Franchise drama at Woolies AGM

Cape Town - Franchisees at Woolworths Holdings threatened legal steps against the retail giant after an attempt to nominate one of their members to the board was declared invalid.

The Woolies annual general meeting (AGM) held on Thursday morning was attended by a number of franchisees determined to voice their concerns over a "shift" in the group's franchise strategy.

There are about 80 Woolworths franchise stores - mostly situated in smaller towns or suburbs - operated by 37 franchisees.

The franchisees, headed by Pretoria-based Dennis Hamer, reckoned about 20% of Woolies' turnover is derived from franchising. But Woolies CEO Simon Sussman estimated the figure to be materially less than that.

The nub of the matter for the franchisees appeared to revolve around Woolies looking to assimilate franchised operations - the suggestion being that the franchised stores would be bought back by Woolies when franchise contracts expired.

Hamer told shareholders that buying back the 80-strong franchised operations could cost Woolies around R2.4bn, a development that would result in the group immediately losing R160m in income.

He believed it would be more cost effective for Woolies to simply open up 80 new Woolies outlets, an exercise that would cost about R240m.

But Hamer also noted that Woolies' decision to open company-owned stores in close proximity to existing franchise operations was having a devastating effect on turnovers.

As such the franchisees - of which it seemed perhaps a dozen were present at the meeting in their capacity as Woolies shareholders - were keen to engage directors. Apparently a request from franchisees to meet directors before Thursday's AGM was turned down.

Franchisees followed proper procedure

It transpired during the AGM that the franchisees had earlier this month advised the Woolies board of an intention to nominate a director in place of Peter Bacon, former CEO of Sun International.

Hamer was careful to point out that the franchisees had followed the letter of the law in terms of the stipulations contained in Woolie's articles of association around the nomination of a director. He stressed that guidance was sought from Woolies company secretary, Cherrie Lowe.

Hamer complained that Woolies had not acknowledged the nomination from the franchisees and consequently had not informed its shareholders of developments.

Hamer asked that the resolution to re-appoint Bacon be removed and suggested the matter be placed on the agenda for a future general meeting.

The matter was deferred until after voting on all the other resolutions was passed. When the matter was put to the meeting again, Wooltru chairperson Buddy Hawton said that legal opinion sought by the group had deemed the nomination "invalid".

Hawton would not explain exactly what was invalid about the nomination. "I'm treating it as invalid... you will not get any more out of us. We have the legal advice and that's the situation."

Bacon was duly re-elected to the board.

An exasperated Hamer vowed to report the Woolies company secretary to the JSE for failing to fulfil her duties, as well as seek legal action to force the company to have the resolution around re-appointing Bacon nullified.

Hamer - perhaps in a thinly-disguised reference to Bacon's lack of retail experience - pointed out that franchisees were mostly ex-Woolies senior staff with a collective span of 300 years of retail experience. "We can add value to shareholders."

Hawton said he was disappointed that the franchisees had chosen such a confrontational route. "This is not something we expect from a partner... it makes things very difficult. This behaviour is out of the norm. It's a great pity it got to this."

- Fin24.com