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Franchises under fire

greggles

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Scandals in the franchising sector just keep bubbling to the surface in recent times.

While Retail Food Group is probably the most prominent and widely reported of the franchise disasters, there are many more. Caltex are exiting the franchise model due to a wage fraud scandal and several media outlets today have reported that Red Rooster, Oporto and Chicken Treats store owners are being pushed to the brink by high costs and operating restrictions imposed upon them by Craveable Brands, the company that controls the chains.

https://www.smh.com.au/business/sma...s-on-verge-of-bankruptcy-20180503-p4zd5c.html

The idea of franchising is that the franchisee buys a well known brand outlet that enables them to operate in an exclusive territory and the franchisor helps the small business owner to grow the business by licensing its business model, intellectual property, and brand identity for ongoing fees. However, the reality appears to be far removed from the ideal, at least in recent times.

Is franchising going the way of other failed concepts like timeshare, or is the root of the problem simply corporate greed rather than the business model itself? Obviously there are more successful examples of the franchise model, McDonalds being one. Subway is another.

The recent scandals haven't done much to encourage people to buy into franchise businesses. Horror stories of financial catastrophe and bankruptcies are haunting the sector. Is more regulation the answer, or is the current situation going to result in an inevitable shakeout and a process of consolidation and improved business practices?
 
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Serviced apartment chain Quest's major franchisee CEM Group has notified landlords it would close hotels in Sydney and Adelaide in November to add to properties already permanently shut in Melbourne and regional Queensland due to the "catastrophic impact" of the pandemic.

Combined they offer over 330 apartments. Nationally, Quest operates 140 hotels across Australia (170 including New Zealand and Fiji) and around 11,000 apartments. Many are owned by self-funded retirees who invested on the premise of a guaranteed fixed net return of 5 to 6.5 per cent, double that typically generated from traditional residential real estate. As with previous notifications, landlords at Quest Potts Point and Quest Adelaide Central were asked to surrender their leases and told there were no fund available to make further rent payments.

(Premise, not promise)
 
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Serviced apartment chain Quest's major franchisee CEM Group has notified landlords it would close hotels in Sydney and Adelaide in November to add to properties already permanently shut in Melbourne and regional Queensland due to the "catastrophic impact" of the pandemic.

Combined they offer over 330 apartments. Nationally, Quest operates 140 hotels across Australia (170 including New Zealand and Fiji) and around 11,000 apartments. Many are owned by self-funded retirees who invested on the premise of a guaranteed fixed net return of 5 to 6.5 per cent, double that typically generated from traditional residential real estate. As with previous notifications, landlords at Quest Potts Point and Quest Adelaide Central were asked to surrender their leases and told there were no fund available to make further rent payments.

(Premise, not promise)
Another consequence of COVID.
I wasn't aware that Quest funded their activities via direct investments. This suggests that the owners of the apartments that have been closed are now still funding any mortgages and possibly ongoing costs from the franchise chain. Is that correct ?
..........................
Just checked out their website and I can see investors are in a lot of trouble..
 

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