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Monday 6th February, 2023

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Australia: The boom of franchising Down Under

Insight

Australia: The boom of franchising Down Under

The Australasian market has always been attractive to western franchisors looking for a consumer base not wildly unfamiliar, but in 2021, this enticing country holds more potential than ever before – and the franchise industry is taking notice

The Australasian market has always been attractive to western franchisors looking for a consumer base not wildly unfamiliar, but in 2021, this enticing country holds more potential than ever before – and the franchise industry is taking notice.

Words by Kieran McLoone, editor of Global Franchise

For decades, Australasia has proven a fruitful endeavor for franchisors who pursue markets beyond those closer to home, like Europe or North America. Its almost entirely English-speaking population of 30.63 million people across Australia and New Zealand are not only familiar with franchising as a business model, but they’re often highly engaged with small businesses that are part of wider, successful franchise networks.

Restaurants of all kinds are as popular in Australasia as they are elsewhere in the world, but several sectors have seen increased demand as a result of the pandemic. These include aged care, education, delivery and courier services, and children’s play centers.

Without further ado, let’s dive into the largest of the Australasian regions: Australia.

The Australian franchising gold rush

The latest statistics coming out of Australia indicate that there are around 90,309 franchised businesses operating in the country, employing a total of 514,761 people. This figure includes all the big names you would expect – Starbucks, McDonald’s, Burger King (known locally as Hungry Jacks) – as well as many domestic chains holding their own against even the most established international competitors.

One important thing to note early on, however, is that Australia’s vast landmass is not indicative of its franchise potential. The country is huge compared to markets like the U.K., with Australia covering around 7.69 million square kilometers, and the United Kingdom comprising a much more modest 242,495. Around 90 per cent of Australia’s population, though, is located close to the coast; with prime cities including Sydney, Melbourne, Brisbane, Perth, and Adelaide.

A shift could be on the cards, too, which franchisors would need to be mindful of when planning their market penetration strategy.

“We have seen, since the pandemic, a large movement of population towards regional cities and communities, and we do see this trend increasing,” says James Young, head of franchise sales and development at Aussie-based franchise consultancy, DC Strategy. “The largest regional cities are Newcastle, Gold Coast, Sunshine Coast, Central Coast, Wollongong, and Geelong.

“Every brand will have its own unique prime markets and the strategy will also be specific to the individual franchisor, whether this be master by state, country, multi-unit, or direct. Understanding the required skill sets of both the international franchisor and their local partner will determine which is the best strategy.”

Prospering beyond the pandemic

While Australasia certainly wasn’t immune to the effects brought on by the global pandemic, many will know that Australia and New Zealand’s rapid response and lengthy lockdowns helped to combat the virus as much as possible.

And the business world is continuing to be supported by targeted loans and incentives to get operators back on their feet. These include an SME Recovery Loan Scheme, which includes a maximum loan size of $5m and an 80 per cent government guarantee.

On the employment side of things, there’s also a JobMaker Hiring Credit, which encourages bosses to hire young people to new positions. Eligible employers can receive payment for up to 12 months, with employers credited $200 a week for additional employees aged 16 to 29 years, and up to $100 a week for new employees aged 30 to 35 years. This would be particularly attractive to hospitality businesses, where employment has taken a real hit over the past year.

“We have seen, since the pandemic, a large movement of population towards regional cities and communities, and we do see this trend increasing”

All of these support packages contribute to a renewed sense of optimism about the future of franchising within Australia. Many suppliers within the country, for instance, have seen unparalleled levels of interest in their services.

“There’s a very strong national sentiment around business growth,” says James Young. “We have seen more franchise sales in 2021 for our clients both domestically and internationally, than at any other year in DC Strategy’s 35-year history.

“People are changing their behavior and are reflective of what they want from life. This leads to people questioning traditional employment and enquiring about what else is out there.”

This is a sentiment shared by Brian Keen, founder of Australian franchise consultancy Franchise Simply. Working in franchising for over 30 years, Keen has seen countless industry highs and lows, and has nothing but optimism for the coming months: “After a short lapse when the impact of COVID was first felt in mid-March 2020, our market responded strongly, resulting in us having the busiest period since we founded this business model 11 years ago,” he says.

“We’ve seen an increase in activity in the ever-popular domestic tourism market, QSR, and B2C service sectors, and in B2B service, health and beauty, automotive, and construction. This is encouraging from our point of view because they are all areas where we have many years’ experience.”

John Moyes, a veteran franchise consultant in Australia and New Zealand, is also excited about what the future holds for Australian franchisors nationwide: “I am very optimistic about the sector in general as it has remained very resilient through the pandemic, and is growing back very fast due to the assistance of many great franchisors and their franchisees.

“As a country, we are bouncing back rapidly, and the state that I live in – Western Australia – has a few billion-dollar surplus. Other states are also catching up.”

Appreciate the local flair

The groundwork is there, and franchisors and industry experts alike are confident about Australia’s potential for franchising moving forward. But how exactly should franchisors begin to tackle their entry strategy for this dynamic market?

Even some of the big players didn’t get it right the first time around. As Brian Keen explains: “Companies such as Subway, Domino’s Pizza, Krispy Kreme and Starbucks are among many which really only struck a foothold in Australia after several attempts and changes of ownership because they did not understand the differences in the market when they first arrived.

