The 40 employees of KFC Rockingham will be relocated throughout the remaining 49 stores owned by Competitive Foods Australia Pty Ltd, as the store closes tomorrow due to a licencing dispute.
The 40 employees of KFC Rockingham will be relocated throughout the remaining 49 stores owned by Competitive Foods Australia Pty Ltd, as the store closes tomorrow due to a licencing dispute.
According to WA-based Competitive Foods Australia Pty Ltd, the closure is the first round in what is shaping up as a major battle between it and the giant US fast food operator, Yum Restaurants International, which owns the rights to the KFC brand.
Aside from operating Australia's 300 Hungry Jacks stores, Competitive Foods is the sole operator of Western Australia's 46 KFC outlets, as well as another four in the Northern Territory.
According to Competitve chief executive Jack Cowin, Yum, which already operates several KFC stoes in the eastern states, chose not to grant the franchise licence renewal for the Rockingham store in order to apply financial pressure to Mr Cowin's company.
"They simply haven't been prepared to listen to commonsense. On one hand Yum have said they wanted to take over the Rockingham store, which has been highly successful, at zero cost. But on the other, they weren't prepared to extend the agreement to even allow negotiations to occur."
"We will not bow to commercial pressure from Yum to sell our KFC network at a discount to its commercial value in the market," Mr Cowin said.
All of Competitive's stores have individual franchise agreements that are due to expire progressively over the next twenty years unless Yum agrees to renew them. The next CFAL franchise agreements potentially affected by this strategy do not occur until late 2008.
The full text of a Competitive announcement is pasted below
Residents of the coastal town of Rockingham, south of Perth, will be without their regular KFC from tomorrow after the American food giant forced its longest serving Australian operator to close the store after 30 years in operation.
The closure is the first round in what is shaping up as a major battle between the Australian company, Competitive Foods Australia Pty Limited, and the giant US fast food operator, Yum Restaurants International.
As of midnight tonight (Sunday November 18) the Rockingham KFC store, about 35 minutes south of Perth, will stop trading because of a decision by Yum Restaurants International not to grant a franchise license renewal for the store.
The US company is using its power not to renew the Rockingham license as part of a bid to takeover CFAL's Western Australian and Northern Territory franchises, which CFAL has operated for nearly 40 years. Yum already operates a large number of KFC stores in the eastern states.
Competitive Foods Australia Pty Limited Chairman and CEO, Mr. Jack Cowin, said CFAL had no choice but to close the store and relocate the 40 staff to other stores throughout CFAL's remaining 49 KFC stores in Western Australia and the Northern Territory.
"We will not bow to commercial pressure from Yum to sell our KFC network at a discount to its commercial value in the market," Mr. Cowin said. "This strategy is trying to take advantage of a void in Australian law that allows this kind of behavior, which, ironically, is outlawed in many parts of the United States."
"At the end of the day, Competitive Foods is not going to simply give up a business that we started from scratch and have successfully operated for 30 years; if necessary, we will be exploring other options to protect our interests."
Mr. Cowin said that CFAL would ensure that all affected staff would be offered employment in other locations.
All of CFAL's stores have individual franchise agreements that are due to expire progressively over the next twenty years unless Yum agrees to renew them. The next CFAL franchise agreements potentially affected by this strategy do not occur until late 2008.
"We have been recognized as one of KFC's best operators world wide and we have won national awards for our employment practices and we will continue to run our businesses to world's best practice," he said.
He said CFAL had lobbied Yum both in Australia and the United States over the past weeks to grant an extension to the Rockingham license while negotiations continued.
"They simply haven't been prepared to listen to commonsense. On one hand Yum have said they wanted to take over the Rockingham store, which has been highly successful, at zero cost. But on the other, they weren't prepared to extend the agreement to even allow negotiations to occur."
Mr. Cowin predicted that the forced closure of Rockingham was likely to become a watershed in Australian franchising.
"We have a situation in Australia where, under the current law, if a franchise agreement expires the franchisee must simply close the store, no matter how profitable or successful it is," he said. "The franchisee does not even have the right to compensation for the loss of its business."
"What I find quite puzzling is that the KFC business is based on international best practice. I believe that in the US, Yum's home country, the KFC agreements contain automatic renewals provided the franchisee is up to date with the required obligations."
Mr. Cowin said he welcomed the recent decisions of the Western Australian and South Australian governments in setting up inquiries to examine the problem and was hopeful that they would recommend proper legislative protection for franchisees.
"If a company like Yum can use its position in this way to a large operator like CFAL I do worry about how smaller franchisees could deal with a similar situation," he said.
In Australia there are about 190 KFC stores controlled by independent operators, the majority of which are family run businesses.
"Mr. Cowin said CFAL had also received strong support from both the federal coalition and federal opposition, both of whom had indicated that the issue would be back on the national agenda after next weekend's Federal election.
"The indications are that this issue is being taken seriously at a State and Federal level and I am hopeful that it will result in a fair but competitive business environment for franchisors and franchisees alike," he said.
