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\ Deacons 1

31 July 2009

Express Post

The General Manager Adjudication Branch Australian Competition and Consumer Commission GPO Box 3131 Canberra ACT 2601

Our Ref: 2676622

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..~ -- L RACV Tower 485 Bourke Street Melbourne Vic 3000 Australia GPO Box 4592 Melbourne Vic 3001 DX445 Melbourne Tel +61 (0)3 8686 6000 Fax +61 (0)3 8688 6505 www.deacons.com.au ABN 32 720 868 049

Other Offices Bnsbane Canberra Perth Sydney

Independent Affiliated Firms Hong Kong Indonesia Malaysia People's Republic of China Singapore Taiwan Thailand V~elnam

Dear Sir

The Noodle Box Franchising (Aust) Pty Ltd - Form G notification

We act for The Noodle Box Franchising (Aust) Pty Ltd (Noodle Box).

We refer to our previous correspondence with Guy Launder and Michael Dowers of the Australian Competition and Consumer Commission (ACCC) (reference 876347).

Please find enclosed:

1. 2 versions of Form G -Notification of Exdusive Dealing (in relation to third line forcing) from Noodle Box, being:

(1) 1 version for review by the ACCC (which indudes the confidential information referred to below); and

(2) 1 version for the public register (which excludes the confidential information); and

2. cheque to the ACCC in the sum of $100 for the lodgement fee.

Noodle Box requests that the names of its nominated suppliers (as set out in annexure A to the notification) be exduded from the public register. Noodle Box makes this request on the basis that the names of the suppliers, and their involvement in Noodle Box's supply chain, comprise commercially sensitive information to Noodle Box, and in some instances the relevant supplier.

CANRERRA

Deacons

31 /07/2009

Please contact me on (03) 8686 6682 or [email protected], or Jessica Rowe (whose contact details are below) with any queries in relation to this matter.

Yours faithfully

Jessica Rowe +61 (0)3 8686 6501 [email protected]

Restriction of Publication of Part Claimed - page 10

Form G Commonwealth of Australia

Trade Practices Act 1974 - subsection 93 (1)

NOTIFICATION OF EXCLUSIVE DEALING

To the Australian Competition and Consumer Commission:

Notice is hereby given, in accordance with subsection 93 (1) of the Trade Practices Act 1974, of particulars of conduct or of proposed conduct of a kind referred to subsections 47 (2), (3), (4), (5), (6), (7), (8) or (9) of that Act in which the person giving notice engages or proposes to engage.

PLEASE FOLLOW DIRECTIONS ON BACK OF THIS FORM

1. Applicant

(a) Name o f person giving notice: (Refer to direction 2)

N q 4059 The Noodle Box Franchising (Aust) Pty Ltd ACN 115 296 387 (Noodle Box).

(b) Short description o f business carried on by that person: (Refer to direction 3)

Noodle Box is the franchisor of a network offranchisees (Franchisees) that operate "The Noodle Box" restaurants in Australia (Noodle Box Restaurants). Noodle Box Restaurants specialise in the sale of rice and noodle dishes, stir-fry's, beverages and related products under the "The Noodle Box" brand and using Noodle Box's intellectual property.

Franchisees operate Noodle Box Restaurants pursuant to a written franchise agreement with Noodle Box (Franchise Agreement).

Bodies corporate related to Noodle Box operate 4 Noodle Box Restaurants, which are located in Brisbane and Fairfield (Queensland) and Doncaster East, Geelong and Malvern (Victoria).

(c) Address in Australia for service o f documents on that person:

Suite 13A, 663 Victoria Street, Abbotsford, Victoria 3067.

2. Notified arrangement

(a) Description of the g w d s or services in relation to the supply or acquisition of which this notice relates:

Acquisition o f "Nominated Products"

This notification relates to the acquisition of the following products by Franchisees:

sauces that are created using recipes specific to Noodle Box Restaurants (Sauces);

Restriction of Publication of Part Claimed -page 10

packaging that bears a trade mark or brand owned or used under licence by Noodle Box (being noodle pails (3 sizes), chopsticks, napkins and take away bags) (Branded Packaging);

noodles (which are supplied in Noodle Box branded packaging) (Noodles); and

. uniforms, which bear a trade mark or brand owned or used under licence by Noodle Box (Uniforms).

The above products are collectively referred to as Nominated Products in this notification.