“Challenges arose because of these concepts not understanding the spectrum of local business customs and habits. This includes a lack of understanding of the differences between regions, which applies to Australian companies as well. Some do not always accommodate the marked differences in the market from state to state when they first try to enter a new area; similar to the differences between England, Scotland, and Ireland in the U.K.”

As well as misunderstandings between states, incoming franchisors will need to be aware of the national financials which may be wildly different from their domestic counterparts.

“Wages for staff are quite high compared with many other countries, and are set by the government; this includes minimum wage, which increases by age from 15 to 21,” says John Moyes. “Rentals, especially within shopping malls, are also higher than a lot of other countries. S/C leases are usually for five years with annual increases of between 3 and 5 per cent. Some will do another five-year option and some will do a 10-year lease.”

“The uncertainty created by potential lockdowns is the biggest concern. Franchisors can help by ensuring each franchisee has a contingency plan in place to deal with the unexpected”

Nailing the entry

While master franchising is often viewed as the defacto method of international expansion, Australian laws and regulations have incentivized other forms of market entry over the years. As John Moyes explains: “Most franchisors do not in fact use master franchise operators, partly due to the law of misleading and deceptive conduct which is a little difficult to control when you are delegating someone else to run the business.

“Having said that, it can be cheaper for the franchisor to have a state master or developer. This is more prevalent in service industries, and certainly less in something like fast food.”

Multi-unit franchising, on the other hand, is seeing a continued boom across the globe – as indicated by Global Franchise’s recent month-long content program, Multi-Unit Month. Australia is no stranger to this form of business ownership, and it’s one that we’ll likely see more of as the market develops further.

“I believe we will witness a continued strong growth in multiunit franchising in particular,” says Brian Keen. “New franchise groups will continue to emerge across the traditional sectors, and I predict these will be joined by the establishment of new systems across a wide range of niche business sectors which are new to the franchise model.”

Your next international market?

Once all of the fundamentals of Australian franchising are understood, it’s a truly lucrative market unlike any other. Its average sales per unit and performance rank it as one of the highest countries in the world, which is why so many international brands have found success once a correct strategy has been followed.

And while Australia is a bonafide market in its own right, franchisors often use it as a strategic pathway into the untapped Asian region.

“Australia and New Zealand are seen as stepping stones to most Asian markets – especially China and India, but also Malaysia, Vietnam and Korea. These countries have massive populations and are thirsty for Western concepts.”

So whether you’re entering Australasia for the first time, or expanding your footprint in the region and beyond, make sure not to underestimate the franchising opportunities on offer in Australia. It could prove to be your biggest market yet.

FCA partners with Global Franchise

In May 2021, Global Franchise announced a partnership with the Franchise Council of Australia (FCA) as part of its continuing mission to bring together leading franchise associations. At the time of the announcement, Mary Aldred, CEO of the FCA, had this to say: “In addition to conveying information about franchise initiatives and opportunities in Australia to the rest of the franchising world, [the partnership] will promote access to the Franchise Council of Australia to an international audience and we look forward to offering assistance to those seeking to enter Australia.”

10 Requirements of an Australian franchise disclosure document

1. Experience of all directors and management staff

2. Any past or ongoing litigation, both franchisor and franchisee

3. Past and present franchisees with contact details

4. Any payments to agents or suppliers

5. All costs associated with the franchise, such as fit-outs, permits, legal, and any costs associated with the purchase, including stock

6. Amount of royalties and marketing funds payable and method of payment

7. Full, audited financials of the franchisor company

8. Termination by either party arrangements and causes

9. Transfer cost if franchisee sells the franchise

10. Number of master franchise operators, if any

Understanding Australian entrepreneurs

Greg Nathan, the founder of Australian consultancy Franchise Relationships Institute, provides some crucial information about franchising in a post-COVID world.

What are some of the main concerns for Australian franchisees right now, and how can franchisors alleviate these?

“The uncertainty created by potential lockdowns is the biggest concern. Franchisors can help by ensuring each franchisee has a contingency plan in place to deal with the unexpected. There is a multi-speed economy, with some networks exceedingly busy while others have lost customers and are quieter. Franchisors can help franchisees with advice on operational efficiencies, moral support, and advice on how to rebuild their customer base.

“If franchisees are operating from rented premises, assistance with lease negotiations has been valued, and where franchisees have legitimate cash flow problems, fee reductions and financial support has obviously also been valuable.”

What do franchisors need to bear in mind as we come out of the pandemic?

“Regular social contact through online and face-to-face meetings can be useful, and facilitating small group discussions where franchisees share their concerns and solutions is also extremely powerful. There is a general sense of tiredness in the community. Franchisors can help their franchisees to refire up by revisiting their missions and helping franchisees to reconnect with their goals and values.”

What distinguishes Australian entrepreneurs from the rest of the world?

“While the qualities of entrepreneurs are universal, there are some mild cultural differences. Australian entrepreneurs tend to be down-to-earth, direct, and a little understated. We tend to listen well, have a thirst for learning, and are good at innovating to overcome adversity. Australians also tend to be collaborative, relaxed and family-oriented, and many involve their spouse in the business. Family support is extremely important when growing a business.”

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