MIDAS AUSTRALIA FRANCHISING ABUSE
Franchising is an important and valuable industry. This information is not designed to harm franchising; however, it is designed to highlight a worst-case scenario in franchising.
This information demonstrates the ability of corporate greed in Australia to manipulate weak legislation and the failure of government to empower its own agency, the Australian Competition and Consumer Commission, to act against an immoral, unethical and criminal operator.
The franchisees are the victims and while Midas International in the United States operates ethically and supports their franchisees in a healthy business relationship, unfortunately to date, they have not acted on their duty of care as the Master Franchisor to protect the Australians who bought their brand.
The new Midas is a sophisticated system of financially draining existing franchisees and then replacing them with new franchisees that will share a similar fate. Seventy three percent of the network has disappeared in 2 years.
Sophisticated and complex, deliberately so, and while this has been a gradual process it has become an avalanche of personal disasters for franchisees and their families. Available and utilized methods range from created income streams within and outside of Advertising Funds, abuse of Lease agreements, general abuse of the franchisor's powerful position and the arrogant abuse of a legal system that eliminates justice for those that lack sufficient economic resources to properly build a case. They just walk away.
Subtle intimidation and ruthless threat are common and extortion exists, as does the predatory method of operating in competition with existing franchisees.
Philip Bonney, the new Midas Australia franchisor is acutely aware of the difficulties facing any opposition and continues to aggressively remove outspoken franchisees.
Midas began operation in Australia in 1977. In 1999, Midas franchisees continued to enjoy a quality and ethical relationship with their American franchisor. The spirit of franchising was maintained in the true sense where the entire basis of the relationship was one that worked toward growth in standards, services provided, customer numbers and profitability.
It was a win/win relationship. Consultation, support and training were accepted as a core ingredient. Advertising Fund management and charges were never questioned. An experienced team provided quality support and continuous training. Franchisee input was sought and franchisee representative bodies encouraged.
Communication was open and consistent. The interpretations of franchise agreements were accepted as fair and reasonable for all parties. The network of Midas franchisees and the corporate team were a family.
Advertising was generally, but not only, major television promotions three to four times annually. The brand Midas had an achieved and respected public profile and competitors were envious. The members of the Midas family were proud to wear the name.
Throughout these years franchisee turnover generally ranged from one to three annually. While there was the occasional failure, most sold their franchise for the standard reasons such as retirement, and they moved on.
Prior to 2000, Midas made available benchmark figures to ensure franchisees were able to investigate their own stores profit performance. Midas was involved with and assisted franchisees to ensure that profit was maximized. Generally, a franchisee could achieve a ten to fourteen percent net profit depending on fixed costs such a rent. The vast majority of franchisees were making money.
From the late 1980's until 1998 the American franchisor incurred a loss. Midas Australia staffing had become top heavy and the company store program was too large and under-performing. On the whole, standards had stagnated and in many stores they were crumbling. Midas Inc reacted and Michael McTiernan was appointed as the General Manager of Midas Australia.
The company store program was reduced as was middle and senior management staffing levels. Performance expectations were raised across the board and Midas Australia returned a profit to Midas America while store standards turned a positive corner. At this point in time, Midas America was undergoing its own restructure and seeing the opportunity, decided to sell their Australian franchise.
In 2000 Midas Inc sold the Australian master franchise to Philip Bonney. Initially, it was accepted that the new Australian franchisor would need time to gain a broad understanding of the business, the franchisee network and the market potential. The Midas family was patient and awaited the positive changes that would come from the new management team that had replaced many of the experienced senior people. Change was eagerly anticipated.
CONCERNS BECOME COMPLAINTS:
Following the introduction of Goods and Services Tax, Midas representatives individually went to franchisees and induced them into signing amendments to franchise agreements that allowed them to be charged royalty on GST. This was based on the insistence by Midas that the Australian Tax office had given a special ruling that allowed this to occur and that if a franchisee did not sign he would then not be entitled to a rebate.
The Australian Tax office confirmed that the special ruling never existed. Midas lied and Chris Pappas continued the lie until a new Financial Director in 2003 also unwittingly confirmed that it never existed. Between the introduction of GST and early 2004 it is estimated that franchisees have paid in the vicinity of $1.5M over what they should have paid.
By 2001, franchisees had increasingly become concerned at the lack of advertising. Television promotions had disappeared. Monthly advertising statements became difficult to attain. Averages of three millions dollars were going into Advertising Funds and franchisees wanted to know where the money was going.
When franchisees questioned Midas management they either were ignored or were told it was none of your business. Midas refused to explain how tax credits to Advertising Funds were dealt with or where those credited amounts went.
Franchisee meetings became a rarity and when they were held the previous open format was replaced with an information night. The information consisting of what Midas had done or was planning to do. Franchisee input or general discussion was not a part of the agenda. Franchisees became aware through example that to question Midas was to become a target. These meetings became fewer and it became evident that the franchisor did not want to encourage any exchange of concerns between franchisees.
The ongoing failure to advertise had a serious effect on franchisee profitability. Charges to Funds were being questioned but Midas continually isolated franchisees as the only person with a problem. Support and training began to disappear and direct charges to franchisees were on the increase.
The franchise representative body members, the MDA, were individually under attack. Requests for accountability and justification were ignored and persistence led to further isolation of franchisees and then intimidation and outright threat to terminate franchise agreements.
Midas attributed the decline in franchisee profitability to poor store operations and standards while customer numbers dwindled due to the failure to advertise. New charges continued to be introduced.
Preferred Supplier rebates no longer supported advertising funds and the quality of negotiations with suppliers was questioned. Philip Bonney kept the rebates. Generally it was accepted that preferred supplier negotiations had become focused on the size of the rebate to Bonney rather than benefits to the entire network. The perception of franchising group purchasing power had disappeared, as did loyalty to preferred suppliers.
Maintenance of the Midas Information System (MIS) computer software program stopped while charges increased. Supplier provided price information became the only additions to the system. Franchisees questioned the $200,000 annual payment to Midas for MIS maintenance and were either ignored or advised that Bonney lost money on software maintenance and that if further investigation was required it would lead to a further increase to the charge.
