Is Franchising Really In Strife?
Current media coverage might indicate that franchising in Australia is in strife, but that’s not the case. Let’s start with the good news about franchising.
The franchising industry frequently achieves double-digit annual gains and contributes a vast amount to Australia’s GDP. The sector is a huge support to the Australian economy and society, providing at least 580,000 jobs each year – that’s 4.4 per cent of all employment, now rivalling the manufacturing industry. Unfortunately, this is not the current message being sent either politically or by the media, who are instead indicating that problems with a few are representative of the whole industry. This year I have spent time presenting at franchise exhibitions in Sydney and Perth and spoken to a couple of hundred people interested in growing their business using franchising as the model. There is no doubt that there has been a fall in the level of interest at these exhibitions due to the message being heard from the media.
The unfortunate result is probably that growth of the most dynamic and rapidly expanding business sector in this country has been derailed with a possible long-term impact on the Australian economy and employment growth nationally.
Why has this happened?
Due to extensive multi-media coverage, the reputation of a couple of large franchise groups has deservedly been outed for serious breaches of the expected levels of integrity and transparency in business practice. Those involved will no doubt be pursued and hopefully made to pay the price of their behaviour through the strict legislation under which Australian business is ruled.But, and here’s the ‘rub’, the resulting fall in interest in the whole sector I am seeing, unhappily looks like it has affected many in the industry. All because the often hysterical pursuit of the franchise sector means everyone is being punished on behalf of the few. This is blown out of proportion.
The recently commissioned Franchise Inquiry will examine these matters closely and hopefully conclude the current legislation, whilst in need of fine tuning, is not in need of any dramatic change. The current legislation will deal with the aberrant few. I know the franchise sector is mainly populated by warm, caring business people who fully understand it takes a team to deliver (I believe not more than four or five groups out of the 1160 have behaved questionably – that’s less than 0.5 per cent).
Think of your favourite shopping centre brand, food hall favourite, home service provider, anything at all really, and they will likely belong to one franchise group or another. The disappearance of these will affect us all. It is this majority who understand that, to make a franchise network hum, franchisees and franchisors need to work together to bring in the money for both sides. The franchisee on the frontline, happily giving customers great service with a smile in return for well earned dollars. The franchisor on the other hand, supporting their franchisees with a brilliant brand, fantastic product, some marketing, business assistance, business training and help when things become tough – this list can be very long and, in today’s digital business environment, expensive.
Most franchise systems recognise these challenges and acknowledge that they are responsible for the brand and marketing for everyone’s business in their network and they work hard to keep everyone informed and keep a handle on what is going on to keep the money rolling in for everyone.
Hire A Hubby is a classic example which illustrates this point so well. They were awarded the Franchise Council of Australia’s Excellence in Marketing award in 2017. Achieving this was not easy. The journey started with changes to data management of the group which meant reports on how the group was fairing became available. By 2014 it was evident franchisees were working on much larger jobs than a simple handyman could achieve, and marketing was vastly underselling their abilities. It was also evident the traditional marketing tools being used were woefully out of date. So, the investment to go digital with improved social media and online marketing was made in conjunction with a good look at the needs of the actual 2014 target market. Yes, to begin with, there was resistance from franchisees. But within a year the results of this change were astounding and brought everyone on board with pride, increasing the value of everyone’s asset.
One of the most powerful elements of franchising, and of most franchise groups isthat they are on top of their numbers. They understand the importance of their KPIs and how their target market is changing and what their franchisees are actually doing matched against the market’s needs. They rigidly collect and understand data from their own digital sources and stories from their franchisees and make changes as required.
Any business that fails to do this will inevitably come up against barriers to growth. Remember it is the entrepreneurial spirit most of our franchisors have which enables them to understand the market and ake sure the network is still on the mark, make changes as needed to keep up with the shifting social and digital business environment, which also brings in the dollars for the group.
A franchisor cannot do this without franchisee support. The bottom line is, a great franchise is one which has been structured and systemised so both sides of this business partnership can happily and profitably be working together.
The truth is, this kind of sharing and caring franchising is strong, showing yearon- year growth which is overtaking the manufacturing sector as one of our major employers. It is still a proven, safe, solid and extraordinarily successful business model and destined to continue long into the future. Regulating the nebulous can end up strangling the goose that lays the golden eggs. True, some management has behaved badly, but this is not the time to suffocate the 95 per cent of ethical and successful franchised businesses with even more compliance and bureaucratic second guessing. Australian consumers will only suffer more if franchising is prevented from applying its entrepreneurial, innovative and disruptive skills to raise the standard of business and customer service that the modern world demands. The Inquiry will be essentially self-defeating if it focuses on the past and ignores its responsibilities and the needs of the future.
The risk of unintended consequences is high and we do not need to learn that too much legislation inflicts more pain than too little.
* Trading Economics Australia GDP Annual Growth Rate 1960- 2018
**Franchising Australia 2016 Griffith University
Brian Keen has been involved in the franchise industry for more than 30 years. He is the founder of Franchise Simply. His hands on business experience as a multiunit franchisee, franchisor and consultant helping many of the big names create their own franchise systems and growth over the years has been fed into Franchise Simply, helping today’s SMEs grow their business by franchising.
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