anything to them. Eventually they know that they will coerce you into selling the store for far less than it is worth and so they just keep up the aggro.

      Mr JENKINS: Are the present agreements for 20 years?

      Mr Edwards: Yes; as far as I am aware, they certainly are. I had better explain how this $50,000 per year works. They do not change the rental agreement. They have a rental agreement and a service fee, and it is written into the agreement that you signeven though it runs for 20 years that, when you sell, the new purchaser is subject to the service fee that is current at the time. Every time they put the service fee up from three to four to five per centit lowered the asset value of your store, because it meant that the new person that was buying had to pay an extra one, two or maybe three per cent more than you were paying.

      So, it was a double whammy, but it also gave them much more of an incentive to force you out. At a national marketing franchisee meeting we were at in Sydney, in December 1993, they actually said that, as part of this Top 10 Management buy-out, they had factored in that three franchisees per year would go, with older agreements. They actually admitted then that they were well ahead of the three per year. They had factored it in; that was part of their strategy: We will get rid of people so that we will get this extra $50,000 per year from these stores. So they, by their own admission, had factored in an extra $150,000 per year as rental; and, by their own admission, they were well ahead of that plan. I cannot see that that is a very decent thing to be doing.

      Most of the franchisees that I knew worked long hours and were loyal and worked very hard to promote McDonalds. McDonalds would not be, I do not think, anywhere near where they are now, if it had not been for the earlier guys running around doing what they did to promote the name: the school lunches, the hospitals, the unions. We did all the things that they asked us to do, for our own good: we saw it as a team thing. But now it is very much the case that they do not need the existing franchisees to anywhere near the extent that they once did; and, in many ways, the older people with the older agreements are just a
      nuisance to them. Whereas, if they can get them out and get the higher rent, then the newer people are not so
      complaining of the impact, because they do not know of any other thing. They do not remember when the stores were doing $80,000 per week, and they are less demanding of the returns that they expect.

      Ms GAMBARO: Mr Edwards, with regard to the $50,000 fee that you are talking about, I find it extraordinary that they would change an ownership of a franchise for that amount of money, considering the amount of training and extra effort that they incur. Is that the only reason? When you mentioned the management buy-out, how long ago was that?

      Mr Edwards: I think it was about six years ago.

      Ms GAMBARO: How many managers were part of that profit sharing?

      Mr Edwards: They call it the Top 10 Management Team: it was the top 10 people at the McDonalds head office. That would be the Managing Director, General Manager, Advertising and Finance Directors the top admin people in McDonalds themselves. It was not the managers of the stores; it was nothing to do with them. You say that you find it hard to believe that they would do that for $50,000 per year; but, as I say, by their own admission they had factored in three per year, so that is $150,000.

      I would agree with you, if it were true that they had to do all the training, but really they do not have to do that because, in the mainand I guess I should have made this clearthey are selling to existing licensees, other licensees. When my store was sold, it did not incur McDonalds one cent, because even the stamp duties, the legalseverythingis payable by the franchisee. They make that crystal clear when the new person comes in and the old person goes outall the fees, the legal fees, are payable. Everything. They do not pay one cent for anything.

      Ms GAMBARO: Are you saying that a lot of that is personally driven; if an existing franchisee says, I am interested in your store, that that is the chief motivating force behind it?

      Mr Edwards: No.

      Ms GAMBARO: Or is it the financial aspects you have explained?

      Mr Edwards: Certainly the financial aspect is a very valid point. They have a financial incentive. It is $50,000 a year for eight years or 10 years, whatever the licence has left. In my case, it was eight years. So it was a minimum of eight times 50. With CPI increases, or whatever, that may well be a lot more money than that. But they were also able to renegotiate a purchase price for the store. So, in effectI do not know the exact detailsthe person who bought my store also paid McDonalds around $300,000 as well as what he paid me.

      CHAIR: In conclusion, Mr Edwards, you understand that this particular committee is looking at harsh and unconscionable actions, and we are looking at the franchise industry generally. From your experiences, and knowing the sorts of things that we are looking into, what sorts of recommendations would you have in the broader context, away from McDonalds, for franchising in particular? What sorts of things do you think we should be considering?

      Mr Edwards: I think that what would be very helpful is if it was not always forced into a legal scenario, because, legally, there is no franchisee that can stand up to McDonalds. When you talked about the profitability of McDonalds, McDonalds as a company are making so much money that they just do not know what to do with it. I remember many advertising meetings we used to go to where they would say, Can we afford to be on one Sunday night movie? Now it is, What arent we on? The advertising dollars
      they have is almost beyond belief, and it is expanding all the time.

      It would be helpful if there were a mechanism where their franchise agreement could be watered down, even to the point where the franchisee has an agreed area where they cannot open one next door or across the road, where there is access to legally binding judgment but without the legal expense so that McDonalds and the franchisee are equal. It is not where McDonalds can simply keep throwing money at a situation and beat the franchisee down.

