Australia 'They slowly strangled me': Grill'd store owner lost shop days before Christmas

19:50  07 december  2019
19:50  07 december  2019 Source:   brisbanetimes.com.au

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a group of people posing for the camera: Grill'd founder Simon Crowe with franchisees Elton Berrange (left) and Jason Payne (right) in November 2010.© Supplied Grill'd founder Simon Crowe with franchisees Elton Berrange (left) and Jason Payne (right) in November 2010.

Life was sweet for Elton Berrange in 2014. His Grill’d restaurant at a Brisbane Westfield shopping centre was the hamburger chain’s number one store.

When head office urgently needed a regional manager in Queensland to help oversee its chain of corporate-owned restaurants, it turned to Berrange, who helped at no charge. When it needed a host for its annual conference, Grill’d chose him.

Back then his restaurant’s gross sales were $4.1 million a year, putting the value of his business at $2.8 million. As a Grill’d franchisee he was providing the company with hundreds of thousands of dollars a year in royalties and fees.

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That was then.

Part two of an investigation by The Age and TheSydney Morning Herald into the Grill’d empire reveals some questionable franchise practices and a revolving door of management at head office.

It follows an expose on the work practices across parts of the Grill’d network, including poor food safety practices and a government-subsidised staff training program that suppresses wages by millions of dollars a year.

The Age and TheHerald have spoken to dozens of current and former workers, franchisees and executives as well as obtaining a series of leaked internal documents and emails.

In late 2015 Berrange’s world started to unravel when Grill’d renegotiated his lease with Westfield Chermside, agreeing to a 60 per cent increase in rent. The company also pledged that Berrange would refurbish the restaurant at a cost of $600,000.

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a man standing in front of a building: Former Grill'd franchisee Elton Berrange.© Paul Harris Former Grill'd franchisee Elton Berrange. That burden was imposed just as Westfield embarked on an 18-month renovation of the shopping centre. Besides disrupting foot traffic, the refit introduced a food court with serious new competitors and closed the car park outside Berrange's restaurant.

The result was a 40 per cent fall in sales in the first year, and then again in the second year, as he grappled with paying an extra $10,000 a month in rent.

By December 2018 Berrange had lost everything: his business, house, cars and savings. He had a breakdown, suffers from anxiety and went through depression that culminated in him considering taking his own life.

"I am on anti-depression and anxiety medication permanently. I really struggle with seeing how this has rocked my family," he said.

The Grill’d chain, which made an estimated profit before interest and tax of $45 million in 2018, terminated his franchise agreement four days before Christmas, took control of his two restaurants and has, as yet, not paid him a cent.

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"I begged for help and they slowly strangled me," he said.

In a statement Grill’d said it did its best to make sure its people, including employees and franchise partners, were treated equitably and properly. "While we are not solely a franchising business per se, our franchise partners are a loyal, valued and highly successful part of the Grill’d family, building successful and profitable businesses with some franchisees operating multiple restaurants."

It said many had been part of the network for over a decade "and we hope they will be with us for many more years to come".

It said as a business it had developed over time. "On such a journey there will also be isolated outlier incidents when things don’t go to plan, but we have always worked to make it right by our people, our suppliers, our franchise partners and our customers."

But not everyone agrees.

A common theme among some current and former head office staff is a claim that behind the company’s successful exterior is a dysfunctional culture. The Grill’d business model is based on aggressively keeping costs down and charging premium prices for its burgers by marketing them as healthy, restaurant-quality meals.

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Most franchisees declined to speak publicly. Some had left the chain and signed confidentiality agreements, some were afraid they would be kicked out of the system, others were worried that any negative publicity would damage the brand and reduce the value of their business.

But there was a widespread concern that in the long run Grill’d might not renew their agreements. They also refer to a clause in the franchise agreement that made it difficult to sell their business to outsiders, as Grill’d head office has first and last right of refusal on any sale.

Insiders suggest there is a wider plan to phase out as many franchisees as possible and then list the company on the stock exchange or sell it to private equity, as it would attract a higher valuation with largely corporate stores.

Of 137 restaurants in the system, 105 are owned and operated by Grill’d and the rest are franchises. Over the past few years the ratio of corporate stores to franchisees has tilted further towards company-owned restaurants.