Midas Masters, an in-house promotion, was declared to be a training and marketing tool and was therefore another justifiable $200,000 charge to Advertising Funds. The Masters was accepted by franchisees as no more than a promotion to ensure preferred supplier loyalty and thereby ensure an increased level of rebate back to Philip Bonney. It was not supported and yet Advertising Funds were charged for every store even when the franchisee did not participate.
At the 2004 Midas Conference where the presentations were made only two hundred people attended and they were mostly company employees as only thirty-five franchisees and their wives attended.
Philip Bonney has a passion for Australian Football League and so it was decided that Advertising Funds would sponsor the Pick the Score competition to the complete dismay of the majority of franchisees.
The National Operations Manager, Chris Pappas, was to write to Western Australian franchisees stating that the sponsorship deal was only for one season. Three weeks later in an email to the same franchisees he admitted that Midas were committed for three years. It was another lie amongst the many that had been forgotten. There were more to come.
During this period Point of Sale advertising material and production charges increased dramatically. Direct Mail costs all but doubled.
Yellow Pages telephone directory charges were reduced. The advertisements in Yellow Pages were downsized or removed and the premier positions were lost and in doing that, there was no franchisee input into the decision making process. The Yellow Pages cost savings and the failure to advertise generally, began to destroy franchisee profitability.
From 2002 through to 2004 there was definite marketing activity around fleet and credit deals. Franchisees were already suffering a major decline in profit margin and the cost of these types of transactions only further reduced a low margin and often made this business unprofitable.
Remember, this is combined with the declining customer numbers and an increased need to use parts that were only available from the genuine dealer that always carry a very low margin.
2003 saw the introduction of Midas batteries. These were made compulsory through their addition to Midas System Standards. The batteries were Exide batteries and Bonney had struck a deal. All batteries were to be invoiced by Midas to franchisees and while Midas were adamant that there was no mark-up it was later to be found in a Midas response to the ACCC that once again they had lied.
The batteries cost franchisees more than if they had gone direct to Exide. Exide had paid money to Midas to assist with the marketing introduction of the line. It never happened. Midas were making on the profit of the batteries to Franchisees and then getting Royalty when they were sold. It was a compulsory Direct Debit by Midas from the franchisees bank account when the stock was delivered. The margin on batteries was low and Bonney made considerably more profit without any outlay than did the franchisees that did the work, paid upfront and took the risk.
Direct Debit facilities were in place prior to 2000 to ensure the payment of royalties with only some franchisees that usually had come into the Midas program with necessary ability but borderline finances.
Philip Bonney wrote Direct Debits into all Franchise Agreements and then went about to force all franchisees with existing FA's to sign over to a Direct Debit facility. It was now being used for all transactions. The money was taken usually before a franchisee received an invoice and queries about charges were generally ignored or took many months to resolve.
Midas System Standards was always a critical part of Franchise Agreements. These Standards allowed Midas to ensure that legal link to the FA so there was an assurance that Standards of Service and Appearance were maintained. Any addition to System Standards became a legal addition to the contract.
Pre-Bonney any addition went through a consultative process with franchisees. They were often passed, sometimes varied and sometimes dropped. It was accepted by franchisees that the Midas approach to System Standards was fair and reasonable.
Philip Bonney's Midas continually added to System Standards to their own benefit without consultation with Franchisees. Bonney's legal team now interpreted System Standards and Agreements in a very different way to what had occurred before his arrival. It was now a means to solely benefit the franchisor without consideration of any financial hardship caused to the Franchisee.
Advertising Funds were to see the introduction of new charge categories. WEB and Midas Collateral were introduced and franchisees continued to be refused access to invoices that created any category or justified the increased charges. Fronteer Advertising received a $250,000 annual retainer from the Midas Franchisees Advertising Funds while they were not allocated the funds to perform any meaningful advertising.
It is interesting to note that Midas Collateral appeared on Advertising Statements not long after Midas International insisted that Midas Australia immediately remove Car Care System from Midas logo signage throughout Australia. That was not an inexpensive operation as Car Care System also appeared on the expensive pole signs.
Bonney maintained throughout this period that franchisees never requested an audit of the Advertising Fund. There is hard copy evidence and declarations that substantiate that numerous individuals and groups of franchisees continuously made requests.
A complaint was made to the Australian Competition and Consumer Commission regarding the Midas failure to audit Advertising Funds, as it was mandatory under the Franchising Code of Conduct unless 75% of franchisees notified the franchisor that it was not deemed necessary. The ACCC gave Midas a slap on the hand after receiving Midas's lame interpretation of the FCC that 25% or franchisees had not notified Midas that it was necessary.
Midas eventually conducted the audits and PriceWaterhouseCoopers charged them $5,500. Midas then charged the franchisee Advertising Funds between $40,000 and $45,000.
From mid-2000 Philip Bonney's Midas had communicated to franchisees a vision to improve the network's public profile. No real details were available in the early days; however, this vision was to involve a re-image of store appearances and a consistent standard of systems delivery throughout the network.
Eighteen months later it was found in Disclosure Documents that one million dollars had been taken from Advertising Funds to create the re-image concept.
When franchisees were given the opportunity to view the concept there was general concern at the cost to franchisees. Estimates for the re-image of a store ranged from $30,000 to $60,000.
At meetings throughout Australia franchisees who were dealing with a declining customer base and consequential declining profits were assured that no one would be forced to re-image. In fact, Midas Australia's own legal advice was that no one could be forced. The Franchise Agreement stated that no reasonable request could be refused and surely these amounts of money under the circumstance could not be considered reasonable.
Following a generally unsuccessful attempt to sell the concept to suffering franchisees came an intense and ongoing series of store standards inspections that resulted in warnings being issued to franchisees throughout Australia.
The Midas push to re-image had taken a different turn and everywhere bitter franchisees were being given options of re-imaging or being in default of their contract for poor standards. Franchisees everywhere became aware of the phrase three defaults and you are out.