      Another mechanism could be where McDonalds is not the sole arbitrator of the franchisees future. What they can doand dois say, You cause us a problem, you will never get another store. You do the right thing, you may get another store. They use this. To me, the ability to buy another store should be based on criteria that is not able to be judged solely by McDonalds. For instance, they say, Your store is a terribly run store, and you say, Why is it that my sales are increasing? One does not correlate with the other. They said on one occasion that I had an F-grade store, but my sales were ahead of market, so one does not
      correlate with the other.

      So some sort of mechanism where they could not just say things, or just manufacture documents for instance, come to your store, write that all these things are wrong with it and then walk away, then months down the track use that piece of paper, which is a total fabrication, against you in judging whether you can have another store or not. I just do not know how those things could be done, but there must be a way of weakening their power.

      The biggest thing of all would be the franchisees guaranteed a set area. When I came into McDonalds they said, Your market is 80,000 people. We wont give you a street address, but we will guarantee you 80,000 people. Now I think it is down to about 15,000 people. I am hard pressed to suggest things. That is the biggest single thing.

      CHAIR: We will go to the extent where you have some experience with Ultratune. What sorts of specific issues of franchising are there in that area that we should be looking at?

      Mr Edwards: With Ultratune it was very clear: there was a guaranteed area, there would be only one in an area.

      CHAIR: So geographic base is the biggest issue as far as you are concerned?

      Mr Edwards: Yes, because impact is the biggest sword that they have over you. If they open a store next door to you, they can devastate you. Some of these franchisees are in debt to $5 million, $6 million. If the threat of impact is held over their head, gosh, it is devastating. Absolutely devastating.

      CHAIR: Mr Edwards, thank you for coming in today. We appreciate your time.

      Resolved (on motion by Ms Gambaro): That, pursuant to the power conferred by paragraph (o) of standing order 28B, this committee authorises publication of the evidence given before it at public hearing this day, including the publication on the electronic parliamentary database of the proof transcript.

      Committee adjourned at 4.27 p.m.

      Una presentazione preoccupante ad un’inchiesta di governo

      Che cosa segue, è la testimonianza del franchisee del McDonald precedente, sul suo trattamento dalla società del McDonald. Questa inchiesta è stata condotta da un comitato permanente della Camera dei rappresentanti del Parlamento del commonwealth dell’Australia.

      Faccia la vostra propria valutazione sopra se gli ufficiali che corporativi avete conosciuto potrebbero comportarsi come descritto, quando intenzione sull’azionamento del franchisee da suo, o il suo commercio.

      Allora, rifletta sulla natura di controllo corporativo del McDonald!

      — oOo —
      CAMERA DEI RAPPRESENTANTI
      COMITATO PERMANENTE PER INDUSTRIA, SCIENZA E TECNOLOGIA
      Riferimento: Commercio giusto
      BRISBANE
      Martedì, Il 22 Ottobre 1996
      RAPPORTO UFFICIALE DI HANSARD
      CANBERRA
      Membri:

      Sig. Richard Evans (Sedia)
      Sig.ra Bailey
      Sig. Baldwin
      Sig. Beddall
      Sig. Martyn Evans
      Sig. Forrest
      Ms Gambaro
      Sig. Jenkins
      Sig.ra Johnston
      Sig. Allan Morris
      Sig. Nugent
      Sig. O’Connor
      Sig. Reid
      Sig. Zammit

      Il comitato domanderà nelle edizioni di comportamento di affari che sono il risultato dei rapporti d’affari commerciali fra le ditte, compreso i reclami dalle organizzazioni di piccola impresa che alcune ditte sono vulnerabili a ed adeguatamente non sono protette da comportamento duro o oppressive nei loro rapporti d’affari con le più grandi ditte.

      1. Il comitato è chiesto di studiare e riferire: il comportamento principale di affari pubblica presentare dai rapporti d’affari commerciali fra le ditte compreso, ma non limitato a, concedere ed il tenancy al minuto; le implicazioni economiche e sociali del commercio principale conducono le edizioni specialmente se determinate pratiche commerciali potrebbero condurre ai risultati economici suboptimali.

      2. Il comitato è chiesto di esaminare se l’effetto del comportamento di affari lo pubblica identifica è sufficiente per giustificare l’azione di governo che considera, ma non limitato: protezioni legislative attuali del commonwealth e della condizione; protezioni attuali consuetudinario; sviluppi d’oltremare nella regolazione di comportamento di affari.

      3. Il comitato è chiesto di esaminare le opzioni e fare le raccomandazioni sulle strategie richiamare le edizioni di comportamento di affari che sono il risultato dei rapporti d’affari fra le ditte nei rapporti commerciali, consideranti, ma non è limitato a: l’applicazione potenziale dei codici volontari dei meccanismi di risoluzione di comportamento, di autoregolazione di industria e di disputa, compreso le alternative a legislazione ed ai rimedi corte-basati ed ai meccanismi per sostenere queste misure; rimedi legislativi.

      4. Nelle opzioni di sviluppo, il comitato cercherà di accertare la certezza in di mercato, di contrarre i rapporti d’affari ed altre transazioni commerciali, di minimizzare la difficoltà regolatrice sul commercio e di limitare al minimo la controversia ed i costi.

