Cold case: The inside story of Yogurtland Australia’s icy franchise dispute

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IF empires are founded on bold visions, then Yogurtland Australia was off to the right start. In 2013, the United States-based frozen yoghurt chain was brought to Australia by Newcastle accountant and self-made millionaire Paul Siderovski. A Tony Robbins convert and business motivational speaker, Mr Siderovski – who founded and is the managing director of SiDCOR Chartered Accountants – had grand visions of franchising and opening up to 50 Yogurtland stores across Australia in five years. Fast-forward to today and the group – which has franchised four stores and now has 14 corporate stores after nine closed – has experienced revolt from franchisees after stores failed to perform as expected. All four franchisees – mum-and-dad investors from the Hunter and Central Coast – opted out of their struggling stores. Trevor and Karinne McDougall, of the Central Coast, say they were left with massive debts and stress-related health problems after closing their Western Australia store more than $500,000 out of pocket. Their experience as Yogurtland Australia franchisees has been personally mortifying and financially devastating. News: Latest news headlines in Newcastle and the Hunter Yogurtland Franchising is now pursuing the McDougalls in Newcastle Local Court for $52,000 in allegedly unpaid yoghurt bills, however the couple plan to fight the case, arguing they have lost enough. Mr McDougall is outraged at the impact the business venture has had on his family and his life savings. “The stress has been immeasurable,” he said. “This has dominated our lives for years now and it seems to go from bad to worse. It’s been nothing short of a disaster for us and it’s not over yet.” His are not isolated complaints. Documents and correspondence obtained by the Newcastle Herald reveal issues between all the franchisees and Yogurtland Franchising, with at least three of the franchisees understood to have suffered large financial losses, a claim Mr Siderovski denies. The three franchisees, including Mr McDougall, lodged official disputes with Yogurtland Franchising’s sole director, Mr Siderovski, in February 2017. In a written statement, Mr Siderovski told the Herald this week there were “no issues” with Yogurtland Australia’s franchise system “when it is operated as recommended”. “As part of our operational model, if a person for whatever reason does not want to continue with a YL [Yogurtland] franchise, then we will do all things that we can to solve their problems,” he said. “This is so whether we are legally obliged to or not. In addition, I can say we cannot directly control how a franchisee decides to run a store. However, a large proportion of our franchisees either were qualified professionals in their own right, or had multiple businesses they operated.” According to documents, many of the problems were similar for the stores at Baldivis, a southern suburb of Perth, Newcastle’s Marketown and Erina on the Central Coast. Disputes over prices charged for stores and equipment, allegations that Yogurtland Franchising misrepresented achievable turnover and profit figures, lack of transparency and claims the franchisor breached the Franchising Code of Conduct by not acting in good faith. Two of the franchisees alleged they were not provided with mandatory disclosure documents designed to inform potential franchisees about the business they were considering buying into. They also alleged they only discovered after signing up that they’d been sold used yoghurt machines from failed corporate stores for almost twice the price of new machines. All of the above claims Mr Siderovski denied. He said no profit was made on store fitouts. “We unequivocally deny providing anything that is false and misleading,” he said. “We have always acted in the best interest of all parties concerned.” The Yogurtland Franchising saga has revived questions about the future of Australia’s scandal-plagued $170 billion franchise industry following a joint parliamentary inquiry last year that revealed systematic problems across the sector. Newcastle Herald: Crime and Court news Due to report in March, the federal government inquiry examined the effectiveness of the Franchising Code of Conduct and heard explosive testimony from franchisees suffering financial devastation and mental health issues after watching their dream to own a small business turn into a personal and financial nightmare. Franchising in Australia is big business. There are 1120 franchising outfits and 79,000 franchisees, which is four times as many franchisors per head as in the US. A previous federal parliamentary committee inquiry into franchising in 2008 found franchisors necessarily held more power than franchisees. According to Mr McDougall, that was definitely the case with Yogurtland Franchising. “When there was a decision made by head office not to franchise anymore we were left in a position where they didn’t want to buy back our store,” he said. “In the end we closed it and the financial loss was huge.” The Herald contacted the four franchisees for comment, but three declined. It’s understood the other three sold their NSW-based stores back to Yogurtland Australia and at least two signed non-disclosure agreements officially gagging them. According to documents seen by the Herald, Tony and Dianna Temelkovski, of Merewether, signed on as Yogurtland Australia’s first franchisee in late 2014. Despite Mrs Temelkovski working full-time in the Erina store for two years without taking a wage, the business still struggled to turn a profit. In an email to the couple in October 2013, before Yogurtland Australia began franchising, Mr Siderovski – who was the Temelkovskis’ long-term accountant and had known Mr Temelkovski since they were boys – urged the couple to “hold off” on further investigating a Mexican food franchise business. The