Nando’s $2500 insult after flood wipe-out

 

EXCLUSIVE

A former Nando's franchisee says he was left high and dry when his $700,000 store was completely destroyed in the 2011 Brisbane floods - only to be stabbed in the back after getting on his feet a few years later.

William Manuel, 65, closed the book on an unhappy 12 years with the South African chain when his franchise agreement ended in April, leaving him worse off than when he first bought the St Lucia store in 2007.

"Nando's plays a very dirty game," he said.

"The way they treated franchisees is atrocious, absolutely deplorable. They brought us all into the system calling it a family business. But if they treat family like this, I don't know how they would treat their enemies."

Mr Manuel is one of a growing number of former franchisees to accuse the peri-peri empire of unconscionable conduct - but the company has strongly denied his allegations, blaming his woes on "significant operation deterioration" and a 2017 health violation that resulted in a $12,000 fine from Brisbane City Council.

In response, he claims the mould was "just a one-off event" that occurred because the family was overseas at the time and standards slipped. "We were not around, there was a slight lapse," he said. "The store was rectified and within three days everything was up and running."

Nando’s St Lucia was ‘completely destroyed’ in the 2011 Brisbane floods.
Nando’s St Lucia was ‘completely destroyed’ in the 2011 Brisbane floods.

FLOOD WIPES OUT STORE

In January 2011, the Brisbane floods "completely destroyed" Mr Manuel's store, just up the road from the University of Queensland.

"We were totally inundated," he said. "The whole store was gutted. The force of the floodwaters lifted the cold room and freezer off the floor and into the ceiling."

With insurer Allianz denying a payout, Mr Manuel claims he "got absolutely no help" from Nando's, which declined his request to waive his franchise fees for the month of the disaster "on compassionate grounds".

"They just completely refused, saying it would create a bad precedent," he said.

Nando's instead agreed to defer his fees. The company describes the flood as an "unfortunate setback" but "strongly denies it was not supportive", saying it provided "extensive support" including "assisting with the clean-out".

Mr Manuel "categorically" denies any financial support, saying a Nando's employee came "for one day to look around" but that was all.

William Manuel says Nando’s provided ‘absolutely no help’.
William Manuel says Nando’s provided ‘absolutely no help’.

FLOOD COVER 'UNAFFORDABLE'

Mr Manuel concedes he was underinsured, saying the flood cover add-on was an extra $10,000 to $15,000 a year he couldn't afford.

"But otherwise the policy did say water damage from tsunami, flash flooding, burst pipes, stormwater drains but not from a slowly rising flood," he said.

An Allianz spokeswoman said its policies never included a term like "slowly rising". She said the insurer's policies in 2011 used wording that was subsequently regulated by the federal government as the "standard definition of flood".

That definition is "the covering of normally dry land by water that has escaped or been released from the normal confines of … any lake or any river, creek or other natural watercourse, whether or not altered or modified … or any reservoir, canal, or dam".

"Allianz is acutely aware of the issue of affordability of flood cover and has been proactively advocating to government and through multiple government reviews and inquiries since 2011 on the need for the government and industry to develop a mechanism to reduce the cost of flood cover to more affordable levels," she said.

The store was rebuilt but Nando’s demanded a refurbishment a few years later.
The store was rebuilt but Nando’s demanded a refurbishment a few years later.

REBUILD AND REFURBISH

After the floods, Mr Manuel says he used up his retirement savings and even had to borrow money from his son to rebuild the store at a cost of $500,000 - a figure disputed by Nando's.

Just a few years later in 2015, a Nando's employee demanded he fork out another $250,000 to refurbish or lose his franchise agreement.

"He forced us," Mr Manuel said.

"He said, 'You have to do a completely new refurbishment'. We argued, 'Look, we just had the floods, we had to rebuild from scratch, we need a bit of consideration. Either bring the costs down or give us an exemption'. He refused, he said, 'If you don't do this, it becomes a legal matter and we can take the store off you'."