      TESTIMONI:

      La CONCESSIONE, Il Sig. Graham Lauchlan, Divide Una Strada In lotti Di 11 Grays, Insenatura A metà strada, Nuovo Galles del Sud 2460…. 244

      HAMILTON, Sig. Charles Peter, Capo progetto esecutivo, Associazione Dei Coltivatori Del Pollo Del Queensland, Scatola 3128, Brisbane Del sud, Queensland di Po 4101…………………………… 263

      MURRAY, sig. Laurence James, ufficiale di collegamento di affari, camera di commercio del Queensland ed industria, Camera di industria, terrazzo di 375 Wickham, Brisbane, Queensland 4000…….. 229

      NATOLI, sig. Joseph Anthony, presidente, associazione dei commercianti della frutta del Queensland e della verdura, scatola 277, Moorooka, Queensland di PO 4107……………………………….. 273

      OVERELL, sig. Mark Alan, ufficiale di collegamento di affari, associazione al minuto dei commercianti del Queensland e dei commercianti, unità 3/321 di Kelvin di strada del boschetto, Kelvin di boschetto, Queensland 4059. . 218

      PICCO, Sig. Douglas William, Principale, Servizi Educativi di H&f, Corte Di 11 Fitzgerald, Montagna Libera, Queensland 4500………………………………………… 255

      RANSON, sig. Peter David Leo, ufficiale di piccola impresa, camera di commercio del Queensland ed industria, Camera di industria, terrazzo di 375 Wickham, Brisbane, Queensland 4000……….. 229

      SANSOM, Sig. Gary William, Presidente, Associazione Dei Coltivatori Del Pollo Del Queensland, Scatola 3128, Brisbane Del sud, Queensland di Po 4101………………………………… 263

      EDWARDS, Sig. Peter Richard, Via Di 28 Panitz, Sorrento, Queensland 4217…………….. 284

      Presenti:

      Sig. Richard Evans (Sedia)
      Sig. Beddall
      Ms Gambaro
      Sig. Jenkins

      Il comitato è riunito a 9,28 a.m..

      Il sig. Richard Evans ha assunto la presidenza.

      Martedì, il 22 ottobre 1996 REPS~Standing IST (alla pagina) 277

        IL TESTIMONE a 3,43 p.m : – EDWARDS, Sig. Peter Richard, Via Di 28 Panitz, Sorrento, Queensland, 4217.

          SEDIA: Benvenuto. Gli atti del comitato sono riconosciuti come atti del Parlamento e garantiscono lo stesso rispetto che gli atti nella Camera dei rappresentanti in se richiedono. I testimoni sono protetti dal privilegio parlamentare rispetto alla prova che danno prima del comitato.

          Non sarete chiesti di prendere un giuramento o, infatti, di fare un’affermazione. Siete ricordati a, tuttavia, che la prova falsa data ad una commissione parlamentare può essere considerare come contempt del Parlamento.

          Il comitato preferisce che tutta la prova sia data in pubblico, ma se a tutto il desiderio della fase li date a prova in riservato potete chiedere di fare così ed il comitato considererà to la vostra richiesta. Inoltre vi ricorderei che quello rispetto alla vostra presentazione confidenziale là era alcuni nomi identificati là. Saremmo interessati circa gli individui particolari di discussione in una sessione pubblica e quindi possiamo avere bisogno di di entrare nell’nella sessione della macchina fotografica se desiderate fare quello. Siamo felici di considerare quello se quello è il caso. Sono giusto informandoli che può essere difficile in un senso defamatory farlo in una sessione pubblica. In che capienza state comparendo oggi?

          Sig. Edwards: Sto comparendo come cittadino riservato.

          SEDIA: Il comitato ha ricevuto la vostra presentazione scritta come presentazione confidenziale a questa inchiesta. voi gradiamo rilasciare una dichiarazione di apertura prima che cominciamo la nostra interrogazione?

          Sig. Edwards: Ero di 12 anni come franchisee dei ristoranti della famiglia di McDonalds. Ho avuto un ristorante in Clayton, Victoria. Per probabilmente 10 di quegli 12 anni, era un’associazione molto acrimonious, per una varietà intera di motivi. Senza rendergli la mia presentazione di storia, il a.lot del problema è che McDonalds poichè il concessionario ha alimentazione tremenda. L’accordo di concessione dà loro molto più l’alimentazione, penso, che la legge realizza e combatterli sono finanziariamente paralizzare giusto. Ci è tante di loro e delle li attacano in molti sensi differenti. Mentresiete difendendosi iete difendendosi in una zona, stanno attacandoli in un altro. Entrano nel harassing il vostro personale. Siete costantemente sostituenti o provanti a mantenere la vostra gente felice.

          McDonalds è un commercio molto stressante al la cosa migliore dei periodi. Siamo a.lot aperto delle ore. Le ore stanno aumentando gradualmente, virtualmente mai vicino altro e, se avete personale infelice, particolarmente la gente che è infelice attraverso nessun difetto del loro ownthey harassed per indurrmi un problema, per non causarle che un problemit sia un senso molto bullying di fare le cose.

