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Franchise New Zealand is much more than a magazine. To keep up-to-date with news about franchising in New Zealand and interesting stories from overseas, go to www.franchise.co.nz, sign up for our free newsletter and follow us on Facebook or Twitter. Here’s a summary of some recent stories – read the full articles on the site.
BYE BYE GEORGIE PIE
Seven years after McDonald’s brought back Georgie Pie to widespread excitement, the company is taking them off the menu again due to lack of demand. ‘We know there will be disappointed Georgie Pie fans out there, and this is not a decision we have taken lightly,’ said Dave Howse, McDonald’s New Zealand’s managing director. Existing stock of the single flavour offered, Steak Mince ’N’ Cheese Pies, will be run down over the next few weeks. They have already been withdrawn from some outlets. ‘It’s the brand that, for many people, defined a Kiwi childhood,’ we wrote back in 2013, when the return of Georgie Pie made the front cover of Franchise New Zealand. A campaign to bring it back attracted over 57,000
likes on its Facebook page, and when McDonald’s launched its initial trial, ‘The hordes rushed in and we got absolutely slammed,’ reported Mark Rush, who owned the Queen Street, Auckland, franchise. But, like the original Georgie Pie concept which lasted barely 20 years, it wasn’t sustainable in the long term, even though the pies were sold through existing McDonald’s restaurants rather than stand-alone stores. Tastes have moved on, and further ‘Bring back Georgie Pie’ campaigns seem unlikely to succeed.
Economic outlook shadowed but bounce-back to be faster than GFC? Covid-19 will cast a shadow over the economy for years after the virus has passed, says Westpac’s special edition Economic Overview published in May. ‘Consumers and businesses will go into their shells amid high unemployment, falling house prices, and damaged balance sheets. The farm sector will suffer an income hit due to a global recession. And the dearth of international tourists will be keenly felt. Scarring from the Covid-19 recession will permanently damage New Zealand’s long-run productivity, meaning GDP and wellbeing may never fully return to their pre-Covid-19 trends.’ Dominick Stephens, Westpac’s Chief Economist, comments that, ‘Disruptive events tend to accelerate trends that are already in place, and Covid-19 will be no exception. One example is that we have seen an obvious leap forward in the digitisation of the economy, and there will be no going back. That may be the last straw for some firms and a huge opportunity for others, but digitisation is a positive for the economy overall.’ And he continues, ‘Despite the gloom, it is worth pointing out that we are actually forecasting a more rapid economic recovery than after the GFC. For example, we anticipate four years of above-5 percent unemployment, whereas after the GFC there were eight.’
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Rent action: start negotiating now
On 4 June 2020, the Government announced temporary measures to be enacted to specifically support small New Zealand businesses through the effects of the Covid-19 pandemic. The proposals have been condemned as ‘too little, too late’ for many, coming as they do after months of inactivity, despite pressure on Government from business and employer organisations including the Franchise Association. Australia announced a Mandatory Code of Conduct for Australian SME commercial tenancies as early as 7 April and many expected New Zealand to follow suit. However, proposals were apparently blocked by Coalition partner New Zealand First. It meant that throughout Level 4 and beyond, while business owners were unable to operate, there was no guidance as to how landlords might respond. A variety of lease conditions, differing interpretations of the same conditions, and differing degrees of sympathy among landlords led to confusion, stress and unequal treatment. Some landlords suspended rents altogether, while others effectively said, ‘Tough, pay up or you’re out!’ Some even sought to enforce annual rent increases due on 1 April while the Level 4 lockdown was in place. The terms The proposals as eventually published require parties to many smaller-scale commercial leases to negotiate the payment obligations to ensure a fair rent is agreed. Negotiations can be conducted in any way agreed by the parties, such as through mediation. Remaining disputes must be resolved through arbitration. This will not apply to situations where a deal has already been agreed between a landlord and tenant, even if the tenant was forced to agree to a poor deal in order to get back into the premises once it was possible to trade again. Take action now Alistair van Schalkwyk of ASCO Legal comments: ‘It is encouraging to see the proposed temporary change to the Property Law Act. The proposal will imply a clause similar to the ADLS sixth edition clause 27.5 into all commercial leases of businesses that meet eligibility criteria. It essentially requires that a fair proportion of rent and outgoings cease to be paid when a tenant’s business has suffered a material loss of revenue because of the restrictions put in place to combat Covid-19. The proposed eligibility criteria for businesses are: • The business has 20 or fewer full-time equivalent employees per
leased premises; • The business must be New Zealand based; and • The business must not have already reached an agreement with its landlord in relation to rent and outgoings reductions in response to the lockdown. In determining what a ‘fair proportion’ is, it is anticipated that the following factors will be taken into account and, in the absence of agreement between the parties, by the arbitrator: • The impact of the Covid-19 restrictions on the tenant business; • Any financial support available to the business; • The business’s revenue and profit levels in recent years; • The business’s ability to financially survive the effects of the Government’s requirements in response to the outbreak of Covid-19; • Any mortgage obligations of the landlord in relation to the leased premises; • The imbalance in the size and resources available to the lessor and the lessee; and • Any other factor that is reasonably considered relevant. If the parties cannot agree, then the parties are required to arbitrate the dispute in terms of the Arbitration Act 1996. The Government will contribute $6,000 inclusive of GST towards the cost of arbitration. While this will cover a significant portion of the costs incurred to arbitrate the dispute and therefore potentially remove a barrier for parties to take it to arbitration for a determination, parties will still need to cover the balance of the costs and it is hoped this will be an incentive for parties to engage in good faith negotiations. It is important to note that the above is based on a minute by the Cabinet Economic Development Committee and the submissions of Justice Minister Andrew Little, so there is still some ambiguity around specifics and, of course, how this will apply in practice. It is anticipated that the amendments will be passed into law around the end of June. However, as it will have retrospective effect, franchisees can now on the strength of this approach their landlords and seek to enter into negotiations.’
Franchise New Zealand
Winter 2020
Year 29 Issue 02
