Franchising has dubious reputation—Minister

Press, 9 May 1985, Page 16

Franchising has dubious reputation—Minister

PA Wellington The franchising industry needs to clean up its public and business image, according to the Minister of Consumer Affairs, Mrs Shields. The most dubious franchising agencies might be called “the sons of pyramid selling,” she said in an address to the Franchisors’ Association in Auckland.

“Franchising must not be seen as a get-rich-quick scheme. Nor should it be seen as a panacea for the business which is not achieving a realistic turnover or as a means to bail out unprofitable operations," she said.

Mrs Shields said there were two types of franchise. The first were respectable businesses such as fast-food chains, car distributorships, and representatives of overseas firms.

The second type were the dubious franchise. “The worst of these are people — commonly with a history of failed companies behind them — who are interested only in selling local franchises and profiting from the sale of franchises.

“They are not interested in the long-term marketing of a particular product or service through local distributors. Usually they sell the distributorships and then disappear.” Some franchise schemes had been poorly organised or misleadingly promoted, Mrs Shields said. “These schemes have often -left franchise-holders carrying large financial losses, after they had invested their meagre savings in what they thought was a golden opportunity.”

These practices had put the reputation of franchising at considerable risk, she said.

Binding contracts promoted by the Franchisors’ Association could make dubious franchise-holders uphold certain standards when dealing with customers, she added.

If that obligation existed and those standards were broken, the customer might be able to sue the franchiseholder.

Mrs Shields also said that a Fair Trading Bill might strengthen enforcement provisions dealing with consumer information. “Criminal sanctions could become a feature of the new bill, as could the provision of a right of direct legal redress by consumers,” she said.