The franchise sector in Australia continues to thrive and is the backbone of growth in the small business sector.
Where is franchising headed over the next few years?
The irony is that even with uncertain economic times and a volatile world economy more people are turning to franchising as an option to being employed or setting up their own business.
We are experiencing a veritable “franchise frenzy” “would you like fries with that”? establishing new franchise systems, assisting overseas franchisors enter our market and advising franchisees.
With many companies reducing their workforce (look at the banking sector laying off thousands of staff) many people need to find an alternate means of income and they have a different view on work life balance, seeking greater flexibility to work from home or work more flexible hours.
There are many franchise systems that offer that flexibility with work from home models to mobile franchises. Change is good, we should embrace it !
This is great news for franchisors as more prospective franchisees are in the market but there are also more systems on offer, so franchisors need to lift their game to attract franchisees.
The franchise model as a means of expansion
Franchising is not just the fast food and QSR brands we all know but now expands into sectors such as health and beauty, aged care, NDIS and home care, fitness, freight and logistics, mobile home services, finance, real estate, childcare and early learning and activities.
There is virtually no business that cannot use franchising as the platform to expand their brand and footprint interstate or internationally.
When looking at models to expand, other options should be considered such as bringing in investors or growing via more staff, but these all come with their own risks, issues and costs.
All businesses need to “leverage” to grow that is, they need to rely on the efforts of others to generate greater revenue and profit. Franchisees and Master Franchisees invest their own capital to establish their business, and this means the brand can expand more quickly into different states, regions and countries.
Franchisees have a vested interest in their own success and this will lead to success for the Franchisor.
To establish a viable franchise model requires expert advice to ensure Australian Franchise Code compliance and that the proper modelling has been done to ensure the long-term financial viability for all parties.
The upfront costs to set up a new franchise system may be $40,000 (low end) to $120,000 to establish the systems, support, training, operations procedures and technology needed to support a franchise system.
It is also important to decide whether establishing a franchise system as a means of expansion is the right model for you and consider other options.
Australia is open for business
Australia now more than ever, is an attractive market for overseas companies and franchisors looking to expand their brand.
Over my 38 years in the franchise sector I have seen many “franchise trends” come and go, for example, we had the chicken and burger franchise era, then ice creameries on every corner, pizza franchises galore, coffee and chocolate franchises, and now it’s all about Bubble Tea and Pilates studios!
We have the continuing “my burger is best” wars in Australia with the influx of US brands such as Taco B, Five Guys, Wendys and Carl’s Jr coming into the market competing with our local brands. No doubt the consumer will decide who sells the best burgers!!
There are many overseas franchisors entering the Australian market in sectors such as Health and Beauty, Seniors and Home care, Childcare/ Early Learning and Home improvement / smart living services. All of these sectors are expected to grow between 7 % to 10% over the next 12 months.
Each business sector is intensely competitive, and franchisees are more savvy, with greater access to conduct research and comparative analysis so franchisors have to really stand out from the crowd.
For franchisees looking to get into a franchise there is a “smorgasbord” of systems on offer, but you need to do your homework, as once you get into a franchise there is no easy way out!
Key challenges for business
The challenge for all business great and small continues to be cost of goods and inflation, labour shortage, data security issues as well as the adoption of automation and AI and the need to be sustainable and environmentally responsible.
Franchisees demand more from their Franchisors
Franchisors need to work harder on innovation, data systems and data protection and really understand their consumer market.
A Franchisor that embraces technology and provides effective training and support and implement the use of technology into their operations to maximise profitability, will be ahead of their competition.
Franchisors need to have uniform financial reporting and benchmarking of franchisees performance, a clear marketing message, and an attractive brand and use creative social media.
Franchisees want franchisors to be more open and transparent and inclusive in their approach, something franchisors were not previously good at.
Franchisees also expect (and franchisors need to show) greater interest in the financial performance of their franchisees.
This means the franchise model has to work financially for the franchisee so the operator can take a reasonable salary for their effort, and the franchise gives them a “reasonable opportunity” to get a return on their investment (now a requirement under the Franchise Code).
What’s in store over the next 3 – 5 years?
Technology and AI
Franchisees need to consider how the franchise they take up will be impacted by changes in technology and use of AI.
Some business services may simply disappear replaced to an extent by AI it is predicted over the next 3 to 5 years ! while other businesses may thrive, grow and be more profitable from use of AI.
We are already seeing many business sectors such as the Banking sector laying off thousands of employees to cut costs and employing staff offshore at lower cost.
What’s for lunch?
