Discuss about the Current Franchise business in Australia.
Globalisation has led to emergence and growth of a large number of businesses. While companies aim to develop and set up businesses on their own, franchising model has been emerging and growing tremendously over the recent years (In Proceedings of the international society of franchising 2009 conference, 2014). Franchise model of business, allows a firm to make use of the same business model for a stipulated time period. Franchise set up chain stores across various countries or within a single country, success and profitability of a franchise business is entirely dependent on incentives that they receive from the stake in the business. Almost every country around the globe has established laws and regulations related to franchise business. Such laws and regulations have direct implication on the business of the franchise. Currently there are a magnitudes of franchise business globally that offers lucrative opportunities to business partners to set up, they extend a variety of help and opportunity (Bennett, 2009). Including transfer of technological know-hows and methods of conducting business, a franchise allows various help for establishing and to get the business running of the franchise.
Background: The scope of this current topic extends to analyse scopes of franchising businesses related to Australia. Australia is a developed country that offers diversified business opportunities. The democratic Federal Government in the country is undertaking continuous and steady endeavors for establishing of business framework. With minimum levels of political intervention, the country offers high levels of opportunities for franchise business to establish themselves and prosper (Frazer, 2012). Growth and steady rise of franchise business in Australia has been associated with establishment of the Franchising Code of Conduct as set up under the Trade Practices Act 1974. The ACCC is known to regulate necessary industry practices and agreement related to contracting parties in Australia. This code implies various disclosure documents and agreements to be provided to the government, at least 14 days prior to entering a franchise arrangement. However, the code encompasses various easy norms and practices that encourages setting up and functioning of franchising opportunities. Various companies around the world are now flocking in Australia, such that they can open their franchise, also various companies from Australia are undertaking similar steps in their business expansions (Wright, 2011). Australia with favorable societal and economic conditions have become an ideal ground for setting up franchise businesses and there has been rise of such businesses to the tune of 21% in the recent past. This study hence identifies the current situation of franchising present in the country and the way forward for its future.
Purpose Statement: The primary scope of research in the current study is to identify the current trends in franchise business prevailing in Australia (Evans, 2008). This study explores various opportunities and challenges offered by franchise business in Australia, with a brief history regarding the same.
Limitations: The study has explored a host of literatures pertaining to franchise business history and its relevance to Australia. However, there are certain pertinent limitations to the study as well, as it can only be applied in Australia and cannot be extended to other countries. Though the study has undertaken research from various journals yet rules and regulations as applicable in Australia has been scrutinized (Davidsson, 2008). The study is also theoretical in nature, as due to time limitations the scholar has not been able to collect primary data. Mostly secondary data has been collected for the purpose of this study, hence the study is bound to suffer from the limitations as imposed by such secondary sources. The study however provides scopes for further expansion and development.
Gap in literature: The study has made use of several pertinent literature that can contributes easily to the field of franchise. However, there has been limited availability of literature in the field of franchise businesses in Australia (Aliouche, 2011). This has led to relying on foreign articles and journals, especially those from USA. Hence, the scholar has made use of such journals and then molded it according to norms existing in Australia such that appropriate suitability can be found. The scholar has made tremendous efforts to bridge gaps in literatures that are present.
Methodology: Research methodology is crucial for conducting any sort of study. For the purpose of this study, the scholar has adopted ontology research philosophy. In this philosophy, the scholar replicates individual understanding regarding realism and state of affairs related to franchise business opportunities. The scholar has further adopted only qualitative research methodology by evaluation literatures from secondary sources (Davis, 2012). In which the scholar has adopted inductive techniques for relating theories and arriving at the goal for the study. Hence with descriptive research design and qualitative techniques, the scholar aims to arrive at the goals of the study.