          Hanno la capacità di costruirvi un deposito molto e di averli effetto con le vendite. Non soltanto distrugg il vostro commercio aprendo altra immagazzinano molto vicino voi, vi causano un problema con il vostro personale, vi causano un problema con legale. Li attacano costantemente, che li inducono a dovere difendersi, in modo da siete perdere ogni che senso. Siete perdenti perché state vuotandi finanziariamente con le spese notarili, voi state vuotandi del personale quello che dovete continuare a riaddestrare e continuare a riassumere e voi stanno vuotandi facendo il vostro avere effetto su commercio.

          Il reddito di McDonalds si compone di una percentuale delle vostre vendite, in modo da non hanno interesse acquisito nel renderli vantaggiosi. Per esempio, hanno aperto un deposito in Frankston molti anni fa e quel deposito, quando è stato venduto l’ultima volta, stava facendo intorno $85.000 un la settimana nelle vendite. Hanno aperto altri cinque depositi intorno a quel deposito particolare e, senza chiamare i nomi, il collega particolare che ha comprato quel deposito per $1,3 milioni sul presupposto che stava facendo $80,000-odd, ora è in una situazione dove quel deposito sta facendo nei thirties.

          Intorno a circa due anni fa, hanno aperto un deposito soltanto alcuni cento tester via da dove ha questo deposito particolare. Realmente ha comprato quel deposito, ha permesso che lui comprasse quel deposito. Ma alla conclusione del giorno, la nuova apertura del deposito ha fatto $13.000, il suo deposito attuale ha caduto $6.000, così là era un guadagno netto di $7.000. Così McDonalds ha guadagnato una percentuale di $7.000. Il collega che ha posseduto i due depositi ha fatto i suoi non raddoppiarsi ambientale ma certamente verso essere raddoppiato per un guadagno netto di $7.000. Quello sta paralizzando. Perde costantemente i soldi su quell’affare.

          L’altra cosa che ed è tutto il legale, non ci è l’illegalità in questione, ma quando, per esempio, il mio deposito è stata venduta e quando altri depositi sono stati venduti dagli operatori ed i franchisees che sono stati nel commercio un molto tempo, possono allora forzare un nuovo accordo locativo. Per esempio, ho avuto otto anni di una patente 20-year da andare. La persona che mi ha comprato quella era forzata una nuova trattativa di affitto ed esso interamente è riparata in in anticipo, di 2 per cento del giro d’affari. Cioè per ogni persona forzano dai più vecchi accordi locativi esistenti, ottengono due per cento del giro d’affari come affitto supplementare. Se capite che il deposito medio di McDonalds fa $2,4 milioni, quello è un guadagno netto a loro di circa $50.000 che per nessun outlaythere è spesa supplementare sulla loro parte. Così hanno un interesse acquisito per espellere la gente con il più vecchio accordo di stile dal commercio.

          They force them out by impact, by threatening impact, by harassing your staff and by the manufacture of false, self serving documentation. One of the ways they have of harassing you is to keep grading your storeas an A store, a B store or way down to an F storeand they use this maliciously and spitefully.

          It is a very difficult situation. The franchisee really has no alternative but to keep fighting them or to pack his bags and go. Even when you sell your store they can manipulate the sale of the store to whichever particular person they want to buy it. They are not breaking any law; they are just immorally doing this, and they are doing it in many cases.

          CHAIR: How long have you noticed this change of attitude over? You said you have been in 10 years.

          Mr Edwards: Twelve years 10 years arguing with them virtually.

          CHAIR: Was there a significant part of the McDonalds group where this suddenly happened? They had a major change of leadership, didnt they?

          Mr Edwards: Yes, but it was also ownership. As I understand it, the top 10 management team were allowed to buy 10 or 20 per cent of McDonalds Australia. From that point on they have been actively working to lessen the asset value of the franchisees by opening so many more stores.

          CHAIR: Franchise stores or corporate stores?

          Mr Edwards: The percentage is still roughly the same. But, if you have a store next door to you or across the road from you, it really does not matter too much whether it is a corporate store or another franchise store, it still impacts on your store dramatically. There is a particular fellow who owns a store down there who had had a store in Adelaide and transferred from Adelaide to Melbourne. He paid a lot of money for the store$700,000-oddand then, as part of the deal, he had to spend another half a million on the store. They have consistently opened more stores near him, and each store has impacted on him.

          His answer to that has been to open longer hours. The last time I spoke to him, which I must admit was in 1994, he said he had actually told McDonalds, I cant open any more hours. I am now open 365 days of the year, 24 hours of the day, so any more impact is going to put me out of business. They are doing it still. They have just gone on record as saying they intend to double the number of stores they have by the year 2000.

          CHAIR: Getting back to my original question, was that the reason this happened?

          Mr Edwards: That was the time when the acceleration of store openings really happenedfrom that point on.

          CHAIR: So they had a change of ownership, primarily

          Mr Edwards: Virtually, yes.

          CHAIR: Therefore, it became financially driven rather than wholistically driven?

          Mr Edwards: Yes, totally.

          CHAIR: The casual observer would conclude that McDonalds franchisees are in a highly profitable enterprise. To what extent does a franchisee share in the profits of the business?