This too was a period where experienced state managers and support staff were replaced with inexperienced staff whose sole attribute appeared to be a preparedness to obey directions without question, compromise or moral consideration.
Midas has ensured complete control over the destiny of franchisees with the insistence that Midas have control over the Head Lease of stores. This allows them to threaten franchisees with a Notice to Vacate in conjunction with a Notice of Termination and this holds frightening consequences for the franchisee that will then usually capitulate.
Gaining access to Head Lease agreements has been an exercise similar to the introduction of GST and to that of re-image and now their expensive new computer software.
Firstly, they isolate and attempt to force the franchisee to capitulate, if that does not work, they then link it to the Franchise Agreement via an introduction to Midas System Standards and then if that continues to meet a challenge, they force it through as a condition of sale once they have the forced the franchisee out of the Midas network.
Midas stores operate with the use of DOS based computer software called the Midas Information System. Clockwork Computing who holds the liscence created this software.
This is the system that by 2004 was severely behind in vehicle-profiled parts as Midas had charged and continually increased the charges to Franchisees for maintenance but had only performed minimal upgrades. Clockwork had developed a new Windows based version and approached Midas for a commitment but was ignored.
Midas decided that the system was behind the times and set about to introduce a new software system into the network of Midas Franchise stores. They claimed that they had canvassed a number of companies, including Clockwork, and had decided on the Mi-System. They were never to provide details of those tenders and Clockwork denied they had received an opportunity to tender.
Franchisees became extremely concerned when, as usual, Midas began to drip feed information to them but the details were suggesting this would be another expensive introduction. It was to be a potential outlay in excess of $10,000 per store with maintenance costs to soar by an estimated three hundred percent.
Franchisees made it clear that they did not want it and they expressed suspicions that this was to be yet another income stream for Bonney. Bonney insisted and began to authorize the sale of a franchise only when the system was in place or after the purchaser signed a commitment to introduce it.
Franchisees independently organized a demonstration of the new Clockwork program and were impressed. They were also impressed that it would involve no capital outlay and would save approximately $400 per month in maintenance costs.
Franchisees gained legal advise that they must declare their rejection formally in writing and they did. This situation has not been resolved as both Bonney and Franchisees refuse to budge.
In early 2004 Midas acquired nineteen Super Cheap automotive workshops for an undisclosed sum. They were to be transformed into Midas stores. Many of these were virtually next door to, or across the road from, existing franchisees.
When franchisees complained they were offered the opportunity to purchase the offending store. Franchisees who were already suffering financially now had a new competitor, Philip Bonney.
His stores did not contribute to the Advertising Fund or the cost of the 13 Midas free-call number but they shared the phone inquiry and what little benefit that was coming from Funds.
The typical experience of an existing Midas franchisee when in proximity to one of Bonney's Super Cheap purchases, and there were a number of these situations, can best be exampled by Midas Dandenong.
Here the new site was twenty meters (60 feet) from the existing franchisee. After three months of operating side by side the franchisee was given three options by Midas Australia.
Option 1: Purchase Midas next door at a price exceeding 100k and move into that shop.(Midas still had a five-year lease).
Option 2: Continue to compete with Midas next door.
Option 3: Vacate the premises and leave Midas.
The franchisee at Dandenong was given 24 hours to decide. Disclosure Documents were requested but Midas were evasive. Eight days later the franchisee received a fax titled Vacate the Premises and they did.
Previous to 2004 Midas had vigorously resisted the creation of a Franchisee Representative Body. Midas had successfully undermined the previous MDA. Intimidation of delegates and a consistent refusal to acknowledge the body saw it self-destruct.
Following franchisees joining the Australian Franchisees Association and complaints to the ACCC, Bonney then decided to form his own Midas Franchisee Council. The voting for state delegates was via the Mi-System computer software that had been rejected and only franchisees that had not stated they wanted to sell were allowed to vote. It was a farce and a puppit Council had been achieved.
Franchisees made requests of their MFC delegates for the first meeting with the franchisor and, with few exceptions, received no feedback. For the second meeting they were not given even that opportunity.
The MFC was proving to be as lacking in significance as the previous Marketing Committee who accepted they had been created to rubber stamp previously made Midas decisions and offer an appearance of good franchising to an inquisitive Australian Competition and Consumer Commission.
What could not be explained in the early days of Bonney is why? Why not build the business and ensure the growth of franchisees and have a successful consistent royalty stream. The failure to advertise, increased charges, intimidation, general contempt for franchisees and a determination to ensure franchisees became insolvent. Why?
Answer: Churning and the associated techniques are considerably more profitable. An agreed estimate suggests that Churning produces something in the vicinity of five times more profit for the franchisor.
Churning is the art of turning over franchisees after they have been financially drained. An investigation of Midas Australia will reveal a pattern of designing a system that intentionally sends a franchisee into insolvency. The franchisor maintains and attempts to convince the poor franchisee it was his own fault, and then offers to save the day by buying or re-selling the franchise.
Bonney can make as much as $200,000 on the buy back. In this process many innocent franchise purchasers loose their entire life savings, their retirement money, and even their homes that they mortgaged to try to keep their business going.
There are many tragic stories of bankruptcy and broken homes because the marital partners could not stand the strain created by this franchise system. Depression and health problems usually follow.
The franchisor ensures that the following prospect is suitably qualified to enter the program. Suitably qualified meaning they have enough money to be a worthwhile target. Through this entire process the royalty stream and every other income stream is maintained.
Churning is extremely profitable. Consider that over sixty percent of franchisees have been in the Midas program for less than three years. Consider that it is estimated that at least seventy-three percent of franchisees have been turned over in just two and a half years.
One of the associated effects to the Midas network relates to the effect that churning has had on Suppliers. Midas credibility has been lost with many suppliers as often, while Bonney profits, the supplier is left with the debt after a franchisee becomes insolvent.
Suppliers have become less than confident when dealing with Midas franchisees and often monitor the performance of a Midas customer.
