Franchising in Australia is amongst the most well-established, mature and progressive businesses sectors in the economy. It is a recognised and reputable way of doing business, with a steady year-on-year growth reported by the Asia-Pacific Centre for Franchising Excellence.
Franchise systems are present in most industry sectors, and the economic impact of franchising is substantial and growing. Franchising has revolutionised retailing in Australia, and provided small business owners with the competitive resources to compete against the large corporations that dominate Australian retailing.
Franchising in Australia commenced in a significant way in the early 1970’s under the influence of the franchised US fast food systems such as KFC, Pizza Hut and McDonald’s which commenced operations here at the time. The growth of franchising since that time has been remarkable. Over the last two decades franchising in Australia in its contemporary ‘business format’ mode has developed into a highly significant and dynamic business activity which has expanded to include virtually every product and service business. As in North America, the tremendous growth and popularity of business format franchising has transformed franchising from a specialised marketing technique into a highly competitive, innovative vehicle for expansion of retail product and service industries.
GROWTH OF FRANCHISING IN AUSTRALIA
Statistical surveys compiled by the Asia-Pacific Centre for Franchising Excellence have been sponsored by the Franchise Council of Australia every second year since 1998.
This survey reveals:
There are approximately 1,120 business format franchisors in Australia in 2016
There are an estimated 79,000 units operating in business format franchises
More than 470,000 people are employed directly in franchising
Sales turnover of the entire franchising sector was estimated at $146 billion
90% of franchise brands originated in Australia
The great majority of franchise systems operating in Australia are home grown, and increasing numbers of Australian franchise systems are successfully taking their systems overseas, with New Zealand being the most popular choice due to similar consumer patterns, and proximity. Secondary choices including the United States of America, United Kingdom, Europe and Malaysia are also very favourable locations due to the sheer potential for growth and population, however, due to China/Hong Kong’s ever-increasing economic slowdown, there is no surprise that the decline in the number of franchises migrating to that region continues.
WHAT KIND OF FRANCHISING?
The retail industry in Australia continues to dominate and perform extremely well in a franchising business model. The number of brands have seen a decline, however the number of franchise systems have grown internally, which continues a trend that began in 2010 reflecting a maturing sector.
Here’s a quick break down of the segments:
26% Retail trade: made up of 283 brands
18% Accommodation and food services (office services, domestic, industrial and commercial cleaning, gardening etc) made up of 166 brands
10% Other services (personal services, pet grooming, auto service/repairs, IT services etc), which includes 109 brands.
FRANCHISE LAW – THE GOOD, THE BAD AND THE UGLY
In comparison to the US, there are some laws that make franchising much more efficient in Australia. For example, there is no registration of franchise sales in Australia. The franchising regulations in Australia are heavily influenced by federal law, whereas franchising is looked over by both state and federal law in the United States. The ease in which this works applies to both the cost of buying a franchise, and enforcing the law.
Both countries require that some sort of audited financial statements be included in the disclosure document.
Both countries use disclosure as the major means to regulate franchise sales.
Many established franchise brands in Australia use someone called an Area Manager or Site Selection Manager or other middle person to sell franchises or to perform certain of the obligations of the franchisor. In the US, this structure is becoming more popular, however, the registration requirement makes use of this three-level structure in the US very expensive because the sale of area rights is considered the sale of a franchise, which means that there will be two registrations (one for the area rights, and one for the sale of the franchise itself).
In the US, once a franchise sale is closed, there is no obligation on the franchisor to continue to make disclosures to the franchisee. By contrast, in Australia, as long as at least one franchise agreement is still in effect, the franchisor must continue to make disclosures to franchisees.
Resolve your issues: In Australia, it is mandatory to use mediation in disputes. In the US, there is no such requirement – although mediation has become more popular of late to resolve disputes for minimum damage for both parties.
The ACCC has an active program of enforcement. In the US, the Federal Trade Commission’s enforcement actions are rare. At the state level, enforcement actions are more common, but generally infrequent as well.
In the US there is no private right of action for a violation of the FTC’s disclosure requirements. That is, only the Federal Trade Commission can bring an action if there is a violation of its disclosure rule. In contrast, a violation of Australia’s Code of Conduct could result in an action by the ACCC or by private individuals.
5 REASONS TO FRANCHISE IN AUSTRALIA
1. It’s a flourishing sector. According to the survey, Australia’s 2016 sales turnover for the entire franchising sector was estimated at $146 billion.
2. Access to finance. With tried-and-true successful Australian business operating systems, plus the added bonus of brand power, lenders can feel more confident supporting a franchise model with proven systems in place.
3. Expansion. work with experts that provide you safe site selections and provide you with an extensive database of locations that would be successful to franchise in.
4. Regulations. The Australian Franchising Code of Conduct means that you can have respectful and safe dealings for both parties that enter into any franchise agreement.
TOP SECTORS TO BUY INTO
Food service (includes fast food, coffee etc)
Support services (Cleaning, gardening, etc)
Health and fitness