Pie Face rebuts claims of widespread franchisee losses

Also clears up supposed pending legal actions.

Responding to an Australian Financial Review (AFR) story which claims that many of its franchisees are suffering losses and that it is facing legal action from a “group” of disgruntled franchisees, Pie Face said the story was “misleading” and based on documents that are “incomplete, inaccurate and out of date.”

The AFR story, and other media reports, painted a worrying picture of Pie Face: Stores are suffering losses, disgruntled franchisees are preparing to sue the franchise, and all while the franchisor reaps profits from selling allegedly high-margin pies to franchisees.

On widespread losses

But Ben Macpherson, Chief Marketing Officer at Pie Face, said this is not the case at all. He said the assertion that Pie Face is suffering from widespread losses based solely on a “leaked” company report is “inaccurate and misleading.”

“The ‘leaked’ document referred to was part of an internal review of our company stores. The information upon which the statement is based is incomplete, inaccurate and out of date,” said Macpherson.

“A significant portion of our company stores are delivering profits to the group,” he insisted.

For the Pie Face stores that are bleeding, Macpherson explained that there are many reasons why they may be suffering losses and that it would be wrong to use a profit snapshot to judge their future potential.

“There are many reasons why a company store may not be trading profitably at any particular point in time: For instance it may be new and still building its local customer base and operations Alternatively, it may have been re-purchased and in the process of being turned around by the company,” said Macpherson.

“A profitability snapshot taken at a particular point in time will never portray a complete or accurate picture of what is happening at a particular store in our business,” he added.

The AFR story also said Pie Face is now selling 50 of its 79 stores, but this an imprecise and misleading tally said the franchisor.

Pie Face clarified that Pie Face currently has 77 open stores, but of these only 23 are being sold and only 16 are franchisee stores. There are 25 additional stores listed for sale on the website, but these are in development and not yet open.

“Pie Face’s growth strategy in part is to find sites, open stores and franchise them,” said Pie Face on why they have 25 proposed stores on sale. “Properly understood, the number of new and proposed stores we have available to buy is really a sign that Pie Face is successfully delivering on our growth strategy.”

On pending legal action

Pie Face also said reports of unhappy franchisees banding together to file a lawsuit are overblown.

“The article alludes to planned legal action to be taken against Pie Face by a ‘group’ of franchisees. There are currently no legal proceedings against Pie Face despite claims that a class action was imminent in January 2013.”

“Pie Face is aware of only two former franchisees represented by the lawyer named in the article, including Mr Prit Dutta who is named in the article. We otherwise believe on the whole we have a good relationship with our franchisees, especially considering the challenging retail conditions we (together with other Australian retailers) have faced over the past 12 months,” he added.

Pie Face said reports that the franchisor had “locked out” Dutta from his store in Brisbane had nothing to do with the actual closing of Dutta’s store.

“Prit Dutta was ‘locked out’ of his store by the landlord and not due to any action taken by Pie Face. The landlord took this step due to Dutta not paying rent for the store. Once Mr Dutta was locked out of the store and was no longer able to operate his business, Pie Face terminated his franchise,” said Macpherson.

On making profit at the expense of franchisees

Pie Face defended itself saying that as a franchisor it fulfills its duty to assist franchisees to make a profit, and that it is completely transparent with arrangements related to profit earned from selling food from their central kitchen.

“The price at which any particular Pie Face store can be purchased will be influenced both by current profitability, and also by the store’s potential. Importantly, when dealing with potential purchasers, we are open and transparent about each store’s trading history. Potential purchasers can therefore make their own informed decision whether the opportunities presented are right for them,” said Macpherson.

“Pie Face does make a margin from selling food to our stores from our central kitchen. This is clearly explained to franchisees before they buy a Pie Face franchise. However, we are very focused on helping our franchisees maximise their profitability, and believe that the margins on our food products are some of the best in the industry. Our business model is sustainable, as is evidenced by our track record of growing our base of stores and our business so successfully over the past few years,” he added.