Following Bonney's purchase of Midas Australia, franchisees have seen a steady flow of senior management and support staff come and go. National Marketing Managers have averaged one year with Midas. They, after all, have been at the forefront of Advertising Fund complaints and franchisees believe that they escape to protect themselves from any legal repercussion.
There is not one senior management person or state manager remaining employed by Midas Australia today that was employed in the first roll out of the new Bonney team in 2000. The majority of positions have been filled a number of times in four years and resignations abound in the history of Philip Bonney's Midas.
The total of experience of all senior management and state managers today equates to less than that of any individual pre-Bonney.
Figures produced by Midas Australia show that the average net profit on a franchise in 2002 was just $5,227. So how do you sell a franchise on this basis? The official Philip Bonney web site suggests that the average net profit for an Australian Midas is $82,000.
2003 saw Philip Bonney move into his new home at exclusive Toorak in Melbourne. The rumored cost of his abode was between $3M and $6M.
In 2004 we have seen an increase in open hostilities and a coming together of franchisees although there is an inherent difficulty as we continue to see massive franchisee turnover.
With new franchisees unknowingly joining the network they are naturally quiet as they become educated and then experience the actual Midas system as opposed to what they were promised. Warnings, Notices, Breaches' and Terminations keep the Midas solicitors busy.
Following what appears to be a fleeting involvement by the ACCC and Midas International and the unprecedented involvement of the media, namely Peter Switzer in The Australian and Paul Barry on the Nine network's A Current Affair, Midas have developed an appearance of a change in direction.
Previously sought after advertising has been promised and there have been assurances of better relationships between franchisees and the franchisor. Support has been promised. Franchisees have no long-term confidence that this will last longer than any investigation.
Philip Bonny is acutely aware that franchisees are now talking Class Action to gain compensation for massive financial losses and the sad effects on the health of many that the stress of being a Midas franchisee has caused.
Existing franchisees want compensation for the lost value of their business and the lost revenue that Midas is clearly responsible for. Past franchisees want compensation for everything they have lost, including the hard work of years that was taken from them and in some cases the terrible effects that Midas franchising has had on marriages.
It is envisaged that senior Midas management, past and present will be included as respondents. Midas International must act on their duty of care to avoid their inclusion.
Most of the more blatant lies By Philip Bonney's Midas Australia have been directed at franchisees; however, Midas International and the ACCC have also been on the receiving end.
Both the ACCC and Midas International were assured that the complaints were from only one poor operator that typically wanted to blame someone else for his own failings. Then they were assured that there were only three, and then, a mere handful.
The ACCC and Midas International accepted all of these numbers even though there was a definite trend upward that seemingly went unnoticed. Now Midas International may have been slow on the up take but the ACCC were receiving complaints from many more than a mere handful and have no excuse for accepting the lie.
The ACCC were told by Midas Australia that the reason they had trouble with Advertising Fund auditing was that Midas International had left the fund in disarray when Bonney purchased Midas Australia. KPMG are on record as stating that the previous franchisor had immaculately maintained what was then a simple process of accurately managing the Funds. And yet the ACCC did not ask anyone, they just accepted the lie.
Franchisees sent to the ACCC hard copy from Midas to Franchisees that contradicted the information that Midas provided to the ACCC in relation to Midas Batteries and yet the ACCC have not acted against a deliberate lie to the Commission.
The stupid lies to franchisees that have been found out or contradicted by Midas are literally in the hundreds and too many to repeat but one example is the recent meeting in Brisbane where franchisees were informed by Chris Pappas, National Operations Manager and chief bully, that they would be contravening a Federal Court Order if they communicated with Ray Borradale.
Another good one was when franchisees were told that Advertising Funds were audited monthly or how about the special ruling from the ATO that never existed and that allowed Midas to charge royalty on GST.
Now the Midas Battery lies were an insult to franchisees where Midas maintained they were not marking up the cost of Batteries and that the Batteries were actually superior to Exide's standard range. What about the one where Bonney told franchisees that he could not advertise to the level of the previous franchisor because Midas USA paid for the advertising. That was a good one. To list all the lies would add fifty pages at least to this information so we leave it there.
A Mere Handful of Examples of Midas Franchising:
(It should be noted that the following experiences are severely abbreviated.)
Ron & Lala came to Australia from Indonesia and borrowed from his mother to purchase Midas Bayswater in December 2002. Due to his complete lack of industry and customer service experience he was unable to gain normal finance. He purchased the store on the basis of projected figures supplied by Midas and a reassurance that he would receive adequate training and support.
Midas would not provide the actual profit and loss figures for the three years prior. It was later discovered that the projected figures supplied had no foundation. They had never been achieved and there was no sales trend to indicate they were achievable.
Ron Utoyo's training was inadequate and he received minimal support. He was failing quickly and when an office support person was sent to the store and reported that he never had a chance, he knows nothing, she was told that it was not her concern.
The official statement of Ron Utoyo contains a long list of unusual actions taken by representatives of Midas and he was in continual difficulty operating the computer, partly because of ineffective training and partly due to acknowledged problems with the program.
In February 2003, just ten weeks after he had entered the Midas program, he received his first Notice of Breach from Midas. In May 2003 Ron Utoyo received a visit from Chris Pappas, National Operations Manager. Pappas was screaming and threatening to cancel the Franchise Agreement, have Ron Utoyo jailed and/or deported over an invoice problem that Midas stated was a deliberate attempt to avoid royalty.
To avoid this he was given the option of paying a $20,000 penalty, which was later reduced to $10,000. When Pappas returned to Philip Bonney his statement was we got the little geek. They then had a celebratory drink. The invoice problem that Ron Utoyo had was a recognized problem and experts attest that they would have expected Ron to fail to understand how to rectify the situation.
The State Manager, who was a witness to the entire incident, resigned and has agreed to testify to these facts in any Court.
During the time Ron Utoyo has been in the Midas program he encountered continual intimidation and questionable charges without consultation and with a refusal by Midas to discuss or justify those charges.