          Mr Edwards: The rental of the stores ranges, depending on the up-front payments. They have a very convoluted and difficult to understand rental agreement with the franchisees. But depending on the up-front money that you put in and the turnover of the store at the time you purchase it, the rental ranges from probably 10 per cent at the lowest to around 21 per cent. That is 21 cents in the dollar. So the impact that you have on other stores opening near you really cripples you. Unless you are getting $35,000 to $40,000 a week turnover every week of the year, they are losing money.

          In fact, I was talking to a particular fellow who is mentioned in this report who is actually legally fighting McDonalds to prevent them opening two stores very close to him. He told me that McDonalds had now admitted that one in five stores20 per centis losing money. Many franchisees own stores that are making money, but they also own stores that are consistently losing money. One particular fellow, who was the financial director of McDonalds, for many years was in that self-same situation. He had one that was
          making a lot of money and one that was losing a lot of money.

          One particular franchisee and I will not name him because of what you saidowns four stores and he told me that he had a turnover of nearly $9.5 million in the year 1994 and he lost $100,000 on that turnover because the running costs are very high at the stores.

          They are very labour intensive, and every time you look around, McDonalds is inducing you or pushing you to upgrade. It always has to be the latest and greatest, which is very expensive. A friend of mine who works at the Commonwealth Bank told me about a year back that every franchisee that he personally knew had more debt than they had a year ago.

          CHAIR: Can I ask you one final question before passing to my colleagues: is there a franchisee association?

          Mr Edwards: There is, but it is totally toothless. I remember when a lot of these very bad things were happening to me I actually said to the presidentand the person changes year by year as it is an elected honorary postIf you let what is happening to me happen without saying a word when I go, it will happen to you. They were not at all interested. The reason they are not interested is because McDonalds is very vindictive to anybody who does not comply with the company line. If you are in any way critical, they will literally do anything to make you sorry that you did that. So I do not think that you will find many of the existing franchisees will, unless it is a very secretive thing, come out and be critical of them.

          Ms GAMBARO: Just leading on from that, a lot of franchise groups have franchise advisory councils, and you did not have any of those formal structures in McDonalds. You have a lot of information about other franchisees. Did you meet on a regular basis and discuss your problems?

          Mr Edwards: Yes we did, we had franchise meetings. But very few of them were without company people there. In the early days it worked very well because in the early days nobody really knew of McDonalds. They were not the name that they are now. When I first went to McDonalds, the franchisees used to go around and address Rotary Clubs and all sorts of meetings to promote McDonalds.

          At that time, McDonalds and the franchisees did work very closely and it was a very close-knit association. But over time, as McDonalds became stronger and stronger, their reliance on us became less and less. In the early days, as I say, there was always somebody from McDonalds at these meetings.

          To my knowledge, there were three in 1993 and 1994 that were secretive or, if you like, held without the McDonalds people there. On each of those occasions, it was decided that one or more of these people would take their problems to McDonalds. And every time they did, the problems became watered down because at that point somebody had to say, I am bringing these problems to you. At that time McDonalds
          were able to put a name to these negative vibes and they would simply make it very difficult for that particular person. So it became the thing that nobody would speak out.

          If you are in debt for a lot of money, and the company has the ability to halve your asset value whilst you are still in debt for well over that, not many people are going to in fact, nobody is going to speak out. This particular fellow who is now doing it in Melbourne is the first person, other than myself, that I know of that has actively come out and criticised them.

          Ms GAMBARO: I noticed that when you moved to Queensland you were interested in purchasing another franchise. Why, after all the bad experiences that you had had with McDonalds, were you still keen to purchase another franchise?

          Mr Edwards: First of all, let me just say this: McDonalds itself, the system, is a great system. You know they study their business; they know more about their business than most people know about theirs. I enjoyed the business. Some of the people leave a lot to be desired. The biggest problem I had was with a guy in Melbourne and that continued for many years. I had doctors advice to move the children to Queensland and I honestly and sincerely thought that if I moved to Queensland it would get me away from that particular person and the whole thing might well change. At that time, I did not have a problem with anybody else in McDonalds. I had a very good relationship with the Sydney head office people. After trying many times to establish myself again, I finally came to the conclusion that the fellow in Melbourne was not going to let that happen, and I stopped trying.

          Mr JENKINS: In part, that answers the questions I was going to ask because I was really going to go back to the early days from 1981 when you fought hard to get a store. So that I can get my bearings: the Reservoir store was Plenty Road, Albert Street? Which was the Clayton store that you actually bought?

          Mr Edwards: On Dandenong Road, near the old South Melbourne training ground. There is a big football ovalI do not know whether you know it. There is Clayton Road and you turn left into Dandenong Road and it is only a few hundred metres along on the left-hand side.

          Mr JENKINS: So, in 1981 you had the 12-months unpaid which is part of the drill, so you had got through a lot of the hurdles that they put before you. But you made the decision which, as you say, turned out to be right given that the store no longer exists. You then had the problem with the individual but you got your hands on the Clayton store. You were able to get the Clayton store back into shape and it was economically a going concern.

