If I had seen complaint before I looked at a Midas franchise I would never have bought into it. Less than 1 year in and i can see where its going. To hell. Ive already lost a bundle and now I read tht it won't get better and that makes sense. Every word I have read seems to fit in with what little I have had to do with the idiot thieves at Midas. They just keep taking and you get nothing. I had to phone a franchisee in another state and he told me were to look and then he sent me a email home.
this was it.
Legitimate Midas Franchising practices pre-2000 suggests that within the Midas network of Franchise shops the average value of a Franchise should be $250,000. The average shop will generate $650,000 in annual sales to produce approximately $75,000 in net annual income to the Franchisee and generate $32,500 in Royalty, Franchisor Administration Charges and Advertising Fund contribution. Legitimate Franchising and Midas history also suggests that the average turnover of Franchise shops will be between 2 and 3 percent.
The Midas network in 2000 comprised 109 shops in Australia. In 2004 the network had grown to 130 shops through Super Cheap Repair Shop acquisitions by the Franchisor.
Churning occurs when a Franchisor deliberately creates a system where the majority of franchisees must fail to allow for the creation of constant and very profitable Franchisee turnover. Churning in complete detail is quite complex, however, the following illustrates the effect in its simplistic form but this does requires a comparison with the performance of Legitimate Franchising to fully appreciate the potential of Churning. Churning is a relatively new phenomenon in Australian Franchising, however, Churning has been practiced internationally, and dealt with, for over a decade.
Within Churning the primary requirement is that Franchisees fail financially. Now while this Franchising does not make sense initially, bear with the author as the system of Churning transparently unfolds. The designed failure of a Franchisee is basically created through a lack of Advertising and increased charges to the Franchisee. The Aftermarket Vehicle Repair Industry is traditionally sustained through price driven Advertising and when Advertising Funds, 5% of Gross Sales, is withheld it creates a decrease in customer numbers that has a natural flow on effect to Franchisee profitability. Increased charges to Franchisees by the designed operation of the Franchisor then again reduce Franchisee profitability and ensure financial failure.
The Midas Franchise Agreement allows for the Franchisee to pay to Midas the amount of 12.5% of Gross Revenue. This is made up of 5% Royalty, 2.5% to Administration Charges and 5% to Advertising Fund contribution. Royalty is obviously a legitimate charge but when the Franchisor reduces Administration costs and thereby removing the ability to provide Franchisee support, a responsibility, then that Administration cost saving goes into the Franchisor's general revenue.
When the Franchisor refuses to provide Advertising from the Franchisees Advertising Funds and then refuses to provide adequate detail regarding how a failure to Advertise produces Advertising Funds with a zero balance then it can only be concluded that Advertising Fund monies also go to the Franchisor's general revenue. This is also supported by the aggression of the Franchisor when Franchisees continue to request a detailed explanation.
Increased costs to the Franchisee in the form of paying Royalty on the GST element of Gross Sales and the variety of Income Streams such as increased charges for Midas Stationary, Uniforms and Re-image as examples only, attack the Franchisee profit margin. Group Buying Power normally associated with Franchising benefits the Franchisor when the negotiations with Preferred Suppliers is on the basis of the size of the Rebate to the Franchisor as opposed to improved margin to the Franchisee.
Scenario 2 conservatively produces a shop with decreased customers reducing gross annual sales to $350,000 and then producing virtually a negligent Franchisee profit (reported at an annual National average of $5,227) that generates $17,500 in Royalty, $8,750** in virtually unused Administration Charges, $17,500** in vanishing Advertising Fund contribution and approximately an additional $8,750** paid to the Franchisor through the various Franchisor Income Streams. This is a conservative total of $52,500 to the Franchisor through Churning for shop sales of $350,000 that produce no profit for the Franchisee as opposed to $32,500 for sales of $650,000 that allow the Franchisee profitability and a return on his investment when Legitimate Franchising is in practice.
Remember, this is for one shop from a network of 130 shops. The total additional general revenue generated for the Franchisor for the entire network produces an annual increase of $2,600,000 for the Franchisor with an annual sales decrease from $84.5M to $45.5M for the Franchisee network.
That is part one of the Churning process.
In the period 2001-2003, Midas Australia turned over 73% of the Franchise network as opposed to the expected annual average of 2 to 3 percent. Not all were situations where the Franchisor offered a minimal amount to take back the Franchise shop, but many were. Commonly the figure would average at $60,000 to be resold for $250,000 by the Franchisor. That is $190,000 profit per store with a turn around of on average three (3) months. The vast majority of Franchises that were not sold to the Franchisor were sold at less than the anticipated resale price by the desperate Franchisee. The Midas Franchising constant is diminished profit from a failure to advertise and increased costs to the business instigated by the Franchisor.
It should be noted that Midas continues to reject some of the figures shown. We are not aware of which figures are rejected as Midas refuse to provide any detail and we do not therefore know which figures are not rejected.
In "Scenario 1" the Legitimate Franchisor has a total annual earn of $32,500 from Royalty (at 109 shop = $3,452,500).
In "Scenario 2" the Churning Franchisor has a total annual earn of $52,500, an increase of $20,000, from the total of all Income Streams on massively Reduced Turnover (at 130 shops = $6,825,000).
In "Scenario 2", the Churning Franchisor also has the potential of an Additional $215,000 per shop from a Buy-Back and resale of a Franchise.