Ron Utoyo was on the verge of insolvency and expected to fail any day. He would loose his business, his home and the money loaned to him by his mother. When Ron had the opportunity to salvage some money through the sale of the business, Midas insisted that they would not authorize the sale unless he signed an agreement that removed his right to any action against Midas while leaving Midas the option to pursue him. He refused initially but eventually was forced to sell his business at a considerable loss. Ron Utoyo was set up from the beginning and the actions taken by Midas were designed to drain him quickly.
Chris & Rebecca May:
Rebecca and I have three children aged 5, 10 and 11. I purchased Midas Mona Vale in June 2003. I had no background in either small business or the automotive industry but was assured that the training Midas would provide (then $6,600, now $15,000), and the support I would be given would assure me of success. The reason I bought a franchise was because I knew I would need training and support.
After I had signed the Franchise Agreement I was advised that the agent had overlooked the CPI increase and that now my rent was to be considerably more than I had been planning on. I tried to talk to the agent who hurriedly said that Midas had accepted the increase and I should talk to them.
I then talked to a lady at Midas who said they had apparently been unsuccessful in negotiations with the landlord. I emailed Chris Pappas as this was just not an acceptable way to start a business and they were the people that held the head lease but he does not negotiate.
No sooner had I moved in and sales plummeted. The reasons for this, I now believe, were many, and whilst I may be uncertain as to the real cause, I am certain that Midas have no idea at all, because they have never taken the slightest interest. And in fact when I did go to them for help and advice with marketing, support was deliberately blocked.
Add to the worry of trying to run a newly acquired business that was running at a loss, what seemed to me to be an orchestrated conspiracy to remove me from the store, and you would have to wonder what the benefits of owning a Midas franchise were. Within three months of taking over I had received my first Notice of Termination and this was before the Lease issue could be resolved.
Bear in mind that this Notice of Termination would mean I would lose everything I had invested, and possibly more, my home. At the time I was never given a reason for the Notice unbelievable though that may sound. As far as I understood it, it was because sales were down and Midas believed I was taking money that I did not declare. They then claimed the shortfall in the royalties based on the previous year's figures.
Later I was to find out that the Notice of Termination was in fact, based on a complaint by a customer who had claimed to have not received an invoice for a cash job. Just prior to this matter reaching Mediation, some six months later, Midas was then claiming a penalty of more than $20,000.
I had given the customer an invoice, and had Midas taken the trouble to ask me, I could have reprinted it from the computer; or, in fact they could have printed it out themselves because complete sales data was transmitted daily from Midas Mona Vale to Midas Head Office. Why did they not bother to ask?
At Mediation, when it became clear who the customer was, although Midas did not volunteer the name until I deduced who it was, I then realised what the true circumstances were. Midas had sent in a Private Investigator to entrap me.
During mediation Midas dropped the claim. At mediation Midas agreed to help me but apart from one short visit by their state manager, I have not seen any help only an escalation of intimidation and threat from their lawyers.
The above is one incident. The whole sordid story could fill volumes. The business continues to lose money every week and all Midas say is that it is my own fault. They have continuously ignored my pleas for advertising even though I was paying into an advertising fund. The effect of the stress on my health, and that of my wife and family, has been enormous.
After about six months I became aware that most franchisees were not making money and that many were becoming vocal in their complaints about Midas. Almost everyone except new franchisees were complaining about the lack of advertising and the many existing, and continuously introduced, Midas charges.
It also appeared that many were too afraid to say anything but I decided that I had nothing to lose as Midas obviously intended to destroy my family and me. I was also to become aware that there were amongst the Midas franchisees the favored few. The franchisee at Midas Pymble did let it slip that he did get advertising from the advertising fund but when questioned, Midas denied it.
My franchise agreement has now been terminated and I have been given until the 31st of August to vacate the franchise. I had been a Midas franchisee for a little more than one year and this experience has been hell and it seems that my family and I will continue to pay a devastating price for many years to come.
Will we recover? At my age it will be a terribly difficult thing to achieve. I cannot understand how they can be allowed to get away with what must be a fraud when it does to even closely resemble the accepted reasons that people buy into a franchise.
Midas continue to send me weekly invoices for royalty that are almost double what they should be but as I have been terminated I stopped sending them sales figures. I do not understand how and why they calculate these royalty figures.
Note: The day before Chris Pappas delivered the Notice of Termination to Chris May at Mona Vale he gave an ultimatum to the franchisees at Sydney's Fairfield and Blacktown Midas stores. They were given sixty days to re-image or sell or they would receive a Notice of Termination, and in one case, or we will come in and takeover.
Tony Lazzaro purchased the expensive Midas Indooroopilly store in 2001. After his induction training the trainer, Ray Borradale, and the State Manager, Steve Downing, agreed that he should not be authorised to purchase that store and recommended another, Strathpine.
Indooroopilly had one of the highest customer flows in Australia, the store design made it an extremely difficult store for an inexperienced operator and the rent was very high. Tony had no experience but he had money. The trainer and the State Manager voiced their concern that Tony would certainly fail. It was felt that Midas had an obligation to steer him to a less difficult store. They would not. The following is his story.
Issues with Midas first became apparent during the initial purchase of the Midas at Indooroopilly. At that time I was told that I would need to employ a manager of their choosing if I wanted the purchase of the Indooroopilly store to go through, I was surprised but understood their reason for doing this as they had suggested that I was not sufficiently competent to run the store without a good manager.
Shortly after the purchase of Indooroopilly the rent went up approximately 18% I was aware that the rent would increase but had no idea that it would go up this much. After a number of negotiations between the landlord, Midas and myself the rent went to approximately $10300.00, per month, this increase was back dated several months and I found myself paying approximately $14000.00, in back rent and GST.
I attempted to run the shop for a number of months but found that I was consistently having insufficient turnover to pay creditors etc. At this point the then state manager Steve Downing suggested that I needed to move from these premises and go to a sight with lower rent, this would mean that the turnover I was averaging would be sufficient to pay all outgoings and perhaps allow a small margin of profit for myself.