On the excessive cost, Mr Manuel's wife Jaya, 65, recalls when they got the initial fit-out in 2007 they paid a $7000 bill for the designer and were confused when they received another bill also for $7000.

"I phoned the designer and he said, 'No, that is for the company, now you have to pay me'," she said. "That is when I realised that everything was doubled."

Mr Manuel says he spent $500,000 to rebuild after Allianz denied a payout.
Mr Manuel says he spent $500,000 to rebuild after Allianz denied a payout.

NANDO'S 'KILLED OUR PROFITS'

In May 2016, just a few months after they refurbished, Nando's opened a company store in nearby Toowong shopping centre, just 1.5km away and within their franchise territory.

Under the franchise agreement, stores within shopping centres are exempted, but Mr Manuel says Toowong had exterior frontage and effectively wiped out his dinner trade, causing his sales to fall by 50 per cent from nearly $25,000 a week to $12,000.

"It killed our profits," he said.

"We started running into financial difficulties, cashflow problems. We acted in good faith thinking Nando's would do the right thing by us if we did the refurbishment. If I had known they were going to do this I would never have spent that money on the expensive upgrade."

Figures provided by Mr Manuel show Nando's St Lucia's had sales of more than $1 million in 2013 and 2014, $965,000 in 2015, before dropping to $751,000 in 2016, $647,000 in 2017 and $562,000 in 2018.

Nando's, however, claims there were "were various other factors likely to have contributed to the declining sales of the St Lucia business, including significant operation deterioration".

‘The waters lifted the cold room and freezer into the ceiling.’
‘The waters lifted the cold room and freezer into the ceiling.’

THANKS FOR THE $2500

Shortly after completing the refurbishment but prior to Toowong opening, Mr Manuel attempted to sell his store to a new owner.

That offer of $650,000 would have solved his financial woes and paid out his loans, he says, but Nando's blocked the transfer "on flimsy grounds". To add insult to injury, they charged him $2500 "for the pleasure" of interviewing the candidate.

"We paid it in good faith because these guys looked like serious buyers and it was a cash-down offer," he said. "I had over three years to run on the lease, it was an unconditional cash contract, everything was signed and about to settle."

He believes Nando's knew it was going to close his store permanently when his agreement ended in 2019 "so they didn't want to have to negotiate with a future buyer".

Nando's, which says the $2500 is a "reasonable fee", counters it was "clear that the candidate was not a suitable franchisee and was not willing to comply with the Nando's model".

"Nando's had little choice but to reject their application," the company said.

William and Jaya Manuel in their new Zambeekas restaurant.
William and Jaya Manuel in their new Zambeekas restaurant.

'GET YOUR PERI-PERI FIX'

When his agreement ended in April, Mr Manuel - who still owes nearly $700,000 to the bank - had around $20,000 in unpaid franchisee fees due to the financial woes he blames on Nando's.

He asked Nando's to "at least write off this debt (because) you put me through so much crap", but they "refused and kept pursuing me for it".

"They gave me no compensation whatsoever for all the blood, sweat and tears we went through," he said. "Zero, zilch. Not only that, I had to strip everything out (of the store) and basically jump in the Brisbane River with my stuff."

The Manuels have since reopened in the same location under a new lease as part of the Zambeekas brand but are "still struggling".

Sales are currently around $25,000 a month, less than half of even the reduced level under Nando's. "As a new unknown brand it's an uphill battle," he said.

"In fact, when we reopened, Nando's were cheeky enough to send emails to my regular customers saying, 'Nando's St Lucia is permanently closed. Please get your peri-peri fix at Toowong'."

frank.chung@news.com.au

Nando’s has strongly denied Mr Manuel’s allegations.
Nando’s has strongly denied Mr Manuel’s allegations.

NANDO'S FULL STATEMENT

Nando's strongly denies it was not supportive of Mr Manuel during his time as a franchise partner.

Nando's provided comprehensive operational, marketing and financial support to this franchisee in an effort to help him effectively run his business. Despite Nando's best endeavours to work with this franchisee, his operational noncompliance ultimately resulted in heavy fines and prosecution from Brisbane City Council which significantly impacted restaurant performance.