Acquisition o f "Other Products"

This notification does not relate to the acquisition of services by Franchisees, or products that are not Nominated Products (Other Products).

Under the terms of the Franchise Agreement, Franchisees may purchase their requirement of Other Products from a supplier:

entirely of the Franchisee's own choosing (for non-food products and services); or

chosen by the Franchisee from the panel of "preferred suppliers" established by Noodle Box (in relation tofood products). If a Franchisee would like to purchase a food product from a supplier that is not a "preferred supplier" for that product, the Franchisee must first obtain Noodle Box's consent to do so. The process for seeking and obtaining consent is set out in the Franchise Agreement, and includes Noodle Box considering factors such as surety of supply, price and product quality.

Noodle Box does not supply any products to Franchisees, or services other than training and advisory services in its capacity as franchisor.

(b) Description of the conduct or proposed conduct: (Refer to direction 4)

Description of the Noodle Box supply chain

Attached at Annexure A is a flow chart depicting the operation of the Nominated Product ann of Noodle Box's supply chain. As evident from this diagram, a 2 tiered structure exists in relation to the supply of Sauces, Branded Packaging and Noodles whereby:

= Noodle Box specifies a supplier of each product. (In this notification, we have referred to these suppliers, and the supplier of Uniforms, as Nominated Suppliers);

Noodle Box negotiates with Nominated Suppliers the price at which they will supply their respective Nominated Products to a centralised distributor (Nominated Distributor);

Noodle Box negotiates with the Nominated Distributor the mark-up that will be applied to the supply of Nominated Products to Franchisees. (The agreed mark up does not apply to Other Products supplied by the Nominated Distributor to Franchisees); and


- Franchisees order Nominated Products (other than Uniforms) directly from the Nominated Distributor. The Nominated Distributor acquires the relevant products from the Nominated Suppliers at the prices negotiated by Noodle Box. The Nominated Distributor then resells and delivers the ordered products to Franchisees for prices that equal the purchase price charged by the suppliers plus the Nominated Distributor's mark-up (as agreed with Noodle Box).

A single tiered supply chain exists in relation to the supply of Uniforms. That is, Franchisees order Uniforms directly from the manufacturer, who supplies them directly to the Franchisees. Noodle Box negotiates with the Uniform manufacturer the price at which it will supply Uniforms to Franchisees.

Description o f the conduct

Noodle Box will supply its services as franchisor under the Franchise Agreement on the condition that the Franchisee acquires:

Sauces, Branded Packaging and Noodlesfrom the Nominated Distributor (of if required by Noodle Box, a Nominated Supplier); and

Uniforms from the relevant Nominated Supplier (or if required by Noodle Box, a Nominated Distributor).

Trade Practices Act implications

The above conduct arguably falls within the definition of exclusive dealing in sections 47(6) and (7) of the Trade Practices Act 1974 (Cth), as Noodle Box:

supplies its services as franchisor on the condition that Franchisees acquire Nominated Products from; and

may refuse to supply its services as franchisor if Franchisees do not acquire (or have not agreed to acquire) Nominated Products from;

a Nominated Supplier or a Nominated Distributor (as required by Noodle Box).

However, asoutlined below, Noodle Box maintains that the public benefit resulting from this conduct outweighs any public detriment.

3. Persons, or classes o f persons, affected or likely to be affected by the notified conduct

(a) Class or classes of persons to which the conduct relates: (Refer to direction 5)

All Franchisees.

(b) Number of those persons:

(i) At present time:

(ii) Estimated within the next year: (Refer to direction 6)

51 Franchisees

57 Franchisees


(c) Where number of persons stated in item 3 (b) (i) is less than 50, their names and addresses:

There are currently more than 50 Franchisees.

4. Public benefit claims

(a) Arguments in support of notification: (Refer to direction 7)

Please refer to paragraph 4(b).

(b) Facts and evidence relied upon in support of these claims:

Protection o f the Noodle Box brand and system

Since the establishment of the first Noodle Box Restaurant in 1996, Noodle Box has invested significant resources in developing a sustainable business model from the perspective of both Franchisees and the franchisor. A key component of the success of this model has been the reputation developed in the"The Noodle Box" brand as an indicator of quality products that represent value for money. The appeal of Noodle Box Restaurants is also based upon the unique flavour of Noodle Box dishes, which is due in a large part to the Sauces used.