After a short time of searching a premises was found approximately 500 meters north of the present location and after seeking approval from Midas, Steve and myself commenced negotiation with the land lord with a view to getting out of the this lease and into the new one, a number of correspondence had been traveling between Midas and myself and I was led to believe that if the sight was usable and met required criteria I would be allowed to move.
I sent a number of emails to Chris PAPPAS and was told that if the landlord of the old lease agreed to release me from the current lease and if we found premises, which were approved, I could move sights. Steve DOWNING inspected the sight and he was of the opinion that it was a good sight.
Things progressed to the point that the current landlord had found someone to take over the lease and he was ready to move in, this was also one of the required criteria. The landlord of the premises to which I intended to move had agreed to a number do conditions including helping with some re-imaging of the shop and free rent for six months.
At about this time Steve Downing resigned from Midas and a new state manager (Matthew WOTTON) took over his position. I was ready to move and sought final approval from Midas. Chris PAPPAS then informed me that I could not move regardless of the new sight etc and that the whole affair had been an exercise and they had no intention of letting me move as it would generate a loss of revenue on there part.
At no point did they tell me it was an excise everybody apart from Midas it seems was treating it as the real thing and the wheels were set in motion to complete the move to the point that I received complaints from the management and staff of the rental block, for having wasted there time they were not told by Midas it was an exercise at any point.
When I tried to appeal this decision to Wotton I was told that I should try to increase my turnover and if I couldn't hack it I should maybe look at doing something else or selling the business. He said that it was his job to ensure that this business was profitable for Midas and he would do his job regardless of whom he brought down.
Midas was aware of the financial hardship I was under and they had been made aware that I was loosing about $6000.00 per month, I had by this time also purchased Midas Strathpine (it was my hope to get myself out of trouble by having a second income stream), I was able to sustain Midas Indooroopilly for a number of months by raping Midas Strathpine to pay wages and bills for Indooroopilly.
At this time I suffered from heart complications and ended up in hospital for a time. Once I was out of hospital Midas commenced to pressure me to re-image both shops, the cost for Indooroopilly was $31000.00+ and the cost for Strathpine was $51000.00+. It was obvious I did not have the money to commence the re-image on either shop at this time.
Shortly after I came out of hospital and had began to work again I found myself in a situation of not being able to pay rent for Indooroopilly, the only way I could pay rent was by not paying wages and GST at either shop and allowing Midas to take the rent as everything is direct debit.
I spoke to Matthew Wotton about the situation I found myself in and asked if I could defer rent payment for one week, Matthew said he could not make that decision and would ask Chris Pappas. Wotton then informed me that the rent would come out at midnight on the first of the month as always and that it was not negotiable, the reason for this was that if I did not pay now I probably never would, (at this time I had a $25000+ rental guarantee in place in favour of Midas), which they had access to.
I told Matthew that the only way I could pay the rent was by not paying wages and GST, I also out lined the amount of debt I was in because of the rental situation and the monthly losses at Indooroopilly, his reply was to tell me that it was not there problem and he was not concerned about my hardships.
He further said that I had created my own problems by not planning sufficiently to cover losses and not having contingency plan in. I told him that if they had let me move I would be in a different situation, he said don't blame me for your inability to run a business, you knew what the rent was before you purchased the business, the rent will come out as usual.
Shortly after this I again approached Wotton and told him that I was considering closing the doors at Indooroopilly as I was losing to much money and could not sell the business because of bad figures, he said if you shut the doors we will sue for any loss of revenue, costs of re-training a new owner and any other costs that we incur due to you walking away.
I felt completely trapped at this stage and Midas offered no help. Only criticism and why I wasn't making enough money. The reality was that I was unwell and could not run the business myself, most days I was lucky if I got out of bed. I could not spend any time in the business and relied on managers. He new of my health problems and did not care in the slightest. I then offered the business to Midas for the cost of goods and machinery but they declined.
I then received notification that according to my contract I was required to re-image within a certain amount of time, (approximately 3 months) from the date of their notification to me.
I told Midas that the reason I had not re-imaged was because of lack of finance and no other reason. The reply from Midas was that if I did not do the re-image within the set time they would re-image the premises and direct debit the amount of the re-image from my bank account. If I didn't re-image I was also liable to be breached and lose the business.
At this time I told them to do there worst as they couldn't do anymore harm to me, I then spoke to Pappas who then said that I could have to the end of the year to re-image as long as I gave them an assurance in writing that I would do this.
I purchased Midas Indooroopilly in September 2001 for $265000 and sold it in December 2003 for $50000 I incurred a loss of $260000+ in real money. It is my understanding (rumor only) that the new owner had to buy a company store (Ashgrove) as well in order to be allowed to purchase Indooroopilly.
If this is true then again Midas showed a total lack of interest in my situation and only viewed the dollar. I sold Indooroopilly at such a loss as no one would by it based on the figures that I provided.
In December 2003 I completed the re-image of Midas Strathpine at a cost of $50000+, I could not afford to do this but feared the loss of my business based on the threats and intimidation dealt out by Midas in the past. I still owe approximately $27000.00 on this re-image and Midas took its last payment out today overdrawing my bank account by $4000.00.
This is the 2nd time that my account has been over drawn since re-image and I have been unable to pay wages on two occasion because of direct debits relating to re-image. I had to plead to Midas to split their share of direct debt payments $27000+ over a period of three months, still have not paid anything of the other money to other contractors. I have increased turnover at Strathpine by approximately 25% since I purchased it in July 2002 and I know the system works.
There are of cause a number of other issues, these include being forced to purchase Midas branded products from Midas and then paying royalties on the sales of these products. I could get these products cheaper elsewhere. Being forced to participate in credit card deals that cost approximately 1.5% of sales on participating credit cards with no profit to me but a profit to Midas.
Paying royalties on gross turnover including GST, which of course is unlawful, and then paying GST on the royalty. Then the ever-increasing list of costs direct debited out of my bank account by Midas.
