Franchise Outlook for Australia in 2022
Australia is one of the easiest companies for American franchises to establish in. We are a well-developed market in a country with high GDP, and English is our native language.
The franchise sector in Australia is in a mature state, and has become the distribution method of choice for many, with 90,000+ franchised businesses in Australia. The market sector turns over $155bn and employs around 516,000 people. According to the IBISWorld Franchising in Australia report published in June 2021.
Franchising has been in Australia since 1815, when it was started by Sydney Hospital being built and was funded by the private sector, allowing the operators to charge a fee for service, and being allowed to import 60,000 gallons of rum to service the people. The hospital was also known as Governor Macquarie’s Rum Hospital.
The food franchises probably started the rapid growth with McDonald’s, KFC, Hungry Jacks (aka Burger King) and some other large QSR’s bringing their systems from America in the late 1960’s and early 1970’s. Personally, I became involved in franchising when on the 30th September 1980, when the government legislated in the form of the Petroleum Retail Marketing Franchise Act of 1980, that every service station owned, leased or operated by all the major oil companies was a franchise – effective immediately, with the incumbent given 9 years’ worth of franchise tenancy. That created around 8,000 new franchises overnight!
The Senate Inquiry into Franchising
The franchising sector in Australia has run into some headwinds over the last few years, with the Government instigating a Senate Inquiry into the operation and effectiveness of the Franchising Code of Conduct. Released in 2019, and then with Covid-19 gripping the world, the changes recommended are slowly coming into play.
Mary Aldred, CEO of the Franchise Council of Australia, said the FCA welcomed the report back in 2019, and looks forward to engaging with the task force to make most of these recommendations become reality.
An international franchise presence in Australia
US franchises have grown strongly in Australia over many years. Australia has some great advantages for US Franchisors to open in our country, as there is no language issues (we speak “Australian”), and there is a strong legal system in operation to protect the investment.
The expectation of some US companies can be a bit over zealous, as you need to be aware the total Australian population (25 million people) is just slightly below the population of Texas, and about 2/3rd the population of California.
In the opposite direction, many Australian franchise systems are having great success heading overseas. A great example of this is being lead by F45 Training, an Australian grown franchise now operating in over 40 countries across the world.
Processes to enter into Australia
There are no prohibitions to international ownership in Australia, unlike countries in Asia and the sub-continent who demand local ownership and controls. There are locally based experienced franchise consultants and very well established legal firms to assist inbound franchisors in all issues regarding the legal process and managing the expectations.
The normal process does recommend having some involvement in operating some level of company operations to give credibility to a new System, and we have seen many franchise systems fail as they believe an investor will put up all the funds, with the Franchisor unprepared to commit.
One issue that often creates issues for US Franchisors is our labour laws, and the minimum wage that employees must be paid. We can only say labour is probably more expensive than in the USA, especially in the food and hospitality industry due to our Award wages system. This often results in some differences in the forecast P&L modelling and revenues and margins that need to be met.
Many US systems with reasonable backing by the Franchisor have had great success over the years in Australia, whether that has been QSR’s like McDonalds, KFC, Subway and Dominos, convenience stores like 7-Eleven or fitness franchises like Anytime Fitness, Orange Theory and Extend Barre.
Many new systems are also coming into Australia, not always in the food and fitness business. OsteoStrong and Carl’s Jr are examples of well-financed expansions into Australia.
Some systems have come and gone – and are returning again! Taco Bells have come twice previously, and are setting up again, as have Cinnabon who came to Australia previously in 2002. We can only wish them success this time around and hope they have learned of their previous experiences.
Franchise Council of Australia
Australia has a strong body pushing franchising forwards in the form of the Franchise Council of Australia (FCA).
The FCA has Chapters in all mainland states, and runs a three day National Franchise Convention every year, which is seen as the peak industry event. This annual event hosts the prestigious, Gala Awards Dinner and award night. Announcements included; Franchisor of the Year – won in 2021 by Rapid Tune, and our small company Spectrum Analysis being crowned, 2021 Supplier of the Year!
Education is one of the cornerstones of the FCA, and along with Griffith University have worked alongside the ACCC to ensure there is free online education available for anyone considering taking on a franchise.
To further assist in education of the industry, the FCA have also adopted the Certified Franchise Executive (CFE) system from the US, and now around 300 people have been awarded their CFE, and this number is growing rapidly.
Finding Franchisees in Australia
One of the biggest complaints from franchisors has been the quality and financial capacity of the prospective franchisees. Whilst many are willing, the financial requirements to join a good system are quite high, and out of practical reach.
Australia has a strong banking system, and banks are reluctant to loan monies to prospective franchisees against the goodwill of the business. FRANdata has recently expanded in Australia to assist in this process, by encouraging the banks to evaluate systems and be prepared to loan monies to well-run franchise systems and their potential franchisees. https://www.frandata.com/about-us/frandata-australia/
Franchising has become a mature distribution method for many major companies. The Federal Government has stepped in and put in place some forms of national regulation over it, by legislating a Code of Conduct, which is administered by the Australian Competition and Consumer Commission (ACCC). The Code of Conduct is aimed to be:
- Fair to both parties
- Ensure a proper Disclosure Statement is provided to would be Franchisees
- Ensure the Franchise Agreement is reasonable to both parties
- To minimise legal actions by bringing an arbitration process in before Legal actions are taken.
Any company wishing to Franchise in Australia must comply with the Code of Conduct or risk prosecution by the ACCC.
There has been some push from various state governments over the last 10 years to introduce their own separate regulations; however this has not come to pass, meaning that we have one set of regulations Australia wide. The huge advantage of this is to minimise red tape, unlike some other countries (such as the USA), where states may have their own franchise regulations, meaning to individually comply in registration and fees from one state to another can be very complex.
Franchising is moving forward in Australia where we have a relatively mature market, and a great variety of systems working under the franchise format.
Australia is open to business for international franchise systems to enter the market with minimal foreign ownership constraints. The main point of difference to many other countries is our relatively mature legislation which is definitely aimed at ensuring the franchisor acts responsibly, and encourages the franchisees to be properly funded and act in a responsible and legal manner.
If you are looking to enter Australia, we recommend you liaise with the Franchise Council of Australia, and look at using a responsible consultant to assist you, and a legal firm who specialise in Australia’s Franchise Law.
We look forward to welcoming you and your business into Australia. Come on over and we shall throw another shrimp on the BarB!
Peter Buckingham is the Managing Director of Spectrum Analysis Australia Pty Ltd, the leading demographic, mapping and sales prediction modelling company in Australia. Spectrum is Australian Franchising’s 2021 FCA Supplier of the Year. Peter is contactable by email at: email@example.com, or visit www.spectrumanalysis.com.au.