In our current economic and business climate, there are so many comparisons you can make to the recession of the early 1990s. Obviously, the impact on the lives of Australians back then was fierce, as it is now. Just like the present, there was inflation and unemployment, forcing people out of work and to reassess their lifestyle choices.
But for many people and businesses, the changes forced on the franchise industry as a result of the last recession were not bad at all.
The difficult lifestyle choices faced by workers formed the foundation of a couple of seismic shifts that occurred in the franchise sector in the noughties. In particular, a group of professionals and middle managers, frustrated with their employers or forced out of employment, took redundancies or decided to use their savings and investment earnings to move into business themselves, believing it would give them more control over their lives. Certainly, we saw a significant rise in the number of new people looking to buy their own businesses at The Franchise Alliance around that time.
Rise of the franchise sector
There was a particular interest in franchises because this group of potential investors knew they needed the training and support offered by the best groups. The surge in demand gave both established and maturing groups such as Jim’s, Poolwerx, Donut King, Chicken Treat the ability to expand significantly, sometimes interstate. And they weren’t alone – others, such as Cash Converters, Bedshed, Captain Snooze, Brumby’s, VIP Lawn Mowing, Snap Print and Kwik Kopy, used the momentum to increase their market share, too.
Secondly, the professional status of many coming out of employment meant people were looking for a wider range of business types than those traditionally found in the sector, which at the time was dominated by retail and trade franchises. We brought in Expense Reduction Analysts as a business model from the U.S.A. and franchised it on the back of this shift in demand.
Fast-forward 20 years and I’m seeing a very similar suite of changes in the sector, post-COVID-19, all be it with some differences in the detail.
There are a number of similar drivers. For some, this has been a seriously difficult time. But others are able to take advantage of change. People have been forced out of their regular employment – former airline workers taking up shelf stacking jobs with Woolworths, for instance. Or they have been forced to work remotely from home for long periods, making them realize they don’t want to return to daily commutes away from their families again.
Some people are also taking the decision to liquidate assets, selling city homes and moving to regional areas, for example, and banking the $100,000 to $250,000 difference, realizing they can invest in a different lifestyle through business if they want. Some have also received healthy redundancies to add to the windfall.
Importantly, people are attracted by the larger and more mature franchise sector that exists today, with many franchise groups leading the way with innovations and I.T. implementation. The accumulated changes to the Franchise Code of Practice, with its stricter compliance requirements, also add to the astute first-time business buyer’s confidence in the sector. And franchises are in demand because they’re seen to carry less risk, mainly because of the training and support given by the best franchisors. In addition to the changes brought about by COVID, the spate of savage fires, and catastrophic flooding, the franchise market has developed in other ways too. Over the past 10 years, we’ve seen more women emerge in business, and the franchise sector is no different. This movement of women going into business and taking up the challenge of growing a franchise group is only going to increase in years to come.
The other shift is an increase in the number of niche businesses, especially in trades such as building and services. Helped by today’s digital business platforms, valuable data is more easily available, so business owners are becoming savvier about where the money is made. For instance, one client with many years’ worth of experience in the general home renovation market, has honed its product so it now supplies kits to the trade and DIY markets for outdoor areas, including decks, patios and carports. Some parts of the building industry, too, are breaking down into smaller and smaller niches.
So, what do I see for the future of Australian franchising? It will be amazing. And it will be different.
So many business owners come to franchising because they think it will solve problems – bring in free capital, solve staffing issues, and attract business managers with skin in the game to look after their outlets with more vigor.
I am often asked: “We see two kinds of franchises – those that provide very little support for franchisees, but with low fees, and those which provide great support, training, follow-up and communication. Which way is better?”
My response – always give your team good support and understanding. This was the policy of the successful groups that established themselves in the 90s recession, and these are the groups that will succeed and reap the benefits in years to come.
Jim’s has over 50 divisions and there’ll be more opportunities for this group in the future. Poolwerx has expanded throughout Australia, New Zealand and the U.S. and I doubt they’ll stop there – similarly Hire A Hubby.
Don’t get me wrong, the franchise model is not easy, especially in the well-regulated Australian sector. Your team must follow the rules, and it is up to you to ensure that happens. People management doesn’t go away, it just gets trickier. Business doesn’t get easier; it just becomes more complex. Working in different environments (including different states and countries) is difficult – changes almost always have to be made. And the buck always stops with you, the franchisor, to make sure everything runs smoothly.
The opportunities for well-positioned, well-structured, contemporary franchises with great support, training and follow-up will always exist, enabling good businesses to grow so they’re still here to survive the next downturn whenever it comes, as it surely will.