          Mr Edwards: Yes. It took about two and a half years before it was what they call a full rent store. In other words, it was paying its way and could support paying full rent, but it was very run-down. It was the second store built in Melbourne, so it was old when I got it. It was built in 1973, so it was nine years old when I got it and it was badly in need of some tender loving care.

          Mr JENKINS: What was the support of the McDonalds organisation throughout that initial period?

          Mr Edwards: In that period it was good. It was very good. When I first took it over there was an $80,000 air conditioning unit on the roof that did not work. The Victorian state manager tried to say, It did work when you got it and it is your responsibility. Here I was in a store that was losing money every week and they suddenly wanted me to spend $80,000 replacing the air conditioning. The previous manager of the store, who no longer worked there but worked at another store, told me that the air conditioning had been struck by lightning some months before I took over and that was what had caused the problem. I then went to the managing director of McDonalds in Sydney and explained to him the problem. He came down and ordered the air conditioning be replaced.

          There were other problems with the store, too. I really received no help from the fellow in Victoria. He kept trying to say, You do it, you do it, you do it, its your responsibility. Youve bought what youve bought and youre responsible for it. The managing director who, I am sure, everybody knows, came down and organised it. It was all done. Again, I think that caused friction with the fellow in Victoria. He was saying no and Sydney head office was saying yes.

          Mr JENKINS: Your real problem was with the franchisors representative in the region that you were operating in. You had communication problems. Was it also that, at the time that you came to the agreement with McDonalds, there were things like whether the air conditioning worked or not that you did not actually resolve or you did not know that were going to be a problem?

          Mr Edwards: When you buy the store you literally are not allowed in it until the morning of the purchase. That was the way the system worked. You see, a lot of people get a brand new store; that is a whole different set of circumstances. In my case I was buying an existing store so you are allowed on the premises around 6 a.m. and at 11 a.m. you open as the owner. You have got roughly five hours to do all the paperwork and you just trust that everything works. There is no way you can check it or know whether it works or not before purchase. What the Victorian manager was trying to say was, You’ve got what you’ve got. If it doesnt work, thats bad luck.

          That really is not what I am complaining about. As I say, the McDonalds real hierarchy, the Sydney head office, said immediatelythey did not arguethey just said, Look, fix it. They told him to fix it.

          Mr JENKINS: So you beavered away and it was going well. What were the first signs that things were really getting rocky?

          Mr Edwards: The first signs were when I tried to move to Queensland. I was encouraged to do so well, I was not encouraged, that is not quite true. I was told that a lot of people in a poor volume store see it as an out to get a better volume store by changing states and they come up with all sorts of stories. The general manager of McDonalds at that time, who is a very well known person now, told me that when I moved to Queensland then McDonalds would take me seriously. He said, Weve been involved with helping people to move. We do all the bits and pieces and then they dont move. They change their mind. So weve now adopted the attitude that until you move until you change state we are not even going to begin to
          take you seriously.

          I did all that. We moved up here and I told them. I kept them aware of what school we had got the girls booked into and I told them that I was talking to a fellow up here, who is no longer with them, of course, because his stores are sold. I came up here three or four times to see him.

          We had an agreement on price, I had the finance, McDonalds said: We wont help, we dont hinder, we will just play a non-biased role. At that time my previous job had been as franchise salesman for a company called Ultratune and at that time Ultratune ran an add for more franchisees and there was a mix-up with the advertising agency where my name was actually mentioned in the ad. This fellow in Melbourne went berserk and said I had two jobs and spread a lot of stories around that I was working for Ultratune. Even though we had a letter from the advertising agency, we had a letter from Ultratune, we had a letter from the
          managing director of Ultratune and I signed a stat dec to say that I had no connection with them, he still went ahead and said, I dont believe that, I dont believe you, you are a liar. They used that story then on the fellow up here who was going to sell me the stores. When the final crunch came, he pulled out of the deal and he would not tell me why. He just said, I have been told not to talk to you, not to have anything to do with you.

          Years later I met him in Brisbane, almost by accident, at the business that he bought up here. He told me that he had been told by McDonalds that I had another job, I was not serious, there is no way that I would go ahead and buy his stores, I was wasting his time and not to talk to me. I offered him $2.1 million for the two stores and they bought them, as I understand it, for around $500,000 less than that. Whether that was their intention, deliberately to buy them at a lower price, I do not know, but I can certainly tell you that that was the end result.

          I did not get them, they did, and the guy that I was going to buy them off got about $0.5 million less than he would have by selling them to me. I then tried to buy Cavill Avenue in Coolangatta and they told me that it would not be sold until it moved; they were moving from one location in Cavill Avenue to another location. At the end of the day, they sold it roughly six weeks later, well before it changed location. I then tried to buy Mermaid Beach, because I knew they were for salesorry, I should have said that, I knew they were for saleand I was negotiating with the guy that owned Mermaid Beach. I was then told that the
          company was going to buy it because it needed $700,000 spent on it. I then made a formal offer through accountants and solicitors to buy it and I included in the price that $700,000. I knew what they paid, and I said I forget the exact detailsbut it included the $700,000 that they said had to be spent on it. They said it would not be sold and it was sold two or three weeks later to a franchisee from Tamworth, who still has it to this day.

