Rich Lister Sean Tomlinson's Croissant Express faces creditor, franchisee claims

Michael Bailey
June 21, 2018
AFR

Young Rich Lister Sean Tomlinson bought Perth chain Croissant Express in 2013 as a captive customer for the point-of-sale system that’s the basis of his $154 million fortune, but now creditors are seeking to wind it up and franchisees are claiming ruin.

Previous Croissant Express owner Banksia Capital had in a 2013 tender process rejected the point-of-sale system offered by Revel Systems, in which Mr Tomlinson and business partner Tim Tighe had just invested $10.1 million, former franchisee Kyle Hudspeth claimed to The Australian Financial Review.

However, Mr Tomlinson then purchased the entire franchise network through his Hong Kong investment company Consolidated Foods, and proceeded to install the iPad-based systems in each store.

“They were wonderful cash registers, but I already had two of those, and the cost was ludicrous, something like $18,000 a store,” he said.

Mr Hudspeth said he did not know about Mr Tomlinson’s interest in Revel until six months after its POS system had been installed. Mr Tomlinson did not respond to requests to comment for this article.

“I never signed up to do business with these people, and from the moment of their takeover there was a rapid decline in all aspects of the business,” Mr Hudspeth said.

Mr Hudspeth bought into the network in 2011 but gave up on the last of his two cafes in 2016, and is now being sued for $250,000 by Croissant Express for breaking a 10-year franchise agreement six years early.

Among Mr Hudspeth’s claims to the current Senate franchising inquiry are that money was paid to Revel Systems from Croissant Express’ franchisee-funded marketing budget without consultation, that sales were hurt by supplier changes from Coke to Pepsi and from fresh food to frozen food, which were motivated by rebates payable to the franchisor, and that franchisees were obstructed from selling stores by the franchisor, which he claims persuaded incoming franchisees to buy company-owned stores.

Croissant Express operations manager Steve Andrews “dismissed and disputed” all of Mr Hudspeth’s claims. 

“There’s always good and bad franchisees. We’ve had positive sales improvements in a lot of our stores, trading 20 per cent up on last year,” Mr Andrews said.

“We consult with our franchisees about every decision affecting them. We’ve just put a lot of work into relaunching our catering business. We’re looking at opening two more stores in the next six months, things are going well.” 

The application to wind up Croissant Express’ trading business, Croissant Express Franchising, has been made by a franchise broker, Franchise 4 U.

Franchise 4 U director Kevin Bujega refused to comment on a matter before the court, however, the dispute is understood to relate to unpaid commissions for it finding new franchisees for Croissant Express. 

“We’re sorting out a matter with a supplier, we won’t be winding up,” said Mr Andrews. 

Last year Mr Tomlinson’s company Milrow, which held licences to occupy on behalf of Croissant Express franchisees, was put into administration over unpaid rent. Another former franchisee, Hiren Panchal, said in a separate submission to the Senate inquiry that this caused him to lose his store.

Current franchisees spoken to by The Australian Financial Review had a mixed response on how the chain was performing.

One agreed the introduction of some frozen food had hurt sales, although another said the quality of the food was “great”, and they were confident enough to spend their own money on refurbishing their store.

However, all of those interviewed doubted the value of the 3 per cent marketing royalty they paid to Croissant Express, and all said the business model relied on them working long hours in their own stores.