Brand Republic: Franchising in regional Australia
by
DC Strategy
Across Australia franchising has grown over the past 20 to 30 years into an $80 billion a year industry, with 850 networks operating in almost every type of business category with varying levels of complexity and cost.
In fact there are more franchises per capita in Australia than anywhere else in the world.
The industry contributes 5 percent of the national GDP and employs 600,000 people in about 60,000 franchised outlets.
While there are no regional statistics available, walk down a main street or shopping mall in a major regional centre and guaranteed you’ll see the same major brands that are in other regional centres and the city.
Some highly successful franchises actually originated in the bush to satisfy regional consumer demand.
For example, Fernwood Women's Health Clubs was founded in Bendigo, Victoria, in 1989 by the 2005 Telstra Business Woman of the Year, Diana Williams today it has more than 80,000 members in Australia and overseas, 2,200 employees and an annual turnover in excess of $75 million.
Eagle Boys Pizza started in Albury, NSW, in the late 1980s and has grown to 186 franchised outlets, including a new and popular drive-through model, located mainly in regional Australia, as well as some seaboard cities.
"We were welcomed with open arms", said founder Tom Potter.
People were screaming out for a home delivered food service so they were delighted with that opportunity and it was a recession at the time so plenty of people wanted work, which was great.
Drew Camm established De Pot Man, a garden pot and supplies business in Toowoomba, Queensland, in the 1990s. There are now both company owned and franchised pot centres in Brisbane with plans to open franchise outlets in many large regional Queensland and New South Wales towns.
I chose to franchise because I find that a motivated owner/operator who is part of the local community really helps to establish and grow the franchise in locations I just cannot manage, Mr Camm said.
Factors driving growth of franchised outlets in regional areas include demand for city products and services from regional consumers, some of whom may have moved from the city looking for a better lifestyle and have brought with them their city tastes.
Leading franchise consultancy DC Strategy, formerly Deacons Consulting, said many franchised networks, having exhausted metropolitan areas, were now penetrating regional centres to expand market share, which was helping to reinvigorate socio-economic and employment opportunities for regional people.
Most franchises established outlets in a major regional centre with 20,000 or more people, but there were systems that had models to suit smaller country towns.
Are franchises taking over?
While evidence suggests unbranded businesses still dominate regional markets, as franchised networks continue to grow there is no doubt that they will pressure independent businesses in regional areas just as they have done in the cities.
"The national brands place significant pressure on independents, who are finding it harder to remain competitive and sustainable due to high fixed costs and increased pressure on supply chain costs and efficiencies," said Adrian McFedries, DC Strategy's Managing Director.
Elliots Accounting partner Tim Davis, a franchise specialist in Toowoomba, said that while franchises were the flavour of the month', they hadn't taken over from unbranded businesses yet.
"Franchises do not have a monopoly on business but they offer a complete package for people looking for something different," Mr Davis said. "An independent business could still be successful if they had the time and money to establish good systems and a good brand."
In Dubbo, NSW, with a population of 40,000, City Council Development Corporation general manager Jeff Caldbeck said although there were plenty of franchises in town, they weren't the majority of the centres 2,500 businesses.
Franchises are good for regional centres but it's not all rosy because there'll be times when people already in business are going to probably lose market share to the point where they close up," Mr Caldbeck said.
Setting up a franchise
With so many franchise systems to choose from, if you are :looking at buying into a franchise you need to do your homework and find the right franchise that suits your business and lifestyle needs.
What does a franchise cost?
There are initial and on going costs involved with becoming a franchisee. In terms of set-up costs, and depending on the type of franchise will require payment for trading stock, initial supplies, office fittings and equipment and opening promotional costs.
For example, establishing a single unit franchise varies from $10,000 for lawn mowing or house cleaning to up to over $2 million for a fast food restaurant.
Managing franchises like pool cleaning or carpet cleaning costs about $70,000, while the vast majority of retail franchises cost between $240,000 and $450,000.
Ongoing costs vary depending on the franchise system, but most will involve paying continuing royalties and a contribution to advertising.
How to choose a franchise
Rod Young of DC Strategy said if you want to set up a franchise in a regional town you have to think about the products or services that people may be travelling to the cities to buy.
"Look at established businesses that appear to be doing exceptionally well and growing rapidly in your region or other regions similar to your town," he said. "These could be areas of latent demand, that with the help of a good franchise system with training, promotion and establishment assistance could be your new future."
Also, it is important to decide what you want from the business. How much capital are you prepared to put in? What sort of a return on investment do you want from the business? How many employees do you want? Where will it be located? How many hours or days do you want to work in that business?
A good resource for examining different franchise systems is the FCA’s online member directory of 400 franchise networks (www.franchisebusiness.com.au). There’s also a directory of the professionals who support the industry, such as accountants and lawyers.
Investigate a number of different franchising systems to find the one that suits you. Do due diligence on the chosen franchise, including calling at least four other franchisees within the network, and among the questions ask: If you had your time again would you buy into this franchise opportunity?"
"By using the proven business methods of already successful businesses to help more people enjoy the benefits of business ownership, franchising offers the potential to contribute to the quality of life, the job opportunities and economic growth of regional Australia," Mr Young said.
29.10.2007
FCA Member
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