Noodle Box has been able to achieve the above by:

. managing the pricing structure within its supply chain;

controlling and monitoring the quality of key products supplied to Noodle Box Restaurants;

limiting the number of entities that it licences to use its trade marks (i.e. by only permitting the Nominated Suppliers to use the trade marks for the purpose of producing the Branded Packaging, Noodles and Uniforms for supply to Noodle Box Restaurants); and

ensuring that the recipes for its Sauces are only available to 1 supplier for the sole purpose of manufacturing Saucesfor supply to Noodle Box Restaurants.

These measures are aimed at protecting the confidentiality of the Sauce recipes, the integrity of the Noodle Box brand and reducing the risk of customers being misled by "copy" products that may appear in the market. The measures also maintain the value in, and uniqueness of, the Noodle Box system, enabling Noodle Box Restaurants to successfully compete in what is a highly populated and competitive marketplace.

Product quality

The notified conduct allows Noodle Box to monitor and control the quality of Nominated Products supplied to the network (including the delivery standards adopted by the Nominated Distributor). Product quality is obviously of critical importance to the success of Noodle Box Restaurants.

Before appointing a Nominated Supplier, Noodle Box investigates its ability to provide year round supply of high quality products. In regard to the Nominated Distributor. Noodle Box investigates its ability to provide efficient delivery services that preserve the quality and integrity of the products.


By establishing a reliable supply chain:

Noodle Box is able to ensure that consumers are provided with products of a consistent quality that meet with the standards expected of menu items from a Noodle Box Restaurant;

. Noodle Box is able to manage the price of key inventory which in turn enables Franchisees to more easily provide, or to provide enhanced, value for money to customers;

. customers are able to visit Noodle Box Restaurants anywhere in Australia and be supplied with the same high standard of quality products; and

. Franchisees can purchase Nominated Products in the knowledge that the ability of the Nominated Supplier to provide products manufactured to Noodle Box's specifications has been investigated by Noodle Box. This was acutely apparent in the case of the supply of noodles, where prior to the appointment of the Nominated Supplier, Franchisees had met with Noodle Box to discuss the difficulties experienced in securing a consistent supply of quality products.

Competitive prices

Noodle Box goes to great lengths to ensure that the prices it negotiates with Nominated Suppliers, and the mark-up negotiated with the Nominated Distributor, constitute real value for Franchisees. In Noodle Box'sopinion, the prices that it negotiates are on average significantly less than Franchisees could obtain independently, over any significant period. This is due to the volume of supply, and length of tender, that a nominated supply chain provides.

Noodle Box obtains the prices that it does via an extensive tender process, which generally involves the consideration of the following factors: ethical standards. product consistency, product pricing model, quality, logistical viability, references from other customers and ability to supply on a national basis. Even where it has a long standing relationship 4 t h a ~ominated Supplier, Noodle Box frequently re-negotiates the terms of supply through a tender process. The tender process is an open one, and Noodle Box attempts to ensure that all viable candidates (whether located in Australia or overseas) are invited to participate.

By enabling Franchisees to acquire Nominated Products (which comprise a large proportion of their total inventory requirements) at competitive rates, Franchisees can:

. maximise the profitability of their Noodle Box Restaurants; and

. ensure that they provide value for money to their customers.

Business efficiency

The appointment of a Nominated Distributor promotes business efficiency within Noodle Box Restaurants. That is, it enables Franchisees to minimise the administrative burden associated with operating a Noodle Box Restaurant by:

. offering a "1 stop" distribution service where Franchisees can be supplied with Sauces, Branded Packaging and Noodles by a single distributor (i.e. the Nominated Distributor) in a single delivery, and may elect to purchase Other Products (as available) from the Nominated Distributor; and


. relieving Franchisees from the burden of sourcing suppliers of key products, investigating their capacity to provide high quality products on a consistent basis, and monitoring the supplier's ongoing performance.

The appointment of a Nominated Distributor also enables the network to be serviced by suppliers and manufacturers that would otherwise be unable to meet the delivery demands of over 65 restaurants, located in 6 different Australian jurisdictions.

Food safety and legislative compliance

Via the Noodle Box website and at Noodle Box Restaurants, customers can access a full nutritional breakdown of all Noodle Box menu items. A copy of this brochure is attached as Annexure B.