The flood at the premises in 2011 was an unfortunate setback for the franchisee. We provided extensive support at the time to help the franchisee reopen his restaurant. This included physically assisting with the clean-out of the restaurant after the flooding. The insurance company's decision to deny coverage was regrettable, but ultimately beyond our control.

We do not believe that $500,000 was required to rebuild the restaurant after the flood. The invoices and documentation shared with Nando's by the franchisee suggest the rebuild figure was much less than this. The rebuild after the flood was simply a matter of repairing the restaurant to a safe and hospitable standard to allow him to reopen, not a refurbishment to the new Nando's image.

Some years later a restaurant upgrade was requested due to its poor condition and noncompliance with the Nando's image. This included broken and damaged furniture posing a potential hazard to customers as well as overall substandard appearance such as corflute signage blu-tacked to the walls. Restaurant upgrades are a standard clause in our franchise agreements and an essential condition of being a Nando's franchisee.

The upgrade was requested within the typical refurbishment window, at a time when the restaurant had not been properly refurbished in around eight years. This requirement was clearly disclosed to the franchisee upfront. Mr Manuel entered his agreement knowing an upgrade of the restaurant would be required at around this time of his agreement as part of his partnership with Nando's. Nando's received a very nominal rebate of less than $100 from a provider as a result of this restaurant upgrade. All rebate suppliers are included in our disclosure documents.

The opening of Nando's Toowong was excluded from St Lucia's territory as it is located in a shopping centre. This is clearly indicated in the franchise agreement Mr Manuel signed at the start of his tenure. In addition, our analysis suggests that the opening of the Toowong restaurant had minimal impact on his business.

Shopping centres are excluded from our franchise territories as they generally attract a different customer base from within existing shopping centre traffic. This is a very common exception to exclusivity across the franchise sector, so this scenario is not unique to Nando's. Nando's attempted to assist the franchisee with numerous local area marketing opportunities to help grow the business, however the franchisee declined all opportunities.

There were various other factors likely to have contributed to the declining sales of the St Lucia business, including significant operation deterioration. From there, sales continued to decline at the St Lucia restaurant each year consistent with the continued decline in operational standards.

The candidate put forward in 2015 by the franchisee to purchase his restaurant was rejected on entirely reasonable grounds, in accordance with the requirements of the Franchising Code of Conduct. The candidate was unwilling to sell core Nando's menu products and commit to our essential minimum eight- to 12-week structured training program to become a franchisee, the costs of which are covered by Nando's.

The assessment of the potential buyer took almost two months to complete, during which time Nando's tried to work with the franchisee and the candidate to facilitate a sale. Ultimately, it was clear that the candidate was not a suitable franchisee and was not willing to comply with the Nando's model, so Nando's had little choice but to reject their application for the above reasons. Mr Manuel was provided with a detailed letter from Nando's explaining the reasons behind the rejection of the candidate and these reasons were also discussed with him directly prior to him receiving the letter.

Nando's was unaware that Mr Manuel is now operating a business in competition to Nando's.

Nando's does require a $2500 + GST fee to be paid by franchisees for any potential buyer. This covers the cost of a third-party online assessment of the candidate, interviews and reviewing key documents (i.e. business plans, budgets).

This is a reasonable fee for Nando's to charge, in an effort to recoup the time and costs we incur in assessing new candidates. In return, after a successful sale, Nando's fully funds eight to 12 weeks of training for incoming franchisees at no cost to them. This is quite unique in the franchising industry where these training costs are generally required to be covered by either the incoming or outgoing franchisee.

When undertaking a restaurant refurbishment, a fee is paid directly to the designer who the franchisee appoints to complete the refurbishment design (i.e. the design itself and drawings). Separate to this, Nando's charges a $6500 + GST fee to cover project management support from the Nando's design and construction team, who fully support and manage all aspects of the project including restaurant design, tender, project completion, defect tie-up and post project review. This fee is fully disclosed in the Nando's disclosure document and again on the refurbishment CAPEX when presented to franchisees for approval.