Home' The Franchise Review : September 2015 Contents THE FRANCHISE REVIEW
Council and the International Franchise Association, with
information about where Australia fits in the global franchising
The report notes that Australia ranks:
• fifth in the number of franchise brands (based on a reported
• sixth in the reported number of units
• third in the level of economic output, albeit at a significantly
higher comparative contribution than in the United States
• ninth in franchise employment numbers.
FRANdata also refers to the widely recognised Griffith
University Franchising Australia survey's portrayal of the
Australian franchise sector, and notes that while the reported
79,000 franchising units makes up approximately four per cent
of the small businesses operating in Australia, franchising has a
high comparative contribution. For example:
• on suggested employment of 561,000, franchising employs
12 per cent of the 4.6 million people employed in small
business, or five per cent of total private sector employment
• with turnover estimated at $160 billion, franchising
generates more than 10 per cent of Australia's
$1.5 trillion economy.
Data from the World Franchise Council also shows the potential
for expansion in the Asian region, with countries such as
Japan, South Korea, Taiwan, China and Indonesia seeming
to be experiencing similar exponential growth to that which
Australia enjoyed in the 1990s.
Having examined publicly available information on a set of 845
brands (registered and non registered) operating in Australia,
the report notes that 72 per cent of franchise brands operate in
non food related industries, with coffee accounting for 34 of the
236 food related brands (or 14.6 per cent).
Following an outline of sector representation and a detailed
commentary on the regulatory environment, the second section
of the report 'Australian Franchise Facts' Volume 1 highlights
findings from a study based on reviewing the documentation of
59 brands, which cover 6600 franchised locations.
In the first ever study of franchise unit turnover, the report
confirms that the 11 per cent turnover rate is relatively consistent
with the average franchise agreement term of 10 years, although
the 18 per cent turnover figure for food concepts is more
worrying. This could be caused by a number of factors, including
the challenges of leasing longevity in major shopping centres,
long trading hours, businesses being easier to sell, and harder
working conditions. The relatively high number of 'transfers' is
positive, assuming that the reporting of transfers is accurate, but
the high number of 'ceased other' merits further examination.
The report also contains interesting information on franchise
royalty methodology (which records average royalty fees of
5.4 per cent in a wide band), marketing contributions, initial
franchise fees (averaging $44,262 in another wide band),
renewal fees and other matters that will assist franchise
systems to benchmark their performance against their peers.
All registered brands have been listed in the report.
The franchise sector faces other challenges. Increased
competition, rental and wage costs, and reduced lending to
franchise systems all challenge the business model.
Specific to franchising, the recurring themes of recruitment
and finance access have been joined by technology as key
strategic challenges for franchise brands. The commentary
on the recruitment issue notes several recurring themes
around the benefits and risks of a multi unit strategy. The
finance access discussion notes the emergence of non
traditional lenders, and the issues around the growing trend of
franchisors funding new franchisees.
During the exponential growth phase, a franchising sector
can survive on a mixture of general macro economic
information, anecdote and hyperbole; however, experience
shows that when a sector reaches maturity, more detailed and
accurate information is essential to the credibility and further
development of the sector.
What now seems clear is that Australia is a mature franchising
market. The challenge this represents is significant, given
around 75 per cent of franchise systems have fewer than 25
franchisees, which could well be under viable critical mass.
FRANdata Australia sees industry consolidation likely to
continue, and probably increase. The full report is available for
purchase through www.thefranchiseregistry.com.au.
About the author
Darryn McAuliffe, FRANdata Australia CEO, has more than 30 years'
experience in the banking and finance sector as a Certified Practising
Accountant, and as an experienced bank executive across business banking,
risk management and franchise industry specialisation. FRANdata has been
supplying independent and credible information to the franchise sector for
more than 25 years, and operates the Australian Franchise RegistryTM.
The establishment of the Australian Franchise RegistryTM has been an
important step in providing enhanced credibility to registered franchise
systems. For the first time, prospective franchisees, regulators,
government, the media and the general public can check whether or
not a franchise system has achieved a confirmed status by lodging its
current compliance documentation with the Registry.
Increased competition, rental and wage
costs, and reduced lending to franchise
systems all challenge the [franchise]
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