          CHAIR: Having gone all through that, for quite obvious reasons you decided to sell your Clayton franchise. In the process of that sale, were there things that went on that were outside of the franchise agreement?

          Mr Edwards: I did not decide then, I still tried. The general manager of McDonalds suggested that I write to all the franchisees in Queensland to see if there were any stores for sale, even seeing if any of them wanted to transfer back to Victoria, which had happened in the past. The original owner of Cavill Avenue and Mermaid Beach did transfer back to Victoria and bought stores down there. It was many years later that I decided to sell. I decided to sell because I was exhausted. I had fought them legally, my store had burnt down in 1988, I had lost staff. I had a manager at the store who was under psychiatric help because of the constant abuse he was getting. In fact, we threatened McDonalds at one stage with legal action for
          defamation. Their reaction to that was: Send your papers to this solicitor, go ahead, we are not retracting one
          word.

          This particular fellow had worked for McDonalds for 11 years before he came to work for me and then when he came to work for me he had to put up with this constant bombardment it never stopped. In 1988 the store burnt down. We rebuilt the store and in 1992 I was the victim of a very savage supposed armed hold-up. As I say, if it was an armed hold-up, it was a very non-professional job. Two men with guns did not get any money. If it was to give me a thorough beating, it was a very professional job. Whilst
          recovering from that, I still was being bullied and harassed.

          One of the things they didwhich I still find incrediblewas that when we were trying to buy Clayton originally we were offered many stores. There were quite a few stores they offered us. There were various letters of agreement, but they were never signed. They were just offers and we did not go ahead with them. They actually found an old letter that had been part of the original offer for Clayton, but it was never part of the legal agreement. The rental on that did not include the rent relief situation. In fact, there was no admission in that letter that the store was actually losing money, trading at a loss, and could not support full rent.

          They went back to that original letter and said that if I had signed that letter I had short-paid them rent of $79,000. On 30 Decemberone day before New Years Eve I received an invoice from them for $79,000. This was whilst I was receiving psychiatric help and counselling after the bashing. I had just come out of hospital after having a spinal operation as a result of the bashing. The operation was in November and I received the letter in December.

          It was an official invoice and it said, Please forward a cheque for $79,800, and may I take this opportunity of wishing you a Happy New Year. That was from a mongrel that I would not spit on. He was a guy that I had had many verbal fights with. I got a bill not long after that from my solicitor for $15,000 as part of the ongoing money that I had to keep paying over the years to keep them off my back. He said he had now reached the stage where he could not hold MacDonalds off any more. He said I should sell to this particular fellow that they wanted me to sell to. The way they do that is that they also work the price out with him. They tell you in effect what price you will sell for and who you will sell it to.

          I have got his letter here. He said that commercially he said you cannot keep going any more. My store manager had left me. He was under counselling as well. He could not fight them any more and so, at the end of the day, I left. I sold the store.

          I remember meeting the now managing director of McDonalds in the Golden Wing airport lounge in Melbourne about five years before I finally sold and he said that the people in the company were amazed that I was still there. But what do you do? You have got all your life savings in it. The company says they do not want to buy it. It is not worth anything to them. Eventually they know that they will coerce you into selling the store for far less than it is worth and so they just keep up the aggro.

          Mr JENKINS: Are the present agreements for 20 years?

          Mr Edwards: Yes; as far as I am aware, they certainly are. I had better explain how this $50,000 per year works. They do not change the rental agreement. They have a rental agreement and a service fee, and it is written into the agreement that you signeven though it runs for 20 years that, when you sell, the new purchaser is subject to the service fee that is current at the time. Every time they put the service fee up from three to four to five per centit lowered the asset value of your store, because it meant that the new person that was buying had to pay an extra one, two or maybe three per cent more than you were paying.

          So, it was a double whammy, but it also gave them much more of an incentive to force you out. At a national marketing franchisee meeting we were at in Sydney, in December 1993, they actually said that, as part of this Top 10 Management buy-out, they had factored in that three franchisees per year would go, with older agreements. They actually admitted then that they were well ahead of the three per year. They had factored it in; that was part of their strategy: We will get rid of people so that we will get this extra $50,000 per year from these stores. So they, by their own admission, had factored in an extra $150,000 per year as rental; and, by their own admission, they were well ahead of that plan. I cannot see that that is a very decent thing to be doing.

          Most of the franchisees that I knew worked long hours and were loyal and worked very hard to promote McDonalds. McDonalds would not be, I do not think, anywhere near where they are now, if it had not been for the earlier guys running around doing what they did to promote the name: the school lunches, the hospitals, the unions. We did all the things that they asked us to do, for our own good: we saw it as a team thing. But now it is very much the case that they do not need the existing franchisees to anywhere near the extent that they once did; and, in many ways, the older people with the older agreements are just a
          nuisance to them. Whereas, if they can get them out and get the higher rent, then the newer people are not so
          complaining of the impact, because they do not know of any other thing. They do not remember when the stores were doing $80,000 per week, and they are less demanding of the returns that they expect.

