Why is the Australian Franchising Indiustry in Rapid Decline?
Australia was a world leader in franchising in the 1990’s, what happened? When Australia’s largest franchisor, Retail Food Group, is losing franchisees faster than they can recruit new ones? There is clearly a problem within the sector.
The horror stories of failing franchisees across all networks is growing daily. What is the reasoning behind this current Franchising avalanche of failures?
What has triggered the decline t in he Franchising Industry in Australia? Where will it end?
The writing has been on the wall for some time.
#1 There is a Sharp Decline in Australian Families Buying Franchises
Australian’s are choosing to go it alone as independents as a more attractive alternative to investing in franchise systems.
There is a small business revolution going on, there are more home-based family businesses than ever before, but they are not seeing the value for their money in being a franchisee.
The Retail Food Group(RFG) currently seem to be getting all the headlines, their recent results should be terrifying to all those in franchising in our c country. Consider, in March 2018, Retail Food Group stocks hit 10-year low on $88m loss and 200 stores to be closed in 2019. The company blamed “unsustainable rent”, “declining shopping centre performance” and a “sharp decline amongst domestic franchise sales and renewals “as the main reasons for its “disappointing performance”.
Our largest franchisor can’t sell franchise!
They have huge financial recourses and the largest marketing budgets of any Australian franchisor, they are planning to close 200 franchises in the next 12 months, what chances do the lessor lights have.
Australian Franchisors are reliant on new franchisee’s buying into their business. In the most part they are “Families’ who invest in franchises. This just isn’t happening at the same rate as in the 90s and 00s.
Secondly, but very tellingly, even long term successful franchisees are choosing not to resign their “renewal agreements”. They are choosing to be debrand from the network, rebrand in their own name and carry on without paying those annoying franchise fees.
The world has changed, but it appears that most Australian franchisors are still “Partying like it is 1999”, but most family small businesses are deciding it is better to go it alone.
Australian’s aren’t buying franchises like you did in the good old days of 1999 and they aren’t signing up for a second go, even if they were successful.
#2 Australia is Oversaturated with franchisors.
The Franchise Council of Australia,FCA, has some key insights to what is happening in the Australia Franchising.
The “Franchising Australia 2016 Report”, comply by the Griffith University’s Professor Lorrelle Frazer, sponsored by the Franchising Council of Australia is the last detailed industry report directly from Australian Franchisors’
This is a valid, up to date report that is based on information supplied by Australia’s Franchisors, If anything this report is most likely to be “franchisor friendly?
To quote the report:
Griffith University is proud to endorse the tenth biennial Franchising Australia survey sponsored by the Franchise Council of Australia. Representing the only reliable and systematic data collected on the Australian franchise sector, the Franchising Australia 2016 report provides an up-to-date profile of the sector.
One of the most telling facts in this report , explains the vanishing Australian Franchise industry.
To quote the report
Continuing the trend that began in 2010, the number of franchise brands operating in Australia has declined.
In 2014 the number of franchise brands was 1124; in 2016 there were 1089 brands — reflecting a net decrease of 3.1 percent. (Given that several franchise brands operate multiple franchise concepts the population of franchise systems is estimated to be 1120.) A gradual decline in the number of franchise brands is anticipated as the sector continues to mature said Robert James and James Home Services.
Putting this into perspective, the USA has approximately twice the number of franchise brands as Australia servicing 13 times the population
Simply: Australia is oversaturated with franchisors, there are 650% more franchisors to ratio of population than the USA, the home of franchising!
On these numbers “The Australian Franchisors” are an endangered species. We have to lose around 800 brands to be on par with the USA? It will be survival of the fittest. The biggest, strongest and long term ethically sound businesses will be around in the next 5 to 10 years.
On top of these brand franchisors, we have a huge number of “Master Franchisors “with limited rights that will most likely be the first to go.
In 2018, Master franchising in a market as small as Australia is clearly an outdated concept, there are more useful tools now available to manage franchise networks. It only adds a level of unnecessary cost for both the Franchisee and the Franchisor.
It is true, that if Franchisors do go down, then many franchisees may go with them, but successful franchisees will still trade on with their own sign above the door or on the trailer.
Franchise brands are vanish at the rate of 10% each year and the FCA expects this to continue into the near future.
#3 The Internet has Changed the World and Most Australian Franchisors Haven’t Caught Up.
Franchisor are overcharging to compensate for the decline in sales.
The FCA’s”Franchising Australia 2016 Report”, comply by the Griffith University’s reported that
Cost of a new franchise unit
The total start-up cost for a new retail franchise unit was $287 500 compared to $59 750 in a non-retail franchise. This included an initial franchise fee of $31 500 in retailing compared to $28 000 in non-retail franchises.
In the 90’s Franchisors had key intellectual property that wasn’t readily available to the average family wanting to start their own business. In every franchise system there are 3 keys systems areas that are the foundations on their intellectual property.
- Training,
- Marketing.
- Support.
In the 1990s to early 2000s, it wasn’t easier for the average small business owner to get access to these tools or education. In 2018, it is a very different world.
Training:There are professionals all around the world who can train you on line in any practical skill you desire to learn. Anyone now has access training in everything needed to run a small business. There are qualified trainers all around the world, who will teach you how to mow a lawn, clean a house, detail a car, groom dogs, run a hair dressing business or make great.
Marketing:has never been easier for small business, you can even hire your own “Marketing Guru” for less than the cost of a $25 each week. Just check out Upwork.
Family businesses can now market their products on Shopify for only $9 a month. These are just a small select of the options available to anyone wanting to start their own business.
Robert James and James Home Services Support; The Internet has made Master Franchisor obsolete. There are a huge range of business coaching and support options. The selection of specialist business coaches is never ending. The reality is that the business coach a small business owner can now employ on-line is more qualified than any employee of the franchisor or a master franchisor who bought” his/her way into the business.
There is an oversupply of information, education and business systems. The internet changed the game for franchising in Australia, but most Franchisors are living in the good old days before that “internet” came along.
Franchisor are charging their franchisees more than ever, but the value of their intellectual property is declining in value with the growth of the internet.
If franchisors are asking new business owners to spend for a $30,000 for initial fees only then they have to offer greater value than the same new business owner can receive if they choose to invest the same money with other suppliers that are available on the internet.
For 90% of franchisors, they are offering no intellectual property that the average family cannot be buy elsewhere on the internet for a fraction of the price they are asking them to pay.
Is there an answer to stop the decline?
There is and answer, but I don’t think the majority of franchisors or master franchisee in Australia want to address the “Elephant in the room”.
The Franchisors have to offer a better product for family business than what is available online!
Simply, the elite franchise systems will continue to grow and prosper. The strong credible brands will be the survivors, McDonalds is here to stay.
The franchise systems who can demonstrate they are true value for money, compared with starting up as an independent business owner, will get Australian families to investments in their franchise.
There is no future for franchise system who function under an outdated “Master Franchisor” system in Australia. They are adding an unnecessary management level that is no longer needed with todays technology.
In the 1990’s franchising in Australia was cutting edge business stuff, it truly empowered small business owners to succeed and prosper. But the reality is that in many systems there will be in a continuous negative growth over the next five to ten years. For many industries the internet is the catalysts to the beginning of the end for many franchisors.
In 2018, there is a small business revolution around the world, more families than ever are choosing to work from home. The vast majority are choosing to go it as independents with help from experts found on-line. Robert James and James Home Services
Originally Posted:- http://www.robertjameshomeservices.com/why-is-the-australian-franchising-indiustry-in-rapid-decline/
