AFR | API facing class action from Priceline franchisees
Takeover target Australian Pharmaceutical Industries (API) is facing a pending class action from current and former Priceline franchisees who claim the company has excessive control over their pharmacies and requires them to pay fees that are in breach of regulation.
API - now in the sights of conglomerate Wesfarmers, which made a surprise $687 million all-cash bid on Monday - operates company-owned Priceline stores (with no pharmacy attached).
It also has Priceline Pharmacy franchised stores, which must be owned and controlled by pharmacists under the pharmacy business ownership laws across NSW, Victoria and Queensland. The API network is about 474 stores.
Pharmacist Chris Lemon is the lead plaintiff in a pending class action against API, expected to be lodged in Victoria in August. Jessica Hromas
Stewart Levitt, of Levitt Robinson Solicitors, is leading the class action, which is being funded by a company associated with New York firm Galactic Litigation Partners.
He said at least 30 current or former franchisees are participating in the claim, which is expected to be lodged in the Supreme Court of Victoria in August.
Priceline franchisees dating from November 2010 will allege API uses its position to charge unacceptable fees, including distribution fees and loyalty program Sister Club fees.
API charges the pharmacy 6 per cent of over-the-counter items purchased even if API does not handle the product. API also takes 3 per cent of the total basket size every time a Sister Club member swipes their card.
The franchisees will also seek to recover the benefits lost due to Priceline withholding rebates for not complying with mandated in-store product displays.
Former franchisee Chris Lemon, who operates an independent pharmacy in Sydney’s Frenchs Forest, and previously had two Priceline stores at Manly and Chippendale, is the lead plaintiff in the class action.
Separately, Mr Lemon is tangled in a civil case with API, which claims he owes it $2.1 million following the sale of his two shops in 2019.
After a failed mediation between the pair, Mr Lemon is seeking a counterclaim of $9.25 million in loss of profits, unpaid rebates, excess fees and the loss of value of his businesses.
“We sold those businesses for $5 million or $6 million less than we should have after API failed to pay rebates and overcharged us for inventory,” he told The Australian Financial Review.
In a counter claim to API’s civil action, Mr Lemon said the company was using point of sales systems to dump stock in the stores, according to court documents.
“Our stock in the city store went from $500,000 to $1.02 million over the six-month period after API botched the integration of the new SAP system, which did not allow us to make any alterations to allocation orders for our health and beauty products for catalogue sales,” he said.
Mr Lemon ran the two since liquidated Priceline Pharmacies with his mother and family friends, Anthony and Mark McHugh, who combined have over 100 years experience owning pharmacies.
“We have owned our independent pharmacy since 1989, and it’s highly profitable,” he said.
Another former Priceline franchisee in Queensland, who joined the class action, but declined to use his name, said he experienced a similar situation, where Priceline’s operational costs and debts were so great he landed in financial hardship, which “ruined his life”.
The man, who was a pharmacist for 27 years and spent five as a Priceline Pharmacy owner, also had four other independent pharmacies.
An API spokesman said the class action failed to gain traction for two years, and no class action against Priceline Pharmacy has been served.
“Apparently, it can only proceed if enough franchisees agree to a funding agreement,” he said.
“Priceline remains focused on supporting our franchisees through these difficult times and doing our utmost to help ensure that they can fully play their role in the distribution of COVID-19 vaccinations.
“We will protect the brand and business we have built together.”
Original article can be found here.