The founder and chairman of Quest Apartment Hotels is calling on franchisors to back independent reporting of their businesses to restore trust in franchising.
Paul Constantinou said self-regulation using a rating system could help address the issues raised in the parliamentary inquiry into the $170 billion franchising sector. This should happen, he argues, separate to any process by policymakers.
“Self-regulation is a must, irrespective of whether it is compliant with the law or not,” he said. “All the compliance issues must be followed. That should be a core business discipline, it shouldn’t have to be administered by the Australian Competition and Consumer Commission (ACCC).
“The ACCC and these panels have been set up because people have dropped the ball.”
Mr Constantinou started Quest 32 years ago and has grown the business to 176 franchised properties across Australia, New Zealand and Fiji. The business turns over more than $400 million a year.
In 2017 he sold the majority of Quest to Singaporean serviced apartment giant The Ascott Limited for $193 million, but he retains a minority stake.
If we have franchisees failing, it is hurting our business, it is hurting our equity, it is hurting our capital and our growth.
Australian Franchise rating scale
Quest has implemented FRANdata which measures the performance of business franchise systems across seven performance standards. Mr Constantinou wants other franchises to take up the system, which has just released an Australian Franchise rating scale.
“I would like this to become a standard that there is an accreditation process for franchisors to go through to be assessed by an independent party,” he said.
Mr Constantinou said the system is widely used in the United States.
“Our brand is out there,” he said. “If we have franchisees failing,it is hurting our business, it is hurting our equity, it is hurting our capital and our growth. You can’t sell a new franchise to someone who just read in the paper that you lost ten.”
Quest faced a class action lawsuit from some franchisees in 2014 when it raised its gross sales fee to 8 per cent alongside a 1 per cent advertising fee.
‘A few bad apples’
Mr Constantinou said Quest “probably went about it the wrong way” at the time, but the matter is now resolved.
He said Quest does not have any current issues with franchisees and was not the subject of any submissions to the franchising inquiry.
“When we heard about 7-Eleven and their wage issue about not being compliant to wage rates we did a total audit of all our franchise businesses and updated our process to make sure we were aligned to what [franchisees] were doing and report on it,” he said.
“In the past we monitored it, but had never taken it to the level ‘Do we really know?’. Now we have taken it to ‘These have to be compliant’.”
Mr Constantinou said in the past the Franchise Council of Australia used to provide accreditation for franchisors, which provided assurance of certain standards and disciplines.
“At least then people saw you as part of something,” he said. “I think that’s what people want, that other people have done a due diligence on you to a level. That gives you strength as a franchisor to say ‘We are a compliant company’. Because the industry has a few bad apples in it doesn’t mean the industry is bad.”
However, former ACCC head Allan Fels said self regulation has its limits.
“Self regulation only works if there is a total unconditional commitment this will be a test of the industry,” he said. “It’s no substitute for a wider strengthening of the Franchising Code of Conduct.”
Mr Constantinou’s call for further self regulation comes as the government considers the parliamentary joint committee’s damning report into the sector which was published in March.
A spokesperson for small business minister Michaelia Cash said the government is carefully considering the report through its inter-agency Franchising Taskforce which has had three meetings.
“The taskforce is engaged in stakeholder consultation and is carefully considering the concerns raised in the report and each of the committee’s recommendations,” the spokesperson said.
The taskforce is expected to provide advice to relevant ministers in the second half of the year.
However Mr Constantinou warned against further regulation in the sector.
“I think government intervention slows things down,” he said. “If there are franchisors out there that are doing the wrong thing they should be held accountable.
“We have more regulation than in the United States and New Zealand. The New Zealand franchise industry is basically unregulated, but it still works very well.
“When we overgovern, it makes it harder to do things.”