The former franchisee of a Guzman y Gomez outlet in Kennington is seeking damages from the Mexican food chain, claiming the restaurant operated at a loss of more than $530,000 over six months – in part because of a defective drive-through designed by the company.
Andrew John Hodgson and his company have lodged a writ with the Supreme Court of Victoria, alleging Guzman y Gomez engaged in unconscionable conduct and made misleading representations about the Kennington outlet’s prospective profitability when they entered into a franchise agreement.
A Guzman y Gomez spokesperson said the company “takes our responsibility as a franchisor seriously and we treat our franchisees as business partners and family”.
After making initial queries with the company, Mr Hodgson claims he told Guzman y Gomez’s co-founder and executive director Robert Hazan in April 2017 that his primary consideration was the profitability of a restaurant or restaurants.
The writ says Mr Hodgson said he sought to enter into a franchise agreement from which he could derive the greatest profit, and told Mr Hazan he would move anywhere within Australia to operate such a restaurant.
That month, the writ says, Hazan sent Mr Hodgson a document that said sales were forecast at $60,000 per week.
Despite discussions regarding potential opportunities in Queensland and Western Australia, the writ says Guzman y Gomez pressured Mr Hodgson to invest in and operate its restaurant in Kennington.
It is alleged this was because the previous franchisee was terminating their agreement with the company, and the company “urgently sought to replace (him) with another franchisee” to avoid paying rent at that site.
Mr Hodgson entered into franchise agreement negotiations in August 2017, and in late January 2018, the agreement was finalised. But it is alleged the restaurant operated at a loss of $530,000 until July 26 last year.
The following day, the writ says, Guzman y Gomez took over operation, “knowing the Kennington restaurant was financially unviable”.
It is alleged the drive-through designed, approved and built by Guzman y Gomez was defective, and detrimental to the restaurant’s sales and reputation.
Problems listed in the writ include a layout that saw many vehicles run into the restaurant building, and customers’ vehicles being too far away from the microphone and speaker box to effectively place their orders.
Other alleged problems include vehicles being unable to effectively reach the cashier window, and customers having to make multiple turns within the drive-though to complete their purchase.
Works carried out by Guzman y Gomez and its contractors to rectify the problems were not effective, the writ says.
The plaintiffs claim Guzman y Gomez’s strategy for new franchises intended they derive most sales and profit from drive-through, and the Kennington restaurant was one such restaurant the company intended to follow this model.
But the writ says the Kennington site was not viable for a drive-through restaurant.
Mr Hodgson and his company claim to have paid about $1.3 million to build and establish the restaurant, but Guzman y Gomez had allegedly said start-up costs would be no more than $990,000, as well as $110,000 in other costs.
The writ says the build and fit-out of the restaurant alone cost more than $1 million.
Mr Hodgson also claims Guzman y Gomez represented the Kennington site as the best location in Australia to operate a franchise, which he asserts was also false, misleading and deceptive.
“GYG did not close to the first plaintiff or plaintiffs that GYG had more profitable restaurants than the Kennington restaurant at sites in Cranbourne and Moorabbin in Victoria,” the writ said.
The writ says Mr Hodgson and his company would not have entered into the franchise agreement had these representations not been made.
Mr Hodgson and his company are seeking damages or equitable compensation, as well as interest, costs, and any other relief the court sees fit.
The Guzman y Gomez spokesperson said the company was considering the claim and “expect to file our defence at the appropriate time”.
Guzman y Gomez announced plans for the Kennington store, located in the Kennington Village complex, in 2017.
It opened the following year.
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