Franchising has an integral role in modern businesses for its further development. The rise of franchising opportunity emerged from USA and now has spread across multiple countries globally. Franchise businesses have been established across food, non-food, retail, financial, services and various other sectors and subsectors (Keup, 2012). Franchising has been growing and their roles in national economies have been gradually expanding. There are multiple state and national level programs that are being established across countries for faster developmental strategies for new income avenues. Researches are also being conducted to identify opportunities and causes of failure in franchise businesses, though failure are lower as compared to conventional businesses. Growth, development and success of a franchise is entirely dependent on overall economic circumstances and performance of the economy as a whole. Businesses needs to identify the benefits and associated limitations of franchising as a tool for opening businesses (Smith, 2013). Key measures and tools for facilitating development of franchise, promoting them for organisational benefits needs to be identified for building successful franchise.
History of Franchise: Franchising concept was primarily started post the World War II , however scopes of modern franchising can date back to Middle ages. Most primitive form of franchising known to have been those made by landowners with their tax collectors, who in turn retained a substantial percentage of such money. Later in England franchise opportunities for sponsoring markets and fairs or for operation of ferries in 17th century was identified. The most successful franchise started in USA by a famous druggists John S. Pemberton, which came to be identified as Coca-Cola. Later there were several franchise stories, as singer Company developing a franchise plan for distribution of sewing machines starting in the 1850s (Terry, 2007). Though Singer’s initial franchise arrangement did not become successful nor did Colonel Sanders Kentucky Fried Chicken franchise efforts yielded benefits. Then there was one company after another that wanted to establish and set up their own franchise, as General Motors for raising capital, Rexall for setting up manufacturing company. Such business cooperation’s continued till the beginning of 20th century when finally franchise business started taking form. In the late 1970s people started to look at the attractiveness that franchise business offered, hence they started establishing franchise with their entrepreneurial spirits (Szulanski, 2008). USA established ranking of its various franchise making use of tabloids to indicate the success associated with franchise, amount of revenue generated and also numbers of job created. Then following US business models in franchising, global trends in franchise began developing from restaurants, to gasoline, trucking stations, hotels, spas, hospitals and so on.
In Australia as well following World War II, franchise started setting up in gasoline, automotive, post 1970s there had been franchising began to get established in fast food industries (Oliver, 2007). In the year 1992, it was estimated that approximately 450 franchise operated in the country. By 2002 number of franchise businesses had grown beyond 700 with approximately 73,000 outlets in 2012. First codes of legislations related to franchising is known to have been set up in the country way back in the 1970s with initiation of tobacco retailing. Wherein state level endeavors were made appointing Commissioners to collect levies relating to the business, in real estate and other industries. In the 1980s following several debate on franchising a federal level codes of conduct were established (James, 2009). It was first associated with petroleum industry leading to application of laws, with subsequent development of Codes of Practices for the sector established in 1993. Then a nation-wide Code of Practices was established in 1998, which came to be known as the Franchise code of Conduct with an industry association known as Franchise Council of Australia formed in 1982. Then initiated research and education in the specific field of study in several Universities for growth and development of the sector. Today, taking several examples from the past franchising has become an extremely profitable and lucrative business in Australia, especially with its guiding Codes of Practices and principles. These codes enhance business ambience enabling businesses to set up and function effectively.
Current Franchise Business in Australia: Franchising sector in Australia is rapidly expanding with growth and stability associated in the economy (Dant, 2008). Rapid expansion is necessary for positive growth and development of the sector. While the sector is rapidly expanding with multiple business units getting set, many businesses might continue remaining small and non-viable for future. There are over 80,000 franchise owners operating in Australia, while some are successful others are not. Some franchise have failed even with being associated with large and successful franchising systems. Success in franchise is associated with attitude of the franchisee, risk tolerance and responsibility in conducting the business (Agha, 2007). There has been various turmoil in the Australian franchise sector as customers becomes aware regarding brand and quality. This has created new thinking whether franchise can deliver quality in existing products yet remaining competitive. Thus, franchise businesses needs to innovate with new ideas and technologies such that public can be provided with better services and qualities. Franchise systems that focus on quality are more likely gain economies of scale advantages, reducing substantially on their delivery costs and increasing their profitability. This will lead to increase in franchise revenue within Australia (Carlbäck, 2008). Franchise business is necessarily a trust relationship based business, where the franchisee and franchisor both relies on one another. Such relationships can be further driven in case strategic alliances and collaborations are better.
