The franchise sector is a major contributor to the Australian economy, generating around $AUD146 billion in revenue annually. The size and importance of the sector is also evidenced by the approximately 1,120 business format franchise systems and 79,000 franchise units that currently operate in Australia. The sector is also a major employer, providing jobs for more than 470,000 people.
With 95 per cent of franchisors, and almost all franchisees, being classified as small businesses it’s fair to say that franchises represent the backbone of independently-owned and operated small businesses right across Australia. While 90 per cent of franchise brands that operate in Australia originated in Australia, major international franchise brands operate across a wide range of industries, including quick service restaurants, retail, shipping and logistics, gyms and fitness, and more.
Federal regulation through the Franchising Code of Conduct
One of the key reasons behind the success of franchising in Australia is the regulation of the sector through the Franchising Code of Conduct which provides protections for both franchisors and franchisees. The Code has ensured that franchising in Australia takes place in one of the most robust regulatory environments in the world.
This mandatory Code, which was introduced in 1998 and updated in 2015, applies to both parties of a franchise agreement and provides protections to franchisees including: the mandatory disclosure of information from the franchisor, including financial details, directors’ interests, franchisee list, and litigation information. The Code also provides mechanisms for cost-effective dispute resolution between the franchisor and a franchisee. Under the Code, if no agreement can be reached by direct negotiation, disputes should be settled by mediation.
In addition to the Franchising Code of Conduct, franchises operating in Australia must also comply with federal laws on misleading and deceptive conduct contained in the Competition and Consumer Act and relevant workplace laws including the Fair Work Act.
New regulatory uncertainty
At the time of writing, new legislation is being considered by the Australian Parliament that has the potential of affect the nature of the franchise relationship in Australia. The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017, if passed in its current form, creates significant uncertainty and harm from ‘joint employer’ provisions contained within the proposed legislation. The FCA has been actively engaged on behalf of the sector to advocate for improvements to the legislation and to mitigate against any unintended consequences that would adversely affect the sector.
How the Franchise Council of Australia supports Australian franchising
The Franchise Council of Australia Limited (FCA) is a nationally incorporated not-for-profit association and the peak body for the franchise sector in Australia. The FCA aims to support, promote and develop Australian franchising to drive economic and entrepreneurial success within the sector.
These goals underpin the FCA’s core activities, which focus on the major themes of: a commitment to promoting the highest industry standards and best practice within the sector; providing the education and other services necessary to ensure a healthy sector constantly striving to lift its own standards; building strong and productive relationships with governments, core regulators and stakeholders to ensure that the voice of franchising is being heard.
Bringing an international brand to Australia
Expanding a franchise internationally offers many potential benefits for a brand, including growing your customer base and increasing the overall brand presence. Equally, it presents many challenges: you need to understand the customer base and culture into which you are expanding and be prepared to deal with the difficulties that running a franchise system across international borders can present. Research is key before taking the leap and expanding your franchise to any new market. As mentioned, franchising in Australia is governed by the Franchising Code of Conduct. A franchisor expanding their brand into Australia needs to understand their obligations under the code and ensure compliance with these regulations, as well as other relevant laws.
The challenges facing franchisors in Australia
If you ask just about any franchise brand that currently operates in Australia about the major challenges that constrain the expansion of their brands you will invariably get the same answer: franchisee recruitment and access to finance. Finding the right franchisee for your brand is always a challenge, but finding the right franchisee who also has either the working capital or access to finance to purchase a franchise business increases that degree of difficulty.
The FCA is working to assist franchisors to overcome this hurdle through a partnership with the Australian Franchise Registry. This voluntary low cost registration platform enables franchise brands to promote their commitment to compliance and signal the availability of other key stakeholder information. A key benefit of this is the potential to gain bank accreditation for a franchise brand, with the end goal of attracting capable and competent franchisees and improving the access to finance for these franchisees.
The economic climate
In a relatively flat economy, business confidence is a significant issue both in Australia and globally. Franchising has not been immune from these challenging economic conditions, but it is of note that while the sector has not experienced significant growth in the past two years, nor has it contracted with the number of franchise units operating in Australia remaining relatively steady and total turnover for the sector increasing by $AUD2 billion between 2014 and 2016.
While there are challenges currently facing Australian franchising, the sector has historically been economically stable and a key driver of entrepreneurial success. However, it would be prudent for any franchisor currently considering taking their brand to Australia to keep one eye on the legislative landscape before committing to an Australian network expansion.
What you need to know before bringing your brand to Australia
Australian franchising generates around $AUD146 billion in revenue annually
Australian franchising is governed by a mandatory national Code of Conduct, providing protection for both franchisors and franchisees
New federal legislation is currently before the Australian Parliament that, if passed, would create ‘joint employer’ liability for franchisors and franchisees
Franchisee recruitment and finance are the major operational challenges facing franchisors in Australia
About the Author
Damian Paull is CEO, Franchise Council of Australia. The Franchise Council of Australia Limited (FCA) is the peak body for the $146 billion franchise sector in Australia, representing franchisees, franchisors and service providers to the sector. Membership of the Franchise Council of Australia is voluntary, and is open to any organisation or individual involved in the franchise sector. For more information visit www.franchise.org.au
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