Trends and Opportunities in Australian Franchising

Findings of the biennial survey of the Australian franchising sector were announced at the FCA National Convention in Sydney in October. Franchising Australia 2008, the sixth report in the series, was produced by Lorelle Frazer, Scott Weaven and Owen Wright of the Asia-Pacific Centre for Franchising Excellence at Griffith University.

There are now 1100 business format franchisors operating in Australia, compared with 960 systems just two years ago. Some 71400 franchise units are estimated to be operating, reflecting a growth rate of 15.4 percent since 2006. Sales turnover of the entire franchising sector (including motor vehicle and fuel retail operations) is estimated at $130 billion, thereby making a significant contribution to Australia's economy.

Despite this growth in the sector, the number of people employed has remained relatively stable over the past two years. However, there has been a reduction in the proportion of permanent full-time employees in favour of higher proportions of permanent part-time and casual appointments. It is highly likely that part-time and casual employees are working longer hours to satisfy demand in the market.

Several opportunities for entrepreneurs to achieve business success are apparent. A recent trend is the willingness of franchisors to grant part-time status to franchisees who are seeking greater flexibility and work-life balance. Slightly less than half the franchise systems reported that they appointed franchisees who work in a part-time capacity of less than 40 hours per week.

There are ample opportunities for franchisors to source new franchisees. The survey revealed the majority of franchisees (30 percent) are male sole operators compared with female sole owners of just 17 percent. Given the reported lack of accessibility to suitable franchisees, the recruitment of women in franchising should be targeted by franchisors wishing to expand their networks. Similarly, franchising continues to be dominated by franchisees aged from 30 to 50 years, but given Australia's ageing population, franchisors should consider recruiting more people over 50. Stereotypes about the suitability of older operators need to be discarded. If the expected economic downturn results in higher levels of unemployment in the labour market, franchisors can expect to receive greater interest in franchising as a form of self employment.

If franchising is indeed a superior business model, a major opportunity exists for converting independent small business operators into franchisees. Franchising represents less than 4 percent of small business in Australia, indicating massive potential for increased penetration by franchise systems if they can demonstrate that they deliver superior investment benefits for entrepreneurs.

The survey confirmed that franchisors are embracing multiple unit franchising as a growth strategy in their systems. One third of franchisors encourage franchisees to invest in additional franchise units. This practice rewards good operators and enables franchisors to grow their systems without the need to recruit more franchisees. Multiple unit ownership is also attractive to franchisees, enabling them to increase their wealth and capitalise on their management talent. Mature franchise systems such as just Cuts and McDonald's are actively promoting multiple unit ownership in preference to sourcing more franchisees.

Franchising Australia 2008 is evidence that franchising in Australia continues to expand and provide excellent opportunities for franchisors, franchisees and employees.

Franchising in Australia 2008 - the key findings

• A impressive continued 14.6% growth rate in franchise systems from 2006 to mid 2008. Business format franchised units represent some 3.7 percent of all small businesses in Australia.
• Growth rate of franchise units is 15.4 percent up again from the 14.6 reported from 2004 to 2006.
• Total sales turnover for the franchising sector was estimated to be $130 billion.
• Total number of people employed in business format franchise systems is estimated to be 413,500.
• Disputes in the franchise sector have declined with franchisees in dispute estimated at only 2% - these disputes tend to be in larger, older and more complex systems.
• There is evidence of stability in the sector with 93% of franchising units remaining under the same ownership.

Commentary from the FCA Executive Director, Steve Wright

"It is very encouraging to see in the Franchising Australia 2008 survey that there are lower levels of dispute in the sector, particularly at a time when we have had three franchise systems breakdowns and inquiries into franchising in two states, WA and SA. This is reinforced in recent statements by the sector regulator, the ACCC, which has noted a downward trend in complaints," Wright said.

"The recent ACCC submission into the Franchising Enquiry supports the findings of the survey with the ACCC asserting that there is no widespread misconduct, complaint numbers are falling, alleged misconduct is not substantiated and there is no evidence of endemic or system failure.

"The ACCC points to the strength of the sector, indicating in its submission that few franchise systems receive complaints from more than one or two franchisees. This suggests that there is no widespread misconduct regarding the Code or the Act by most franchisors. The number of franchising-related complaints and inquiries received by the ACCC has generally declined since 2004.

Mr Wright said the Griffith survey results supported the conclusion that franchising was in a healthy condition across the nation.

"There is always room for improvement — and we are working on the question of what improvements can be made in the context of the current Federal Corporations Committee inquiry into franchising," Wright said.

"But what the Griffith survey results tell us is that there is no need for wholesale changes to the legislative or regulatory settings."

Professor Lorelle Frazer - Director, Asia Pacific Centre for Franchising Excellence, Griffith University.

This article appears courtesy of The Franchise Review