In the nutritional brochure, Noodle Box makes numerous claims about its menu items. including that selected dishes that are '97% fat free', contain set percentages of the recommended dietary intake of elements such as protein, and are free from certain allergens. You will note that many of these claims relate to the Noodles specifically.

Nutritional information regarding the Sauces is also available to Franchisees via an online portal.

Noodle Box has spent substantial time and funds undertaking nutritional testing of its menu items in order to:

ensure that its dishes meet any claims made regarding nutritional content (e.g. fat percentages);

ensure that any information disclosed regarding allergen contents are accurate (e.g. the presence of wheat, lactose, seafood, MSG and peanuts); and

. comply with product labelling and Food Standards Australia New Zealand requirements.

Noodle Box has received positive public feedback regarding the detailed disclosure of the content of its menu items. This is especially apparent in regard to the presence of common allergens, as the disclosure enables people with the relevant allergy to make informed purchasing decisions.

Noodle Box would be unable to make nutritional claims, or convey to the public the allergen content in Noodle Box dishes, wer2Franchisees able to source their requirement of Noodles and Sauces from 3 party suppliers. Indeed Franchisees do not have the expertise, funds or time to undertake Noodle Box's rigorous testing regimes.

Additional income

The certainty of supply, and volume of products purchased by Noodle Box Restaurants, has enabled Noodle Box to secure rebates from Nominated Suppliers and the Nominated Distributor.

Rebates are a source of income to Noodle Box, but are also used to fund the infrastructure necessary to support the network and its growth. Rebates may be used to pay the salaries of specialised procurement staff, research and product development, and advertisingfor the network (as elected by Noodle Box). Rebates applied in this way benefit the Noodle Box network as a whole.


5. Market definition

Provide a description o f the market(s) in which the goods or services described at 2 (a) are supplied or acquired and other affected markets including: significant suppliers and acquirers; substitutes available for the relevant goods or services; any restriction on the supply or acquisition of the relevant goods or services (for example geographic or legal restrictions): (Refer to direction 8)

The markets can be reasonably identified as the Australian marketsfor the:

. retail supply of quick service and take away meals;

. wholesale supply of packaging and food based consumables; and

. food distribution services

Each of the above markets is highly competitive and is characterised by a large number of participants (ranging from independent businesses, to franchise chains and national and international operations) at the relevant wholesale and retail levels,

6. Public detriments

(a) Detriments to the public resulting or likely to result from the notification, in particular the likely effect of the notified conduct on the prices of the goods or services described at 2 (a) above and the prices of goods or services in other affected markets: (Refer to direction 9)

Refer to paragraph 6(b).

(b) Facts and evidence relevant to these detriments:

The public detriments that may flow from the notified conduct are discussed below. However, Noodle Box contends that any detriment is marginal if not negligible, and is far outweighed by the public benefits outlined above.

Impact on Franchisees

The conduct prevents Franchisees from having absolute control over the suppliers that they use, and from selecting suppliers for Nominated Products on the usual commercial basis.

However, Noodle Box investigates each Nominated Supplier and Nominated Distributor thoroughly before appointing them, and as part of this process considers a range of factors, including those that would assumedly be contemplated by a Franchisee. Issues such price, quality of product and consistency of supply are given paramount importance by Noodle Box. Noodle Box believes that its tender process obtains terms of supply for Nominated Products that are more favourable to Franchisees than they could obtain independently, over a significant period.

Impact on consumers

Noodle Box does not perceive that the conduct has any inflationary impact on the price of products sold in Noodle Box Restaurants. On the contrary, Noodle Box contends that the conduct assists Noodle Box Restaurants to deliver value for money to their customers. The conduct ensures that customers can have confidence in the quality of the D ~ O ~ U C ~ S used in Noodle Box Restaurants.


Additionally, consumers are free to compare prices and "shop around" for alternative product offerings.

Impact on suppliers and distributors

Suppliers and distributors of Nominated Products (which are not Nominated Suppliers or a Nominated Distributor) will not be able to sell Nominated Products (or products substitutable with Nominated Products) to Franchisees. However, the anti- competitive effect of the conduct on such entities is insignificant given the number of businesses in Australia to which they may sell their products.

Additionally, as Noodle Box frequently re-tenders for Nominated Suppliers and the Nominated Distributor, suppliers and distributors have the opportunity to become part of the Nominated Product supply chain if they wish (provided that they meet Noodle Box's stringent requirements).

