Franchising sector grows

A STUDY into Australia’s franchising sector has revealed franchise businesses are outperforming other small businesses around the country and are better geared to withstand turbulent economic conditions. 

National accounting firm PriceWaterhouse-Coopers’ 2011 Franchise Sector Indicator survey showed franchisor and franchisee profits had increased by 22 per cent and 13 per cent respectively during the past 12 months. 

By comparison, PWC’s Private Business Barometer showed that private businesses estimated their profit grew by only 7 per cent in the past year.

PWC franchising partner Greg Hodson attributed the four key ingredients of a franchise model to the growth of these businesses. 

“Overall, the sector has performed extremely well compared to the broader economy and has delivered on the double digit growth objectives it set last year,” Mr Hodson said.

“A proven and replicable business model, franchisees who have ‘skin in the game’, extensive operational and marketing support and the buying leverage that comes from strength of numbers, result in better than average financial returns.” 

The survey also showed that franchisors were relatively optimistic about their short- to medium-term growth and forecasted double-digit revenue and profit increases over the next three years.

In addition, franchisors believed franchisees would also experience a profit increase of around 34 per cent over the next three-year period. 

Franchise Council of Australia executive director Steve Wright said the results of the survey were an encouraging reflection on the sector. 

“While there is a lot of gloom and doom about small business and particularly retail small business, what this research shows, consistent with the 2009 and 2010 reports, is that the franchising sector continues to perform extremely well,” he said. 

However, compared to last year, the sector has been more conservative in its growth plans, with a greater proportion of franchisors focusing on the organic growth of their business as opposed to buying other businesses or expanding overseas. 

Sixty-one per cent of franchisors expressed concerns surrounding retail performance and the current uncertainty in global markets.

It has also become more difficult for franchisors to find suitable franchisees, attributed in part to a decrease in the volume of monthly enquiries from potential franchisees – from 40 in 2009 to 30 in 2011, according to the survey.