tone for what to come was set early. “I am working on something and if it comes off you will be set for life,” Mr Siderovski wrote to the Temelkovskis. Three months later Mr Siderovski told the Temelkovskis he was “about to franchise” Yogurtland and urged them again to “hold off on doing anything” with the Mexican franchise. The couple, who paid $625,000 for the Erina store, were told it would be the first of three potential Yogurtland stores for them. Expectations were high as the store opened in November 2014, after Mr Siderovski made lofty predictions about its performance. “The similar store is Macarthur Square that does 1.2m,” he wrote in an email to the Commonwealth Bank, blind copied to the Temelkovskis, in the weeks before the Erina store opened. “Even after taking 20 per cent off he will make a profit of before tax and interest and lease payments of 200k … At 1.2m the store will make close to 400k per year.” Later the same day, another email from Mr Siderovski to the bank, again blind copied to Mr Temelkovski. This email set out “projections for the Erina store” detailing that the franchisee was expected to make a “net benefit” of $371,150 in the first year, $380,114 in the second, growing to $407,874 by the fifth year. The store actually turned over between $800,000 and $850,000 a year, and once the costs were taken out, it was barely breaking even. Mr Siderovski also advised the couple by email not to spend money on “legals” and to request a refund of the portion of the deposit they paid for the franchise that was set aside for legal fees. “We are not going to need to spend the money on legals,” he wrote to Mr Temelkovski several weeks before the store opened. He later advised the couple that the store was spending too much on wages and said he wanted to talk to them “about paying some people cash”. Less than two years after the Erina store opened, as it continued to fail to produce the profit margins the Temelkovskis were led to expect, Mr Siderovski changed his tune on the store’s potential. Newcastle Herald: What’s making news in the Hunter Considering selling the store, Mr Temelkovski emailed Mr Siderovski in August 2016.  “As our financial adviser and accountant we kindly request your assistance … to obtain the required clarity to make this important decision for our family,” he wrote. Mr Siderovski responded the same day. “We can meet this week, but this is my advice for you and what I will tell you and Di as I did last time. You are not going to find the financial outcomes you want from a frozen yogurt store in Erina,” he wrote. “There is no opportunity to buy more stores and the uncertainty of retail and the particular industry is not going to provide the financial clarity you are after … It is an uncertain industry that we don’t have a lot of control over. My advice is to move on.” Yogurtland Australia made a $400,000 offer to buy the store, which would have resulted in a loss of hundreds of thousands of dollars in about two years. When Mr Temelkovski labelled the offer “not fair”, Mr Siderovski said the “fact the store did not do what you expected or what we anticipated is what it is”. “The model overall has underperformed, you have one of the best stores, there are a number not even close to break even,” Mr Siderovski wrote. He later continued: “Things have changed and the way the relationship with the franchisees has gone I have chosen not to franchise anymore stores.” Mr Siderovski told the Herald this week that there was no decision made to stop franchising stores and “future franchise opportunities are being explored”. He also confirmed he is not qualified to offer financial advice to clients and said he “does not provide finance advice”. It didn’t help that the three franchisees who lodged disputes with Mr Siderovski were clients of SiDCOR Chartered Accountants when they bought into Yogurtland Australia, leading to allegations that Mr Siderovski had a conflict of interest because he owns both companies. When asked about the potential conflict of interest, Mr Siderovski said many of the franchisees were successful business people, owning their own businesses or having executive positions in large companies. “No franchisees were inexperienced in business or lacked in business acumen,” he said. As the managing director of SiDCOR – the franchisees’ accountant – Mr Siderovski held a position of trust, had intimate knowledge of the franchisees’ finances and his guidance was sought. Concerned about lack of profits at her Marketown store, franchisee Samantha Worth reached out to Mr Siderovski in June 2015 asking for help. “When [husband] Andy and I met with you a few weeks ago you were going to look into why we seem to be making very little in profit,” she wrote. “I am concerned we are operating week-by-week at the moment.” About a year after Mrs Worth’s email, Mr Siderovski emailed Mr Worth, responding to questions the couple asked about the initial price they paid for the Marketown store, $620,000, and the possibility of Yogurtland Australia buying it back. “The fact that the store has not done what I anticipated is not something I have control of,” Mr Siderovski wrote. “It is what it is …Yes, stores now sell for approx. 