          Ms GAMBARO: Mr Edwards, with regard to the $50,000 fee that you are talking about, I find it extraordinary that they would change an ownership of a franchise for that amount of money, considering the amount of training and extra effort that they incur. Is that the only reason? When you mentioned the management buy-out, how long ago was that?

          Mr Edwards: I think it was about six years ago.

          Ms GAMBARO: How many managers were part of that profit sharing?

          Mr Edwards: They call it the Top 10 Management Team: it was the top 10 people at the McDonalds head office. That would be the Managing Director, General Manager, Advertising and Finance Directors the top admin people in McDonalds themselves. It was not the managers of the stores; it was nothing to do with them. You say that you find it hard to believe that they would do that for $50,000 per year; but, as I say, by their own admission they had factored in three per year, so that is $150,000.

          I would agree with you, if it were true that they had to do all the training, but really they do not have to do that because, in the mainand I guess I should have made this clearthey are selling to existing licensees, other licensees. When my store was sold, it did not incur McDonalds one cent, because even the stamp duties, the legalseverythingis payable by the franchisee. They make that crystal clear when the new person comes in and the old person goes outall the fees, the legal fees, are payable. Everything. They do not pay one cent for anything.

          Ms GAMBARO: Are you saying that a lot of that is personally driven; if an existing franchisee says, I am interested in your store, that that is the chief motivating force behind it?

          Mr Edwards: No.

          Ms GAMBARO: Or is it the financial aspects you have explained?

          Mr Edwards: Certainly the financial aspect is a very valid point. They have a financial incentive. It is $50,000 a year for eight years or 10 years, whatever the licence has left. In my case, it was eight years. So it was a minimum of eight times 50. With CPI increases, or whatever, that may well be a lot more money than that. But they were also able to renegotiate a purchase price for the store. So, in effectI do not know the exact detailsthe person who bought my store also paid McDonalds around $300,000 as well as what he paid me.

          CHAIR: In conclusion, Mr Edwards, you understand that this particular committee is looking at harsh and unconscionable actions, and we are looking at the franchise industry generally. From your experiences, and knowing the sorts of things that we are looking into, what sorts of recommendations would you have in the broader context, away from McDonalds, for franchising in particular? What sorts of things do you think we should be considering?

          Mr Edwards: I think that what would be very helpful is if it was not always forced into a legal scenario, because, legally, there is no franchisee that can stand up to McDonalds. When you talked about the profitability of McDonalds, McDonalds as a company are making so much money that they just do not know what to do with it. I remember many advertising meetings we used to go to where they would say, Can we afford to be on one Sunday night movie? Now it is, What arent we on? The advertising dollars
          they have is almost beyond belief, and it is expanding all the time.

          It would be helpful if there were a mechanism where their franchise agreement could be watered down, even to the point where the franchisee has an agreed area where they cannot open one next door or across the road, where there is access to legally binding judgment but without the legal expense so that McDonalds and the franchisee are equal. It is not where McDonalds can simply keep throwing money at a situation and beat the franchisee down.

          Another mechanism could be where McDonalds is not the sole arbitrator of the franchisees future. What they can doand dois say, You cause us a problem, you will never get another store. You do the right thing, you may get another store. They use this. To me, the ability to buy another store should be based on criteria that is not able to be judged solely by McDonalds. For instance, they say, Your store is a terribly run store, and you say, Why is it that my sales are increasing? One does not correlate with the other. They said on one occasion that I had an F-grade store, but my sales were ahead of market, so one does not
          correlate with the other.

          So some sort of mechanism where they could not just say things, or just manufacture documents for instance, come to your store, write that all these things are wrong with it and then walk away, then months down the track use that piece of paper, which is a total fabrication, against you in judging whether you can have another store or not. I just do not know how those things could be done, but there must be a way of weakening their power.

          The biggest thing of all would be the franchisees guaranteed a set area. When I came into McDonalds they said, Your market is 80,000 people. We wont give you a street address, but we will guarantee you 80,000 people. Now I think it is down to about 15,000 people. I am hard pressed to suggest things. That is the biggest single thing.

          CHAIR: We will go to the extent where you have some experience with Ultratune. What sorts of specific issues of franchising are there in that area that we should be looking at?

          Mr Edwards: With Ultratune it was very clear: there was a guaranteed area, there would be only one in an area.

          CHAIR: So geographic base is the biggest issue as far as you are concerned?

          Mr Edwards: Yes, because impact is the biggest sword that they have over you. If they open a store next door to you, they can devastate you. Some of these franchisees are in debt to $5 million, $6 million. If the threat of impact is held over their head, gosh, it is devastating. Absolutely devastating.

          CHAIR: Mr Edwards, thank you for coming in today. We appreciate your time.

          Resolved (on motion by Ms Gambaro): That, pursuant to the power conferred by paragraph (o) of standing order 28B, this committee authorises publication of the evidence given before it at public hearing this day, including the publication on the electronic parliamentary database of the proof transcript.

          Committee adjourned at 4.27 p.m.