Example of success and failure franchise: There are multiple franchise business that are successful in Australia whereas there are a number of other franchise that fail miserably. Food franchise are particularly very popular across Australia and also extremely profitable (Dinnie, 2009). The Franchise Council of Australia estimates that Australia has more franchise per capita as compared to any other country. With over 1,160 franchise brands and 79,000 franchise units for a population of 23 million. It is estimated that approximately 86% of Australian franchise are successful compared to America staple franchise consisting of McDonald’s or Subway. Poolwerx is a popular franchise chain in Brisbane with a history of 24 years (www.businessreviewaustralia.com, Retrieved on 16th August 2017). It is one of the most successful pool cleaning franchise, consisting of 300 mobile vans and 100 Australian franchise and 100 retail stores. The franchise is currently considering expanding its business to America with opening of 300 stores. Battery World is a successful franchise that has 94 stores nationally spread across Australia and has plans to open more stores in the near future. The Foodco Group own several cafes as franchise Muffin Break, Jamaica Blue, Freamy Donuts. Focus of the franchise is on training of its employees across the board consisting of counter people to office managers. Such training has led to huge success associated with the brand. Coffee Club is one of Australia’s largest home-grown franchise that has more than 300 stores (Weaven, 2010). Its current turnover crosses $370 million and offers services pertaining to CBR, a restaurant, Club which is a coffee store and Kiosk which is an open air service counter. Mad Mex is one of the leading lifestyle channels in Australia that advertises for Fresh Mexican Grill and comprises of the fastest growing retail business. Gutter-Vac is a leading gutter cleaning services offering across 45 locations. Gelatissimo is a gelato franchise spread across Australia. Roll’d is a typical Vietnamese fast food style hawker (Terry, 2007). Skinny’s Grill on the other hand is a health food franchise. Baker’s Delight is a franchise based in Melbourne with a signature name Cheesymite Scroll, it is considered one of the leading retailers in Asia Pacific Top 500 Retailers award. These are some of the most successful stories of Australian franchise, who have been able to cater to their customers and even exceed them. With high amounts of retained profits, these companies have expand phenomenally and are planning or have already expand overseas. Financial viability, steady growth in finances, deep business strategies have been some of the key factors that have driven business profitability of these aspiring businesses (Jin-zhao, 2009).
There are however several franchise that have failed miserably leading to loss of brand name and reputation. Reasons for failure might be multiple as financial instability, low management control, less control over business functionality, low marketing endeavors, no innovations and so on. Maximum number of medium enterprises in the Australian franchise sector closed down owing to losses which went unbearable for them (Magleby, 2007). Some examples from such failures include, Pie Face which closed with its 70 stores, where 43 of them had been franchise. There has been still speculations associated with closing down of Pie Face which has not yet been unearthed. Gregorys Transport was one of the largest privately owned transport companies collapsed with hundreds of employees along with their contracts. The Company failed to pay superannuation or any other benefits associated with its closure (www.smartcompany.com.au, Retrieved on 16th August 2017). Slowing productivity gains from its clients as Coca-Cola Amatil, Schweppes and Bluescope Steel had led to the closure of the Company. Pastacap was a Western Australian restaurant chain that collapsed with 18 franchised stores.
Future and improvement of franchise in Australia: Franchise failure has been attributed to various reasons, but in order for growth and development future of franchise business needs to be planned. Franchise in Australia needs to reduce risks associated with their businesses such that they can easily overcome challenges (Jasina, 2008). There are tremendous opportunities and scope provided by the Australian business sector that can lead to expansion over the years to come. Businesses can expand exponentially and expand overseas in their franchise endeavor. Business model of franchise needs to be evaluated for appropriate business growth and stability. Underdeveloped business models of franchise can be blamed for failure of franchise business models, such models are more common in new and start-up companies who are forced into franchising (Gabriel, 2013). In consultation with Franchising Support from Federal government, mature business models needs to be developed. Inadequate training and support provided to franchisee is another key reason behind failures associated with various franchisors. Mature brand provide continuous support and training as against start-up brands due to limited operational matters in new brands. Franchisee can protect and develop themselves by equipping with necessary training and developmental programs for understanding the true nature of the business (Davies, 2011). In case franchisee is unable to accommodate and train employees for business functionalities then it is best to move away from current systems by investing in a new program altogether. Often franchisee become broke and insolvent and are unable to survive. The key functions required in sustaining and maintaining marketing, supply logistics, It and other core activities are so high that they cease to exists. Mature brands have also failed in the past as Angus & Robertson in 2011. Hence proper planning can help franchise businesses along with their brands establish business identities (Kavaliausk?, 2011).
