Survey reveals franchisors’ big battles

By Sarah Stowe | 26 Aug 2019 View comments

Unfair commercial leasing terms, red tape and wages are the top three major concerns for the franchise sector according to a survey conducted by the Franchise Council of Australia.

The latest industry association’s member survey asked franchisors to rank in order of importance the business challenges facing them.

Top of the list was wages, with leasing and red tape the next most troublesome issues.

The survey revealed that more than 40 per cent of respondents said their leasing arrangements were worse now than in 2016.

More than one third (36 per cent) of members surveyed said their business would be unable to absorb the ongoing rental cost to their business over the next three years.

Franchises battle leases, wages

Franchisors who participated in the survey overwhelmingly believe the federal government should introduce an industry wide mandatory code of conduct to address the power imbalance shopping centre landlords have over tenants.

Mary Aldred, FCA CEO, told Inside Franchise Business “The FCA is concerned about the critical level of pressure unfair commercial leasing arrangements and exorbitant rental increases are having on small businesses operating in the retail sector.

“While traditionally a state government issue, the power imbalance has created a competition issue that the FCA believes needs to be remedied by a mandatory and sector wide code of conducted implemented at a federal level.

“Food retail is particularly under an immense amount of pressure, with margin compression caused by supply chain increases, caused by several factors, including the drought.

“Additionally, energy price increases, red tape, a complex industrial relations framework, and especially commercial rental issues are becoming sustainable costs for businesses to absorb. The FCA is committed to pursuing this proposal to drive a fairer and more level playing field for franchisors and franchisees.”

What the FCA is proposing to address the issue

A proposed Retail Leasing Code as outlined by the Australian Competition and Consumer Commission, would apply to landlords and tenants who sign up to the voluntary guidelines.

One aim would be increased transparency and reduced compliance costs for landlords and tenants through the use of consistent national disclosure and occupancy documents.

In addressing the need for a better balanced set of rules governing commercial leasing arrangement the FCA has highlighted the following for further discussion:

  • The impact of tenancy adjustments on existing tenants
  • The potential for significant and unfair financial impact if competitive offerings are added
  • A possible three month notice of a tenant’s lease termination if their landlord introduces a tenant who materially competes with their business
  • End of term arrangements
  • Hardship relief when a business is no longer viable
  • Possible prohibition of major shopping centre landlords’ acquisition or distribution of tenants’ turnover and profitability data

NSW shopping centre code

There has been some debate about whether the recent introduction of the NSW shopping centre code has delivered for franchisors.

Retailer Martin Matthews, CEO of Brand Collective, which operates Superdry, Volley, Hush Puppies, Clarks and other brands in Australia, told Inside Retail ““For me, the major issue is that there’s still no incentive for a landlord to come to meet the market on renewal for a retailer that’s trading well.”

According to Matthews, based on the typical five-year lease of CPI (consumer price index) plus 5 per cent, a retailer would see their rent go up by 60 per cent over 10 years.