400k but this is plus contributions from the centres (50-100k) so it is not black and white to say we charged this much and we now charge this much.” As a “goodwill” gesture Mr Siderovski offered to “personally” refund $120,000 towards the purchase price of the store or buy it for $450,000, but the deal did not go through at that time. Further complicating matters was a plan for two of the franchisees to use part of their Self Managed Super Funds (SMSF) to help fund the purchase of their stores. In a series of emails in November 2014, as the Worths were sorting out how to fund the purchase of the Marketown store, Mr Worth asked Mr Siderovski about the couple’s finance options. “The balance up to $620k will come from super,” Mr Siderovski wrote. “That is between us. Love ya.” Documents obtained by the Herald show that Mr Siderovski asked the Temelkovskis if he could borrow money from their SMSF to help build more Yogurtland stores. A later spreadsheet details that $230,000 from the couple’s super fund was to be used to help pay for the Erina store. But Mr Siderovski told the Herald this week that “no money from any SMSFs was used to purchase” a franchise. According to a spokeswoman from the Australian Taxation Office, SMSFs can only be used to provide retirement benefits for members. Problems in the relationships accelerated when the four disaffected franchisees, three from the Hunter and one from the Central Coast – who operated stores in Marketown, Cessnock, Erina and Western Australia – organised a private meeting in New Lambton in June 2016 to discuss their ongoing concerns. After finding out about the meeting, Mr Siderovski wrote to Mr Worth that his patience with the “franchisees has run out”. “We bend over backwards for them and discussion really is one point … revenue,” he wrote the day before the meeting. “I can’t wave a magic wand and it is retail… There are four franchisees and the head f— they give us compared to franchise systems that provide less support with larger numbers is a joke.” According to notes taken from the meeting the franchisees were frustrated and angry, questioned if Yogurtland Australia was “viable”, expressed concern about lack of leadership and discussed if an exit strategy was required. Yogurtland Australia responded with individual meetings and a “highly confidential” two-page document labelled “Plan going forward” which advised that the business “will continue” and that its future was exciting. “We acknowledge that there are many things that YL [Yogurtland] could have done different in its approach, delivery and communication with its corporate-owned stores and franchisee stores,” it reads. “We have listened and heard feedback from meetings with franchisees and certain changes have now been put in place going forward.” Mr McDougall described the document as a “huge blow” because it advised franchisees to “at least work shifts in the business, if not manage the store” to reduce costs. “My store was in Western Australia and I live in NSW,” he said. “I specifically bought the store to operate it as an investment with a manager.” Not long after the group meeting in mid-2016, the Cessnock franchisee’s store was taken over by Yogurtland Australia and ran as a corporate store until it closed this year. The former franchisee declined to speak to the Herald. Trench warfare between the remaining three franchisees and Yogurtland Franchising continued and the tone of Mr Siderovski’s emails – in which he regularly called Mr Temelkovski and Mr Worth “brother” and signed off emails by writing “love ya” – changed. In emails between Mr Siderovski and Mr Temelkovski in September 2016, the pair argued over a price for Yogurtland Australia to buy the Erina store. “We have paid a high premium (top dollar) for the YL Erina franchise. The highest out of all the franchisees,” Mr Temelkovski wrote. “The reason people buy a franchise model is that it is meant to be plug and play. Effectively you are buying a tried and tested system with the support structures. This you must admit has not been the case with our franchise model.” Mr Siderovski responded: “Every franchise model is the same Tony. It does not work perfectly.” Mr Temelkovski continued: “Ever since we have started working with you as our advisor seven years ago we have trusted you implicitly and followed your advice 100% and have always treated you as family even though we have had mixed success.” Mr Siderovski replied: “This is part of the trial and error and growing. Saying anymore on this will only infuriate you and not resolve anything. Going forward you will need to seek help elsewhere from a financial point of view.” The situation deteriorated until the unhappy franchisees sought legal advice and lodged official disputes with Mr Siderovski in February 2017. Under the terms of the franchise agreements, the move triggered confidential mediation sessions that were held in mid-2017, overseen by Derek Minus, the government-appointed Franchising Mediation Adviser. Mr Minus, who has publicly stated that the mediation system should be replaced by a dispute process that can issue binding determinations, said he could not discuss the cases. He said Mr McDougall’s case remained open. Mr McDougall also said he could not discuss the mediation. As the drawn-out Yogurtland dispute continued, a new threat to the franchisees’ survival emerged. Struggling with their stores, the franchisees then handed over a total of $103,000 in legal fees leading up to and during the mediation. Eventually, the Erina and Marketown stores were purchased by Yogurtland Australia under a confidential settlement and Mr McDougall, unable to get head office to buy the West Australian store, closed it on April 30 last year. Mr Siderovski said Yogurtland had no intention of opening corporate stores in Western Australia, he said the Erina and Marketown stores were “bought back” at “real value”, and “we deny any losses were suffered”. The McDougalls were devastated by the outcome and angry  they did not have the funds to continue the legal fight. Mr McDougall said he felt they pursued every avenue they could afford available to them under franchising regulations and that no one could help them. He said the franchisees and their lawyer believed they had a good case. However, deep pockets usually win legal battles. As for the Yogurtland chain, it no longer has any franchisee stores. Fourteen corporate stores remain, with 11 across NSW – including two in the Hunter – and one in Queensland, Victoria and Canberra. Mr Siderovski said it was Yogurtland US that believed Australia was a 50-store market. Do you know more? Contact the writer:

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