Nando's and its franchisees are at war over upgrades

Photo: Nando’s/ Facebook.

Chicken giant Nando’s allegedly used private security guards to take over a restaurant as part of a war against its largest franchisee over expensive upgrades.

The ugly fight has now landed in court, throwing the company into turmoil, with Nando’s franchisees around the country refusing to bow to head office’s authority and renovate their stores until the dispute is resolved.

The issue came to a head at two Nando’s stores in Narre Warren and the Wareca centre in Clayton on January 11, 2016, about 11.35pm, an hour after the chicken fryers had been turned off and the stores closed for the day.

Alarms at both premises went off, activating a warning at the stores’ private security base.

The stores’ security team called the manager, according to documents filed in a Supreme Court case between the franchisees and Nando’s. Then they tried to access the stores’ remote cameras – but found someone had already turned them off.

Hans Santoso, the Wareca store manager, quickly drove to the store – only to allegedly discover five men, including three Nando’s executives, inside. They allegedly told him the store was being taken over, the key and alarm system was being replaced, and private security guards would be keeping watch over the store, court documents say.

The two stores, plus two others in dispute in Braeside and Lysterfield, are controlled by husband and wife Flavianus Djung and Anni Kartawidjaja through various companies. The pair are the largest franchisees of Nando’s stores in Australia, an affidavit from Nando’s business development manager tendered to court says.

Two of the stores generate around $100,000 a month in revenue on average, with average fortnightly staff wages of around $14,000. A Nando’s franchise costs $48,500 to buy, plus around $1 million to purchase and fit out a restaurant, according to the franchise’s website.

Since the pair acquired the four venues between 2007 and 2011, Nando’s has been trying to force the franchisors into making significant investment into the businesses. It is this the dispute centres on.

Nando’s says the franchisees haven’t upgraded the restaurants since they bought them, in some cases as long as nine years ago.

“As a consequence, the fit-out and branding used in all four restaurants are out of date and not in line with Nando’s current standards,” business development manager Scott Hamilton says in an affidavit tendered to court as part of the case.

The company wants the franchisees to spend almost $1.2 million to refurbish the Narre Warren, Wareca and Braeside businesses, the documents indicate.

The case has become a key test in head office’s ability to force franchisees to invest in their business, Mr Hamilton’s affidavit says.

“A number of franchisees in the Victorian market have already raised the pending litigation… as a reason to delay their own refurbishment works”.

Franchisees have a requirement to upgrade and invest in stores when head office “reasonably requires” them to do so written into their franchise agreement, a counterclaim filed by the company says.

At Mr Djung and Mrs Kartawidjaja’s restaurants that was badly needed “to maintain relevance in the market place and ensure competitiveness with Nando’s competitors,” the counterclaim says.

Mr Djung and Mrs Kartawidjaja appear to have told Nando’s they did not want to spend the money the company demanded.

In November 2015 Nando’s served notice of breach of franchise agreements on the franchisee due to a failure to agree to the required refurbishment works.

In December Mr Djung and Mrs Kartwidjaja told Nando’s through lawyers that they would be taking legal action against the company, which eventually led to the flashpoint in January.

In a suit filed in the Victorian Supreme Court on January 13, two days after the takeover, Mr Djung and Mrs Kartawidjaja allege Nando’s breached their franchise contract, acted in bad faith, acted in a misleading and deceptive way, as well as breached consumer law.

Their affidavit alleges Nando’s simply gave them a list of works, cost and timetable, and did not negotiate those works in good faith before terminating the franchise agreement and seizing the stores.

The pair want damages from Nando’s, as well as an injunction preventing Nando’s employees from entering the franchise-owned stores.

The Supreme Court handed down an injunction in January stopping Nando’s from terminating the franchisee agreements until the court case is finalised.

The matter is likely to be sorted out in October when a five-day trial in the Supreme Court is set to go ahead.

“We are disappointed that this matter has reached this point, and we haven’t been able to resolve it outside of court,” a Nando’s spokeswoman told Fairfax.

An email to Mr Djung and Mrs Kartawidjaja via staff at one of their companies went unanswered.

This article originally appeared on The Sydney Morning Herald’s Business Day. Read the original here, or follow Business Day on Facebook.

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