I know I am not alone in these problems with Midas, others will I hope come forward and tell there stories, I know several others with similar problems to mine, a lot fear reprisal so say nothing, I have nothing left to lose. All I want is a fair go for everybody and the fair access to and use of a franchise system that works well, without bulling and greed.
Tony Lazzaro continues to operate the Strathpine franchise and earn a meager wage. He continues to make payments to Midas following a loss in excess of $350,000 and his treatment by Midas has barely improved.
Matthew & Sharon Crossan:
My name is Matthew Crossan and I am married to Sharon and we have two children. My background was that of an automotive service adviser for seven years. As I had no background in running a small business, I purchased Midas Thornleigh on the 22/07/01 thinking that the backup of a major after market repairer would fill in the gaps.
The first year was pretty smooth and at the end of the year we did show a small profit even after the rent was increased by 12 % as soon as Midas Thornleigh ceased being a company store. We were not warned of the rent increase but now know that this was quite common.
As things were ticking over quite nicely I put on more staff to "cope" with the expected increase in business. At the same time I started discussions with Midas management in regards to buying into Pymble that in the end after looking at the figures we (my wife and I) decided that it was a bad proposition as the rent was automatically increased over time and at year 3 it would be almost impossible to fund.
Midas let me know they were not happy with our decision. I also began to ask questions as to where the funds I was paying for advertising was going as I was not receiving any benefit from them.
The typical responses that I received were:
1. You are the only person complaining in the whole of the country.
2. You are at fault; you have the worst customer retention/ complaints against you in the country.
After speaking with numerous franchisees around the country I began to see a pattern developing, as they were complaining about the same things and got the same answers. I then began a bid to get the "benchmark" figures for Sydney so that I could compare our figures with the average.
After about 12 months I had the operations manager ring me at about 6pm telling me that he would fax them to me the following morning and that the auditors would be arriving at 8.30am to go though my paperwork. When questioned if that was my punishment for receiving the paperwork I was told that it was a coincidence. The figures showed that the national average net pprofit was $5,227 in 2002.
Since then I have been reasonably quiet in my complaints to Midas preferring to work with the ACCC, ATO, AFA, the Banking Ombudsman, Dept of fair Trading, Race Relations Council and others, to get some sense into the situation and find out what happened to my $100,000 that I have paid into advertising since being here.
To make matters worse, senior management have taken up the custom of giving n**i salutes to the franchisees at meetings, which I find absolutely disgusting. I did complain to the head franchisor on this matter, only to have a reply by his operations manager saying that it was only a "joke'.
I do not find this funny. I also asked for a reassurance that no money I have paid into Midas Australia is being used to support any illegal activity but so far have not received any reassurances at all.
This is only a brief account of my time with Midas but it seems to me that all the franchise stories are very similar.
Complaints about where advertising funds have gone, complaints of intimidation, complaints about no communication from Midas, complaints about having no say in anything, complaints about rent management by Midas, complaints about being forced to be involved in their projects for their profit when the franchisee just can't afford it and all the increased and new charges that just keep coming. There just isn't any real profit in a Midas franchise, just a lot of trouble with Midas
Ray & Cheryl Borradale:
Cher and I have four adult children and nine grand children. I have been in the industry for twenty-seven years in many sales and management roles. I joined Midas in 1988 as a company store manager and soon became a trouble shooter for poor performing stores.
I then became a company store area manager and then became involved in training and developing local marketing initiatives. Throughout this time I worked on store profitability and benchmarks to assist managers and franchisees. I had developed a reputation for committing to a job and being committed to the Midas system, standards and new initiatives.
My wife and I purchased Midas Townsville in 1998. This meant selling our home to fund the purchase and moving 1,400 kilometers. The store was poorly performed but we soon developed a sales and customer growth trend that in 2000, combined with our standards of operation, saw us win the Store of the Year at the Queensland conference. We, and the bank, purchased our home in 2000, the year Philip Bonney bought Midas Australia.
In 2001, my wife and I separated for a short time and I worked for a short time with Philip Bonney's Midas Australia overseeing the company store program in Queensland, performing induction training and assisting the state manager, Steve Downing. Midas had lost the majority of experienced management staff and the focus was now on Midas Australia profit and assistance to franchisees was not desirable.
After listening into or being involved in weekly phone link ups between state managers and Midas head office for six months, I commented to Steve Downing that not once had the topic of franchisee profit been discussed. Moreover, the only discussion about franchisees was when they had to deal with franchisee complaints. I resigned and my wife and I had reconciled. Steve Downing was to resign ten months later.
When I returned to Townsville I found the Advertising Fund was in the red for the first time and investigated and this led me to question Midas marketing as to how the fund was now approximately $7,000 is arrears. It had never been and this was not allowed to happen. You did not receive authorization to advertise if you could not pay for it. They came up with two versions of explanations, both of which were incorrect.
This raised further concerns, as I knew and they should have been able to tell me, where they money had gone. They then, after months of questions, being ignored and a refusal to supply statements, returned $7,000 exactly, without explanation. This raised more concerns and even though it took the fund back to a zero balance, still no advertising could be done and sales were in decline.
I should explain here that Midas Townsville is a regional store and that as such, had a single store Advertising Fund. After years of being involved with multiple store, metropolitan Advertising Funds it was very easy to manage and to understand a single store Advertising Fund.
I then began to investigate all costs to our Advertising Fund and this again raised more concerns; example, software maintenance (my specialty) had virtually ceased and yet the charges had been increased. I questioned Midas and again was ignored or told that I was the only franchisee that had perceived complaints.
I was told that I should re-image the shop at a cost of $50,000 and with that I would see a return to customer and profit growth. This was not affordable and when I explained that Philip Bonney had told franchisees based on his own legal advise, that no franchisee would be forced to re-image, I was informed that it would be a part of system standards and every store must re-image. Apparently, once again, I was the only franchisee complaining.
I then randomly selected a franchisee from every state and phoned them and asked if they had any complaints in their state.