Some franchisees, like Berrange, have been terminated, while others, like the outlets in Bridge Road, Richmond, and Acland Street, St Kilda, were closed down. Others, like Fremantle and Mount Lawley in Western Australia, were bought by Grill’d and converted to corporate stores.

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There are no franchisees left in Sydney, Perth or Canberra, two in Brisbane, one in Adelaide and a few in Melbourne.

"We are made to feel like leeches, like we are riding on Grill’d’s coat-tails," one franchisee, who asked not to be named, said.

Unlike franchise groups including Retail Food Group, most Grill’d franchises make good money. The top-ranking Grill’d restaurant in the country by profit is a franchise. It is why some franchisees believe Grill’d wants to buy them back.

The dwindling number of franchisees are charged a series of fees, including a franchise fee and a royalty of 9 per cent on gross sales. Fees like this are not uncommon for franchise arrangements.

Most of the products are purchased through Grill’d, giving head office another cut in the form of rebates from suppliers, which one insider estimated at millions of dollars.

When Grill’d became aware that The Age and TheHerald were investigating its practices, it organised a phone hook-up with franchisees to warn them about the impending articles.

It was a difficult discussion. The last time the company was in the headlines over a wage scandal store revenue was hit hard. A decision was made to go on the front foot before the articles appeared.

A statement was composed on behalf of a number of franchisees, including Richard Nash from Moonee Ponds and Bendigo. It says Grill’d is a great brand, their businesses are profitable and any negative commentary was coming from "one or two disgruntled ex-franchise partners". But not everyone signed, which has created its own set of tensions.

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The statement said: "Our staff are our greatest asset and are considered extensions to our own families and we care for them deeply."

Separately, the company organised a statement and video to be released to thousands of restaurant workers. The statement said "that we do our best to make sure that our people feel valued and are treated equitably and properly". It was summarised with the phrase "Connection, Growth and Belonging".

A matter of trust

Grill’d began in 2004 when Simon Crowe, Simon McNamara and Geoff Bainbridge opened their first healthy burger restaurant in Hawthorn in Victoria. Crowe now owns 100 per cent of the corporate entity – McNamara sold his stake in 2012 after rising tensions and Bainbridge followed suit in 2017 after a public falling-out that culminated in a bitter legal action and a confidential settlement. The company's senior management comprises more than a dozen people, each responsible for a different aspect of the operation.

Its rapid expansion in the past 15 years has been lauded as one of the great retail success stories. But as Grill’d said in a statement, that growth has produced its own issues.

"In the beginning our business processes were inadequate and we have devoted huge resources to get them right. But like all business processes, we accept they are not perfect and we will continually work on improving them."

Industry experts value such a premium flagship business in excess of $450 million. Crowe’s assets include a $10 million mansion in South Yarra, a collection of European cars, a farm, a share portfolio and chocolatier group Koko Black, which he bought for less than $10 million from administrators in 2016.

But behind the glossy marketing of Grill’d as a fun place to work is a churn and burn of executives.

A number of current and former executives who spoke to The Age and the Herald said they quit because they didn’t feel empowered to do their job, despite being in senior positions.

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One former executive, who we have chosen not to name for legal reasons, said she left because the company lacked compassion. She said she joined believing Grill’d was a public, energetic and community-minded company, but as far as its staff were concerned "there’s no respect, there’s a lot of micro-managing and penny-pinching and a lot of churn of staff".

"I left due to my own moral compass," she said.

Another said Crowe can be charming but he "needs to loosen the reins".

He said the issue boiled down to a lack of trust in his people. This was typified by a series of leaked emails where Crowe asked an external IT consultant to set up a system to forward certain staff emails to him without them knowing.

In one email, the IT person says to Crowe: "This is my confidential email address, my ops team do not monitor. I have enabled a forward copy of all Dbs [a person working at Grill’d] inbound emails to your address. Make sure you do not enable Out of Office. If you do people who send to him will receive your out of office."

It adds: "You will also receive a copy of all emails he sends."

In another email written on November 2, 2015, Crowe asked the IT specialist "can you please search [a senior executive at the time] emails sent/deleted etc that have been sent/copied/blind copied to Geoff Bainbridge since July 1 and provide me with a copy of each". He then gives a list of Bainbridge’s different personal email addresses.

