We speak with Jason Gehrke about the Australian franchise industry, and how it has the potential to bounce back stronger than ever before.
Interview by Kieran McLoone, deputy editor for Global Franchise.
KM: Thank you for talking with us, Jason. As the director of the Franchise Advisory Centre, what preliminary guidance would you give to international franchisors looking to penetrate the Australian market?
JG: Do your homework first. Many brands that plan to enter the Australian market – and especially those from the United States – fail to engage appropriate local expertise and mistakenly think that their model will work here just as well as it does back home.
Although there are huge similarities in all English-speaking Western societies, there are also significant cultural, economic and regulatory differences that can overwhelm an underprepared international brand.
KM: What kind of impact is COVID-19 having on the Australian franchise industry, and what effects do you think it may cause in the long term, after the virus itself becomes less of a pressing concern?
JG: Right now, the small business sector in Australia is grinding to a halt as the federal and state governments seek to contain the spread of the virus through self-isolation. It has very quickly resulted in immense financial pain for franchisees and franchisors alike, and will most likely result in the deepest recession experienced in our lifetimes.
“Franchising always punches above its weight and will bounce back stronger than stand-alone enterprises”
While this might be bad news for small business more broadly, franchising always punches above its weight and will bounce back stronger than stand-alone enterprises. As unemployment grows, this too will create an increase in potential franchisees looking to become self-employed.
KM: How friendly is the Australian landscape for franchising as a business model, and do any regulations hamper or help business development?
JG: The Australian franchise sector is the most heavily regulated on the planet, and while this might seem daunting at first to international brands, the regulation largely codifies franchising best practise anyway.
A high-performing, mature and well-developed franchise should have no problem complying with the Franchising Code of Conduct and other regulations that impact franchising here; however, a shooting star that hasn’t yet achieved critical mass in its own country and has only been operating for a short while is unlikely to succeed here.
KM: What methods for franchise growth, such as multi-unit or area development, are most common in Australia?
JG: Despite our huge landmass (larger than the continental U.S.A. excluding Alaska), we are sparsely populated with most Australians living along the east coast.
Area development is not common here, and aside from single-grant national master franchises, master franchising in different parts of the country is rarely adopted these days. Most growth is via single unit grants, which typically need to demonstrate certain levels of performance before additional outlets will be granted.
This is different compared to the U.S. where it is common to grant multiple licenses upfront, and then require franchisees to open these sequentially.
KM: Are Australian consumers open to international franchise concepts?
JG: More than 90 per cent of Australia’s 1,100 franchise brands are home-grown and developed, but there are many international brands that are household names.
“Aussies like good products and services, regardless of where they come from”
Aussies like good products and services, regardless of where they come from, provided that those products and services are appropriately customized for an Australian market.
KM: What shifts do you predict will happen within the next few years of Australian franchising, either as a result of COVID-19, or in a more general sense?
JG: I see a huge change to the traditional capital inflow model of franchising as Generation Y becomes the primary cohort of franchise candidates, but can’t raise the finance to invest because of declining levels of homeownership and Gen Y’s different saving and spending priorities.
This means more franchisors will be forced to open company stores to maintain growth, and find ways of accessing funds to facilitate this, plus transition Gen Y operators into these businesses.
There is also now a large proportion of franchise outlets in Australia operated by migrants from a non-English-speaking background, mostly from China and India. This trend is expected to continue.