Adele Ferguson & Sarah Danckert, 28 September 2015
Some of Australia’s biggest banks are believed to have stopped lending to new 7-Eleven franchisees in the wake of the worker exploitation scandal that has rocked the company.
The lending freeze could severely impact the sale process for the 78 stores that are currently on the market for sale.
Sources say it has made it almost impossible for any prospective franchisee, or existing franchisee looking to expand into new stores, to get finance.
It comes as 7-Eleven plans to roll out 40 new stores in the year to June 2016, according to internal documents from June 2015 that have been seen by Fairfax Media.
A loan freeze could result in a slowdown in 7-Eleven’s roll out plans, which would impact the finances of 7-Eleven in Australia which over the 12 months to June 2015 delivered earnings before interest and tax of $144 million.
ANZ is believed to be the biggest lender to 7-Eleven franchisees around Australia. It is understood to have closed its entire franchising book after reaching the limit of its appetite for loans.
A spokeswoman for ANZ declined to say which other franchises besides 7-Eleven that the bank has stopped financing. The spokeswoman also declined to reveal the size of ANZ’s franchise loan book or any other details.
A spokesman for Westpac declined to comment, as did a spokeswoman from NAB but the bank is believed to be “monitoring the situation”.
It is understood sections of the finance sector are “very wary” about lending to new 7-Eleven franchises considering the company’s current issues. It relates to the value of the goodwill which has been damaged by the scandal. Some estimate the value of goodwill has fallen up to 50 per cent.
A spokeswoman for 7-Eleven said head office was willing to use its corporate muscle to help franchisees find suitable financing arrangements.
“Franchisees pursue their own financing options, and individual banks make their own decisions about business lending,” the spokeswoman said.
“There is no formal relationship between a franchisees’ financier and 7-Eleven Stores Pty Ltd, but if franchisees are experiencing difficulties with banks we would be happy to assist in whatever way we can in their negotiations,” she added.
7-Eleven has been in damage control since revelations by a joint media investigation between Four Corners and Fairfax Media that exposed widespread wage fraud across the 7-Eleven franchise network with some staff working for as little as $5 per hour.
Questions have also been raised about the company’s business structure after the media investigation revealed the financial plight of 138 of the company’s 620 stores around Australia.
7-Eleven in response to the crisis has appointed former Australian Competition and Consumer Commission head Allan Fels to lead a company-fund panel to review requests for back pay from current and former workers.
7-Eleven has also pledged to make “substantial changes” to its business model after a backlash from franchisees over the poor income of the stores and the bad publicity. The changes are expected to be revealed by 7-Eleven to its franchisees next week.
There are also concerns that since the scandal broke, forcing franchisees to pay the correct wages, some are struggling to meet their loan repayments and are considering bankruptcy.
Extracted in full from the Sydney Morning Herald.