• Andrew Matheson

Priceline staring down class action by irate pharmacy franchisees

Published on written by Miklos Bolza

Pharmacy giant Priceline is the target of an "imminent" class action, with a group of dissatisfied franchisees accusing the company of exercising an "overly prescriptive" level of control over its franchises and fettering profitability.

In the proposed class action, run by Sydney law firm Levitt Robinson, current and former franchisees will allege that Priceline's franchise agreements were "unfair and unlawful" because they gave the company a level of control that breached state legislation, limited profits, and stopped franchisees making the best decisions for their businesses.

"The action's aim is to add value to your investment by obtaining a new, fairer and compliant franchise model. This would enable franchisees to maximise their profitability and as a corollary increase the resale value of their business," according to the web site for the class action.

The class action, which will be led by former Federal Court Justice Ron Merkel QC, will be run using an opt-in model with Levitt Robinson only acting for franchisees who sign funding agreements. The funder backing the proceedings, whose name is unknown, will seek a commission of 30 per cent.

The 'kiss of death' for Priceline franchisees

In a video to potential group members, Levitt Robinson senior partner Stewart Levitt said that Priceline's business model encouraged loyalty but that the price of that loyalty for franchisees was"too high". "The whole Priceline model seems to reward people notionally for loyalty but the price of loyalty is often too high a price to pay. Priceline stores are frequently not competitive to the point where a Priceline franchisee sees a Chemist Warehouse taking over a nearby pharmacy, it's effectively the kiss of death for Priceline."

Provisions which allegedly breach the state legislature include requirements to stock through

Priceline's merchandise range, place orders through its auto-replenishment system, only order through Priceline's parent company Australian Pharmaceutical Industries, comply with its visual merchandising systems, and price items as determined by Priceline.

"The longer they stay in the system, the bigger the debt becomes. The system of replenishment appears to be a way of churning debt for the franchisees so that ultimately they owe so much money for stock that is effectively surplus stock that they're driven into the ground. Their profitability is extremely negatively affected to the point that I've spoken to a number of franchisees whose companies have gone into administration or liquidation or they've been bankrupted themselves," Levitt said .

"When they try to avoid the auto-replenishment system and opt out, they find that their access to stock from Priceline itself is extremely limited and they're last in the pecking order and their access to rebates can also be adversely affected."

Priceline slammed for 'overly prescriptive' business model

Franchisees are encouraged to join the proposed class action if they were a franchisee of Priceline at any time after November 19, 2010 and are located in NSW, Queensland or Victoria. According to a statement from Class PR, the public relations firm promoting the class action, Priceline had a tendency to "over-promise and underdeliver". Priceline has been accused of alack of transparency regarding rebates and in-store pricing, poor inventory management, and an "overly prescriptive" Brand Alignment Scheme.

"If [the franchise provisions] are found to contravene the legislation, they could be deemed void and unenforceable. The amounts you paid to Priceline in compliance with these provisions could then be refunded to you," Class PR said.

"Further, if you have lost the opportunity to acquire stock from API's competitor at a better price and/or have been unable to obtain rebates from alternative suppliers, you may be able to recover damages for the loss of this opportunity."

Damages sought will include loss of profits and compensation for acquiring stock from API at inflated prices and the inability to gain rebates from alternative suppliers.

Lead applicant Chris Lemon has had an interest in an independent pharmacy as well as two Priceline stores in Sydney and has been able to compare profitability between the two business models.

"When I went into Priceline, I expected that the buying at Priceline would be significantly better than my independent store, which is with Pharmacy Alliance. But that wasn't the case at all. In fact, the terms were worse," Lemon said in a video statement.

Attempts to resolve the case with Priceline before now had been unsuccessful, Levitt told Lawyerly.

"The prospective lead applicants attended an unsuccessful mediation in their individual capacities two years ago and there have been preliminary skirmishes in correspondence which make pre-commencement settlement seem unlikely," he said.

Lawyerly has contacted Priceline for comment.