AFR 4 October 2008. AFR 4 October 2008. Caltex service station Hazelbrook NSW. Generic Fuel petrol Infurstracture Pic Sasha Woolley SPECIAL 0000Caltex’s ranks of company-run corporate stores is growing at an accelerated pace as the oil giant’s pursuit of wage fraud amongst in its network of service stations runs in parallel with a complete review of its retail operations.
On Tuesday, the oil giant Caltex revealed it had taken over the running of more than 80 service stations after discovering potential underpayment issues, as part of its half-year results announcement.
The company has been trying to investigate and stamp out wage fraud, after a Fairfax Media investigation showed widespread worker exploitation among some store networks.
Over the past 12 months the number of company-run stores has increased by almost 70 per cent, as Caltex absorbs those franchisees who have left the network over wage fraud issues and makes new acquisitions.
In June last year Caltex operated just 138 stores. By December that number had grown to 152. And by June this year it had grown again to 233.
Meanwhile the number of franchisee-run stores has fallen from 645 in June 2016, to 641 in December and 572 in June 2017.
The bulk of these changes have resulted from franchisees who have exited after being audited for wage fraud, however some may have resulted from the acquisition of new stores.
The cost of combating wage fraud has also taken a toll. It’s half-year results show the contribution of non-fuel income fell 14 per cent to $72 million, weighed down by the transition costs of existing franchisees with underpayment issues.
Income from franchise fees fell by $2.6 million, royalty income was down $2.5 million, while fee relief to struggling franchisees increased.
Caltex has pledged to investigate all its franchise stores to get a handle on the extent of wage fraud in its network. In May, Fairfax Media revealed almost 80 per cent of stores audited in the first phase of the investigation, were underpaying their staff.
The company said at the time the high rate was not unexpected because it started with those operations where it had suspicions wage fraud had occurred.
Tuesday the company said by July, 107 sites had been “transitioned” from existing franchisees, but only 35 had been re-franchised.
It comes as the company announced a review of its operating model, which will include looking at its franchise network.
Called “Quantum Leap”, the review will be looking at all aspects of the business including the proportion of stores run by the company and the proportion run by franchisees
“It is fundamental review of the way we do business,”chief executive Julian Segal said Tuesday.
“Nothing is off the table.”
Mr Segal however said there was no link between Quantum Leap and increased corporate store ownership count resulting from franchisees existing the system over underpayment concerns.
“There is no correlation between the outcome of what we are doing in terms of fixing the fraud issue that has been perpetuated by some of our franchisees,” he said.
“The question of how many sites we run … is in the realms of Quantum Leap.”
Terminating a franchisee enables Caltex to take back a store for a fraction of its market price. This has led some aggrieved franchisees to accuse the company of using the underpayment to cheaply bolster its corporate-store numbers.
In one case revealed by Fairfax Media last year, a franchisee was terminated from seven stores, which he estimates were worth $5 million on the secondary market if sold to another franchisee.
In the past Caltex has denied this. Mr Segal previously said terminating franchisees was a costly exercise and even when it did occur, franchisees were remunerated for their assets.