Without exception, everyone that I called repeated the concerns I had voiced and relayed stories of intimidation, formal requests for explanations of charges, complaints about paying royalty on tax held in trust for the Tax Office, a trend of declining customer numbers and profit, large turnover of franchisees and support staff, being forced to re-image and formal requests for an audit of Advertising Funds, and more. All of which had been ignored.
I contacted the Australian Consumer and Competition Commission who explained that a process was in place and that I could issue a formal notice of dispute to Philip Bonney and that would lead to mediation that had a high success rate. I did as advised only to receive a threatening phone call from Philip Bonney and a bring it on response.
I was later to be told that two other franchisees at two separate franchisee meetings in other states had received the same bring it on from philip Bonney. I advised the ACCC of Bonney's response and that obviously mediation would be a waste of time and that I wanted to make a formal complaint. I gathered over three hundred pages of information from franchisees around Australia and submitted the complaint.
During this period I was to receive a visit from Philip Bonney and Chris Pappas. Clearly it was to intimidate me and when it was obvious that I would no be threatened or fobbed off, Philip Bonney said to me; if I fix your problems, will all this go away. I explained to him that this was a problem for all franchisees and it needed to be resolved for all franchisees. They were to leave with promises of investigating my complaints. That was the last time that Bonney or Pappas contacted me directly and nothing was done.
After months of waiting the ACCC eventually came back and recommended mediation again. It appeared that they could not have even read the submission as if they had they would have realised the seriousness of the complaints that clearly were in breach of the Franchising Code of Conduct, the number of people complaining and the aggressive attitude of Midas.
Midas then began to target my wife as a way to break my resolve. My wife had been a Midas wife for a long time and could see that our situation offered two choices. One was to passively accept what was happening and be pushed out, loosing money and throwing away the effort we had dedicated to the Midas system, or the other was to challenge what we saw as obvious criminal acts as we were gullible enough to believe that surely we would find a quick remedy in government or law agencies.
You have to understand that this was a gradually developing situation throughout Australia and franchisees did not then understand the enormity of where it was going. After years of good franchising this was completely foreign and Franchisees did not have the funds or the legal team that Midas had and everyone had their whole life on the line. It was almost like, surely everything will come good.
The ACCC did eventually force Midas to audit Advertising Funds but franchisees did not understand that an audit would only sample the accuracy of the process of invoice handling, not investigate the actual creation or content of the invoices and this was the issue.
Franchisees continued to disappear and more and more they were replaced. Some lost everything and many sold for whatever they could get and ran. By early 2004 there were only eleven franchisees with five or more years experience and most of those were trying to get out.
A fellow franchisee contacted me and told me about the Australian Franchisees Association and so I sent them an email asking for help. Finally we seemed to have a body that could co-ordinate and bring together franchisees and deliver a professional complaint to the ACCC that surely must gain an investigation.
I began to email franchisees around Australia and tell them they were not alone in their complaints. I relayed information and complaints that I received almost daily to everyone. Midas was becoming more aggressive with franchisees and the seriousness of the complaints was worsening. T
here were charges of extortion and misrepresentation of profitability to entice new franchisees amongst them. I responded to Philip Bonney's two responses to the network and outlined the lies and the omissions. He could not respond to either of my responses as I had the facts and he could not defend his lies.
I began to receive a deluge of Warnings and Notices from Midas solicitors. I contacted Midas International for help and was originally ignored until I contacted the IMDA. I involved the media and set about attempting to get politicians to force the ACCC to act. We continue to wait for someone, Midas International, the politicians, the ACCC, anyone to do something while at least two other franchisees are about to loose everything.
Midas terminated our Franchise Agreement in May 2004 and are claiming unspecified damages. We have lost our home and stock portfolio and we are just about to loose everything else as we cannot defend an expensive legal action. I am sleeping on the floor of the workshop awaiting the Court's award and my wife is living with our daughter. She has been under a doctor's care and has been on medication for serious depression for months.
Note: The day after Ray and Cher Borradale had received their Notice of immediate termination, another Queensland franchisee received a screaming threat to terminate his Agreement as well if he did not come up with the funds to re-image. Midas management was feeling good and they felt empowered.
Adelaide had ten shops until Philip Bonney bought the Super Cheap shops. Out of those ten, all have been put on the market in the last two years and more than half have sold. Franchisee meetings were stopped in early 2003 so existing franchisees had little opportunity to meet new owners.
Clovelly Park has been sold twice in the last two years, Port Adelaide shop was sold in early 2004, Morphetvale was sold, Glenelg was sold, Magill was taken back by Midas, Elizabeth was given a Notice to Vacate and he disappeared, Salisbury was sold and then Prospect was sold.
Norwood and Flinders Park have been on the market for a long time. After long periods on the market, most of these stores had their prices reduced to anything they could get as the franchisees just wanted to escape.
Two South Australian franchisees, on two separate occasions at franchisee meetings were to be threatened by Philip Bonney's statement of bring it on. Existing stores such as Elizabeth had Bonney's Super Cheap/Midas stores open only two blocks away.
Franchisees lost trust in Midas and none speak well of their experience with Bonney. Re-image only went ahead in South Australia as part of conditions of sale/purchase as existing franchisees had no trust in Philip Bonney's Midas. South Australia, like Western Australia and Victoria experienced consistent turnover of inexperienced state managers and this added to the frustration of franchisees.
South Australia has been the quiet state in relation to problems expressed by franchisees but not because they had none, but because Chris Pappas and Philip Bonney performed well in threatening and intimidating unhappy franchisees and these franchisees did not want to jeopardize any possible chance to sell their shops and run.
South Australian Midas franchisees, as is the case with some individual franchisees in every state, did not want their individual stories published.
This highlights one of the inherent problems typically faced by any franchisee group anywhere in the world when that group is in serious dispute with a franchisor that operates a system designed to profit from the turnover and financial destruction of franchisees. Existing franchisees are threatened and those that have sold prefer to leave the disaster behind and get on with their lives.
Unfortunately, this opens the door for others to unwittingly follow into the same disastrous experience and they then suffer a similar fate and nothing changes. Historically, t