Franchising in today’s market

Those readers of mature years and sound memory may remember the pioneering days of business format franchising in the early 1970s when great excitement was generated by observing the increasing influence of franchising operations in markets beyond hamburgers, pizza and fried chicken --the products of the US fast food systems which introduced franchising to Australia.

Provided that the business concept was viable and the franchise system was sound, franchisors and their franchisees obtained important first mover competitive advantage in entering markets hitherto not franchised.

But franchise systems today service most consumer and business-to-business markets and the easy marks have already been taken. With the increasing maturity of the franchise sector the increasing saturation of markets is an increasing reality.

I am prepared to go on the record and state that market saturation is more rhetoric than reality. It is a term used carelessly, usually by ill-advised critics of the franchising sector in emotive comments on the imminent decline of the sector.

Let's be clear about terminology. My dictionary defines “saturation" as "the stage beyond which no more can be absorbed or accepted". To accept, as one must, that the remarkable success of franchising - demonstrated in part by its influence in virtually all market segments - has posed real commercial challenges for new franchisees in existing systems as well as for new franchise systems entering already franchised territory is very different from alleging that market opportunities for franchisors and franchisees have been foreclosed. The fast food/cafe/juice markets are frequently cited as the classic examples of saturated markets yet leading franchise systems in each of these segments have enjoyed strong growth over the last 12 months. Gloria Jeans for example - which is only a decade old in Australia but is already the market leader - added 75 new outlets in the last year and is planning for similar growth over the next 12 months.

The franchise sector continues to grow both through the expansion of existing systems and the entry of new systems. New market niches have been carved out of traditional markets to service new and changing customer preferences.

Franchisors no longer subscribe to "one size fits all" and adapt outlet size and delivery modes accordingly. These initiatives, in combination with a population increasing at 1.2 per cent - or 250,000 - a year, suggest that saturation of franchising markets is a very long way off.

There is more information available regarding Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.