7. Further information

(a) Name, postal address and contact telephone details of the person authorised to provide additional information in relation to this notification:

Greg Hipwell, Partner, Deacons Level 15. 485 Bourke Street, Melbourne, Victoria 3000 Direct line: (03) 8686 6682 Email: [email protected]

Dated: 31 July 2009

Signed on behalf of the applicant


DIRECTIONS

1. In lodging this form, applicants must indude all information, induding supporting evidence that they wish the Commission to take into account in assessing their notification.

Where there is insufficient space on this form to furnish the required information, the information is to be shown on separate sheets, numbered consecutively and signed by or on behalf of the applicant.

2. If the notice is given by or on behalf of a corporation, the name of the corporation is to be inserted in item 1 (a), not the name of the person signing the notice, and the notice is to be signed by a person authorised by the corporation to do so.

3. Describe that part of the business of the person giving the notice in the course of the which the conduct is engaged in.

4. If particulars of a condition or of a reason of the type referred to in section 47 of the Trade Practices Act 1974 have been reduced in whole or in part to writing, a copy of the writing is to be provided with the notice.

5. Describe the business or consumers likely to be affected by the conduct.

6. State an estimate of the highest number of persons with whom the entity giving the notice is likely to deal in the course of engaging in the conduct at any time during the next year.

7. Provide details of those public benefits claimed to result or to be likely to result from the proposed conduct including quantification of those benefits where possible.

8. Provide details of the market(s) likely to be affected by the notified conduct, in particular having regard to goods or services that may be substitutes for the good or service that is the subject matter of the notification.

9. Provide details of the detriments to the public which may result from the proposed conduct including quantification of those detriments where possible.


Annexure A "Nominated Product" supply chain

I Noodle Box

~odles me 1 ated Distrit

price at wh~ Jutor.

ich they wit I supply the :ir products

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P Noodle'Box agrees with manufacturers of Saudes. Branded Packaoina j i [ ' and N, ; i with the !

i ! manufacturer ; Nomin . . , i . ; . Uniforms the 1 i which it will s ; i Ur . .

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of price at UDD~V

iiforms to anchisees.

hat may bc o Franchis,

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Nominatec I Products ' when they.

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are on-sold

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Franchisees must order Sauces. Branded Packaging and Noodles (and may order selected Other Products) from the Nom~nated Distributor, and mbst order Uniforms directly from the manufacturer.

I

Franchisees

4638453-1 Page 10 of 12


Annexure B Nutritional information


[#This page has been deliberately left blank]

NOODLE BOX NUTRITIONAL & ALLERGY INFORMATION 1 Nocdle Boa uses onty the highest quality iresh ingrdents. All our redpes are ouihenhc, delidous and henlfhy.

All Noodle Box meok ore waibbk in vegetokn venions, a d w e also h a mngeofwheatfree dishes.

No& Box mkes sure hot all b mmls are 'vg. Iw, in fof mrd ing to the Ndianal Henrt Fwndofion and Dobetes Aushulo n&ionol guiddines

Nocdk Ebx enlisted the hdp of independent expert d i n Jam Barnes to sdenfifimlty and independenfhlstudythe dietory benefits of Nocdle Box mmls. Her studies rhorrfhoted- Nccdle Boxmeal: - contains leon, quality protein, o votiety of vegetables and vaal

carbohydrate energy. is cooked using methods hi preserve the nu6nt value of each ingredient. has d least one i f not more of the three required daity serves of vegetables. coma n a rnmlm,rn of 25%of the do ly ntoke d protein - overaqer 20% of i r e recommended a o k (ntoke of corbahvdrotes. - which are on excellent source ofenergyfor your rnusdes and brain. is prepared wiih 'good fats', or heahhy ail sources, with the mop* of meols containing 50% monounsnturated fats; and - provide an werag; of 25% of the recommended doily intake of pmtein, essential for body development, g r d h and repair.

She doto compiled for our nuh*onal info& was mnduded bjon independentthird party Food LabordoriesAu&clia Ply Ud.

At Noodk Boa v.e m k every -1 fresh to order w, srgM wriofons moy mur .

V HEAL THY^^^ FRESH, "DQ' everybody wants you.

-- 2 .---- pjo. y · bodies corporate related to noodle box operate 4 noodle box restaurants, which...

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