Woolies buys franchises to ‘avoid implications of law’

2010-12-10 13:08

The Woolworths Franchise Association wants the Competition Commission to make Woolworths seek the commission’s permission every time it acquires a franchise shop as part of its plans to buy out franchisees, according to Business Report.

In terms of the Competition Act approval must only be sought when the acquired firm has turnover of more than R80 million.

A number of franchisees have also raised concerns about the low buyout price.

In a presentation to the commission last month, the association’s secretary Dennis Hamer alleged that Woolworths would close down a number of the acquired franchise stores to the detriment of local communities and poorer consumers.

These consumers relied on the company’s lay-by policy to purchase items, and it would cost them money to travel to Woolworths outlets in shopping centres.

The buyout proposal had been partly motivated by a bid to avoid the implications of the Consumer Protection Act, he said.

Article 14 of this act prevents suppliers (Woolworths) from unilaterally ending fixed-term contracts.

However Woolworths’ head of franchising John Fraser countered that the company decided to stop franchising because it had become increasingly complex and expensive to operate a separate franchise business model.

“The introduction of the act was not the reason and we are unaware of any provision in the act that would have a significant effect on our franchise business,” he said.

Hamer made a presentation to the commission after discovering that in early November the commission had granted Woolworths unconditional approval for the acquisition of the Middelburg cluster of five franchise stores.

Hamer argued that regional shopping centres were being built on the outskirts of many of the towns serviced by the franchisees.

This meant that many of the franchise stores would be bought and then closed.

At the time of going to press Woolworths had not responded to Hamer’s contentions relating to possible closures.

The association has called on the commission to impose conditions on any further acquisitions of franchise operations.

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