Recently I was having my regular pizza and wine lunch with Ernest Stabek of SIP Management Consultants, discussing where the world is heading with the uptake of AI, bot’s, cyber security issues and rise of and crypto currencies …. maybe it was one too many wines?
Ernest is a trusted strategic advisor and executive coach who has assisted many of my clients and many established businesses over the years working with business founders and their executive team with strategic thinking and planning.
Ernest works closely with businesses in the tech space and start-ups, to help get them off the ground or grow he highlighted that despite all of the advances in technology around us and the rapid rate of change and uptake of AI, good old human interaction and communication will still be a key element to running a successful business.
“The challenge is to balance the rapid technological advances while retaining a human touch”.
Greenwashing issues
All businesses need to be aware of the risks of incurring substantial fines and penalties for Greenwashing, which may be considered misleading and deceptive conduct under the ACL.
Greenwashing occurs when a company exaggerates or falsely claims environmental benefits to appear more sustainable than it is, to capitalize on consumer demand for eco-friendly options.
ASIC indicates they are closely monitoring net zero statements and use of terms such as “carbon neutral”, “clean” or “green” and investment exclusions relating to eco-friendly investments.
Using vague language such as “eco-friendly” or “100% biodegradable” (when not) and marketing which gives the impression that the companies products or practices are better for the environment than they are in fact, are all potentially greenwashing.
This has also been driven by the need for companies to meet there Environmental, Social, and Governance (ESG) or green credentials.
Recent cases indicate a shift in the courts’ approach to assessing misleading and deceptive conduct in relation to ESG disclosures and highlights the risk for businesses that are caught.
The Federal Court recently imposed a $410.5 million penalty against Active Super a super fund manager for greenwashing misconduct. ASIC has also issued a number of infringement notices against companies in the investment sector where they engaged in misleading conduct asserting eco-friendly investments.
This conduct can be applied to any business sector even to Franchisors in the way they market and promote their services or product .
Apart from the penalties a company can suffer reputational damage and loss of consumer confidence if they are named and shamed by ASIC.
Data and Privacy Act issues
Under the Privacy Act, the maximum penalty for a serious contravention can be substantial, calculated based on the organisation’s benefit or turnover.
All businesses need to implement strong data security measures to prevent breaches, which can include locking down systems, staff training and ensuring they have policies and protocols in place if a breach occurs for reporting.
Small business with an annual turnover of $3 million or less (which includes all income from all sources excluding assets held, capital gains or proceeds of capital sales) are excluded however we suggest it is good business practise and sends a positive message to your consumers if your business follows the necessary systems and protocols.
A small business that provides health services or trades in personal information must comply with the Act even if their turnover is below the threshold.
The Act also allows a small business to opt into the Act which can be a positive statement by the business to its customers that it is committed to good privacy practise.
The fines are up to $360,000 for individuals who fail to report a data breach and $2.1 million for businesses. Businesses need to ensure they have in place a process for dealing with and reporting a data breach.
What steps should you take for cyber security?
- Ensure your software is updated to protect personal information.
- Implement firewalls for protection such as multi factor authentication.
- Train staff to recognize threats, and regularly back up data.
- Engage experts and don’t leave it to your in house It team.
- Limit employee access and remove ex-employees’ access.
Businesses can subscribe to the Australian Cyber Security Centre (ACSC) for more information and tips to help secure their systems and data.
Thinking outside the “CBD” square – regional opportunities
With the growth in regional areas and housing affordability pushing families and many new migrants to live in outer city regions this has led to the great urban growth corridors and opportunities for small business.
In all these regional centres and growth corridors they need supermarkets, medical and childcare centres and supporting businesses which offer excellent opportunities for franchisors and franchisees outside the traditional CBD and Metropolitan area.
Another benefit here, is that the occupancy costs such as rents are lower in regional areas which can make the franchise model more profitable for franchisees.
Both franchisors and franchisees can also contribute to the local community which is good for the business, the brand and the community.
A great example of this was the Bendigo Community Bank franchise model which I was involved in for over the last 15 years which reinvigorated regional towns and metropolitan areas.
What does all of this tell me?
Franchising continues to be an exciting and dynamic business sector with excellent opportunities and continues to be the most successful model for rapid market and brand expansion.
Franchisors need to ensure they offer something unique and attractive to franchisees who have many franchise opportunities available to them.
As with any investment or business opportunity there is a risk, and franchisees need to choose wisely and seek Specialist Franchise Legal and financial advice, to limit their risk and make an informed decision.
Robert Toth Special Counsel Accredited Commercial Law & Franchise Specialist
Email robert@sanickilawyer.com.au Mobile 0412 673 757
Named by Global Law Experts as Franchise Law Expert of the Year 2025 in Australia