When a series of negative Grill’d stories appeared in The Age in 2015, Crowe asked the IT consultant to "please search emails of our people incl[uding] restaurants to see if any contact with [the journalist] has been made".

In a statement, Grill'd said: "Grill'd's email policy governs the use of Grill'd's email systems by Grill'd team members." It said it had "acted lawfully in accordance with its email policy at all times. Any email searches undertaken of Grill'd work emails were undertaken in accordance with that policy for business purposes."

One former senior executive said Crowe was brilliant at marketing and execution. "Who else could coin a burger as being healthy?" the executive said.

He was referring to a report released last year by Deakin University that analysed major fast-food chains and ranked Grill’d behind chains including McDonald's. It came second-last, ahead of Domino’s. Grill’d dismissed the study as "flawed, misleading and deceptive" and Crowe was quoted saying he was "furious" the burger chain was "lumped in with a bunch of fast-food outlets".

Grill’d is built around a "win and succeed at any cost" culture, says another former executive.

A few of them, who know Berrange and his situation, said the company’s treatment of him illustrates how far it will go. "Elton was one of the best and when money got in the way he was run over," one former senior executive said.

When he was struggling financially, Berrange flew to Grill’d head office in Melbourne to ask for help. In response, the company offered him $365,000 for his Chermside restaurant – less than the cost of the refurbishment – and $471,391 for another in Toowong, which had cost him $650,000 in 2015.

"This meeting pushed me to the edge and I had a breakdown at my parents’ house that weekend," he said. He sold his home and cars, netting just over $200,000, and used $120,000 to pay down his royalty bill.

When he asked for permission to introduce Uber Eats to boost sales he was knocked back, despite it being available at some other restaurants, including a nearby company-owned Grill’d restaurant.

The company also refused him royalty relief or relief from an annual charity program that would cost him thousands of dollars.

When Berrange was terminated on December 21, 2018, Grill’d took over the lease and ownership of his restaurants, converting them to company-owned stores.

"They played the long game, knowing I would bleed to death," he said. "They won and they got me out."

In a statement Grill’d said: "Unfortunately, over 15 years in business, a small number of our franchisees have run into difficulties. This is unavoidable. Where this has happened, our priority has been to initially help them as best we can."

The company blamed the failure of Grill’d Chermside on Westfield. "The fundamental reason for the failure of the Chermside restaurant was Westfield opening a new food precinct with 23 new food offerings when we were told there would only be 12," it said in a statement.

And it blamed a failure to settle with Berrange on National Australia Bank: "We have not been able to negotiate any settlement with the franchise partners due to the NAB’s refusal to engage with us over a secured loan."

Berrange isn’t the only franchisee who has suffered at the hands of Grill’d. One of the original franchisees, Michael Burke, had a similar experience. He signed a franchise agreement in 2006 to run a restaurant in Bridge Road, Richmond.

The restaurant was a success and by 2011 it needed a makeover. He repeatedly petitioned head office for permission to fix it up. By 2014 the airconditioning didn’t work properly and he had been served with health notices.

Then in 2015 he was blindsided when Grill’d opened a company-owned restaurant 900 metres away in Swan Street, then introduced Uber Eats to that restaurant, which further cannibalised his sales.

In 2017 he was still trying to get his restaurant refurbished. A letter Grill’d wrote to him in November 2017 said: "We have concerns about the refurbishment of the Richmond premises given its current trading."

It said Grill’d "totally rejects any allegations that it has not acted in good faith, has acted unconscionably or has otherwise acted unlawfully. Accordingly we do not accept there is any legal basis for compensation".

Burke is unable to publicly discuss his situation due to a confidentiality agreement after signing a settlement, but his story is not unlike Berrange’s.

Grill’d said in a statement that "unlike other franchise-only businesses, selling franchises or territories is not our business model per se … We work closely with our franchise partners to build successful and profitable businesses."

It said seven of its 22 franchise partners had been part of Grill’d for more than 10 years. "On a few occasions a new company restaurant had been opened near a franchise restaurant," it said, but added there were many more examples where it had granted a franchise near a company restaurant.

For many hapless franchisees, including Elton Berrange, it means the balance continues to be tilted in favour of the all-powerful franchisors.

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