In this issue...
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Roger Wilson: Rebranding Forty Winks
Rebranding a high profile organisation such as Forty Winks requires sensitivity to the market and sound advice. General Manager, Roger Wilson discusses…
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Adrian McFedries: International Growth: Yes or No
Adrian McFedries, Managing Director of DC Strategy ... Ask yourself how well positioned are you? Do you have the cash flow and…
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Supply Issues - Can You Choose Not To?
Contact Marnie Farrant at marnie.farrant@dcstrategy.com
A problem suppliers may encounter in their growth is whether or not they wish to supply or continue to supply particular re-sellers or distributors. Given the restrictions of the Trade Practices Act 1974 (“the Act”), suppliers must be conscious that ceasing supply to particular re-sellers or distributors may have ramifications under section 45 of the Act.
Generally, businesses may decide for themselves with whom they wish to deal. However, some re-sellers or distributors believe that provisions of the Act give everyone an absolute right to be supplied. One of the considerations in assessing whether or not a refusal to supply is illegal is the impact the refusal will have on competition in the market. The more substantial a business’s market power, the more likely their refusal to supply to another party will be scrutinised as being a misuse of that power, and therefore anti-competitive. So when will a decision not to supply be acceptable? There may be commercial reasons why you refuse to supply or discontinue supply. For example, there may already be enough retail outlets in the area, or the re-seller or distributor may be a bad credit risk.
As long as the refusal to supply or continue to supply is for genuine commercial reasons, there will be no obligation upon a supplier to justify this decision. However, suppliers should be aware of the various types of conduct under the Act that are illegal (e.g. primary and secondary boycotts), and should seek specialist legal advice to ensure the conduct is permitted.
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ACCC v Prouds Jewellers Pty Ltd [2008] FCA 75
Contact Nicolas Rovolas (Senior Solicitor) at nicolas.rovolas@dcstrategy.com
A recent decision in the Federal Court of Australia held that Prouds Jewellers Pty Ltd had engaged in misleading and deceptive conduct and contravened the Trade Practices Act 1974 (Cth), as their promotional catalogues had conveyed to customers that items were previously offered at a 'was' price immediately prior to the commencement of promotions offering those items at a ‘now’ price.
The ACCC action concerned seventeen jewellery items, being offered as sale items in ‘was/now’ advertising in Prouds’ Summer of Love and Love You Mum catalogues in 2006. The issue considered by the Court was whether these seventeen items were ever offered at the ‘was’ price.
In February 2008, in the decision handed down by Justice Moore, it was determined that the items had not, in fact, been offered at the 'was' price. As such, the promotion of these items at the ‘was/now’ price was misleading and in breach of the Trade Practices Act 1974.
In response to the decision, ACCC Chairman, Mr Graeme Samuel states that “the decision was an important warning to businesses who consistently conduct 'sale' promotions of the need for accuracy in advertising, particularly in relation to price which is so important to consumers' purchasing decisions.”
Whether the ACCC will seek to apply the decision beyond the jewellery industry remains unanswered. However, it should serve as a lesson to all businesses in the practice of offering promotional campaigns with items for sale at ‘was/now’ prices to err on the side of caution, and ensure that goods were originally offered at the ‘was’ price.
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Cadbury v Darrell Lea - Court Battle Over the Colour PURPLE
Contact Tammy Giouzeppos at tammy.giouzeppos@dcstrategy.com
Since 1998, Cadbury and Darrell Lea have been involved in a dispute over the colour purple. In 1998 Cadbury applied to register purple packaging as a trade mark. Before accepting the Application, IP Australia required Cadbury to submit evidence that consumers associate purple packaging with its products. After numerous submissions, IP Australia accepted the Application in 2003.
Darrell Lea opposed the Application. The Registrar of Trade Marks considered Darrell Lea’s opposition and decided in 2006 that Cadbury could register a specific shade of purple when used for block and boxed chocolate.
Cadbury then instituted ‘passing off’ proceedings against Darrell Lea in the Federal Court. The Court ruled that Darrell Lea was not guilty of ‘passing off’ or misleading and deceptive conduct. Justice Peter Heery ruled that whilst branding is an important part of a company’s identity it cannot be used in such a way that it intimidates competitors. Justice Heery said “Consumers are never presented at the point of sale with a Cadbury product, in purple or not, without the Cadbury name prominently displayed.” He was therefore satisfied that the use of the colour purple by Darrell Lea would not result in purchases of chocolate being misled or deceived.
Cadbury Schweppes have stated that they will be appealing against this decision.
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Lessons from Ketchell
Contact David Stafford at david.stafford@dcstrategy.com
The much written about Ketchell case has highlighted the critical importance of ensuring systems and procedures are not only robust and Code compliant, but that they are executed with absolute consistency. Naturally, a franchisor’s immediate concern should be their franchisee recruitment process. However, the prudent franchisor should use the lessons from Ketchell to drive a robust review of every aspect of the franchised business.
As businesses grow, so too does the need to update processes and procedures. The franchisor’s business is no exception. What was an appropriate and useful process when the network was, say 20 units, may not be appropriate when the network is considerably larger. Processes and systems date quickly, and it is common to find businesses continuing to function in an inappropriate manner simply because “we’ve always done it that way”. This situation is, unfortunately, far too common and indicative of a franchisor who has failed to understand how to scale the business as the network grows.
The result of this failure is not only inefficiency: it goes to the very heart of the franchisor’s responsibilities to its franchisees. Outdated and inappropriate processes and procedures simply do not allow the franchisor to provide the level of support and service to franchisees it should. The results? Usually an increasing rate of franchisee unhappiness, distress and potentially anger.
The real lesson from Ketchell is that systems and procedures matter and need to be reviewed frequently for appropriateness and consistent execution.
For further information about the Ketchell case and its legal implications for your business, contact Marwan Kojok.
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International Growth – Why Bother?
Contact Adrian McFedries at adrian.mcfedries@dcstrategy.com
International growth is an agenda item for board meetings of a growing number of franchise systems. At present, the international revenue for most franchise groups is very low, reflecting their early stage of development, and in many cases, the unsuccessful international results being achieved.
Any successful international growth strategy is a planned and detailed process as groups such as Boost Juice, PoolWerx, Gloria Jeans, Cartridge World, and Pack & Send would attest. In DCS’ opinion, many aspiring international franchisors are not addressing key issues, leading to poor results. These issues include:
- The undercapitalisation of head office
- Adopting a reactive rather than proactive approach
- A lack of development of the international business model
- Preparation of legal documentation based on a transition of Australian legal arrangements rather than the development of an international franchise strategy
- A poor understanding of the target country and region
- Insufficient consideration of the impact on the core business
With Australia representing less than 2% of the world economy the opportunity is obvious. For the uninformed, success in Australia can lead to the assumption that the franchise system is in good shape, a master franchise model is the best strategy, and developing legal agreements is the final key step before finding a person to sign. This is a stereotype that is difficult to break down, with the unfortunate consequence of the loss of potential value and numerous issues being created for another day. Given the opportunity, it only seems fair to develop a foundation for international that is proportional to the opportunity.
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