Despite the vast range of challenges that faces the Australian economy, franchising is positioned to gain continuous growth in coming years, according to latest Franchising Australian Report including 2016 data. The Research report depicts that Australia’s franchise brands have grown in strong manner over the past two decades, but it consolidated only during Global Financial Crisis (GFC) from 2008 to 2010. Post that phase this sector is steadily recovering with multiple challenges. With prevalence of declining consumer confidence and retail spending, some franchise are bound to shut down (www.franchise.edu.au, Retrieved on 16th august 2017). Latest report for this sector estimates revenue generated from the entire franchise sector to be at $146 billion in 2016 alone which depicts steady rise in earning. Total assets of the sector is expected to rise with linear trends depicting $156 billion in 2018 to $160 billion in 2020. Total number of franchise is also forecasted to grow from 1,120 brands to 1,284 brands by 2018 and approximately 1,344 brands by 2020. The sector is also expected to employ a large number of people steadily increasing with rise in total businesses (www.franchisebusiness.com.au, Retrieved on 16th August 2017). IBIS World’s Franchising Report in Australia focused on growth areas in respect to online retailing which is expected to continue till next five years. Though this sector has largely been ignored but primary focus is on this sector as it has tremendous capabilities to prosper. Growth in Australian franchise sector will be further be driven by increasing numbers of US systems that are present or will enter markets of Australia. Growth prospects in Australia will attract large numbers of US mature franchisee corporations, who will visualize Australia as being a key market for steady economic growth with strong currency system. Demand for service based franchise system is expected to surge, from high income levels and shift in consumer preferences (Stapp, 2011). The industry overall is also expected to increase numbers of franchise launch stores across its railway stations, airports, supermarkets and other prominent locations that help them create a mini hub. Franchise business will then be able to absorb in large number of retrenched workers or people wanting to shift their careers. Franchising will be accepted by large number of workers who wants to be boss of their own business, without risks or stress of establishing stand-alone businesses. Age care services are expected to be impacted by franchise trends as well. Government, non-profit organisations and healthcare will turn their attention to focus on such business models in the long run. Social and economic trends reflect high amounts of disposable income (www.franchise.org.au, Retrived on 16th August 2017). With general population gaining awareness regarding wide range of health and nutrition products, franchise model is bound to be impacted. The overall scope of franchise business will expand to accommodate for services and products in the future including profit making and non-profitable services. This trend suggests healthy takeaway food, aged care services, retirement planning, recreational services for older people, telecommunication, IT services, domestic and personal services is bound to become popular in coming years. Automotive repair sector is expected to lose with its declining popularity and declining profits in its business. Thus franchising automotive repairs with cars becoming so cheap is unlikely to prosper. Retailers with internet competitors are also bound to suffer with significant growth in retailing businesses. With changing lifestyles people in Australia are expected to indulge in various franchising business opportunities and it will be the key factor that will drive franchise business (Zachary, 2011). Overall trends depict positive franchise opportunity in Australia. Franchising will evolve globally and in Australia it will emerge as a new means of doing business.
Conclusion
While franchise businesses have been identified to offer host of opportunities there has been certain challenges associated with trends in franchising as well. Australia has become one of the leading hub for franchise business, offering high growth potential. There are various reasons why franchise businesses fail, though it carries less risks as compared to businesses that starts from scratch. In case franchisors or franchisee are unable to run the business properly, they are bound to fail, this is the realism associated with franchise businesses. Some recommendations will allow franchise businesses to establish more successfully and overcome challenges that their businesses faces.
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