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Signals point to increased uptake

WITH the Australian economy’s brake lights coming on, the franchise sector is gearing up for strong growth, because when economic times get tough the sector gets going.

Franchise Council of Australia WA president John Brown said the sector grew fastest when people were uncertain about their job security.

Small Business Development Corporation managing director George Etrelezis said that, in harder times, people were looking for established systems – something good franchises offer.

Mr Etrelezis said, during tough times, food and personal services franchises did well.

“People have to eat. The personal services operations, while seeming a luxury, really plug the gap so people can stay at work longer,” he said.

“But leisure and recreation-based franchises do tend to suffer.”

Mr Brown, who also runs franchising consultancy Franchise Alliance, said his business had never been busier.

“The compulsory Franchising Code of Practice created a level playing field for everybody and opened up opportunities for those who wouldn’t have looked at the sector otherwise,” he said.

In fact, franchising grew strongly from 1993 until the compulsory code was introduced in mid 1998.

Prior to its introduction there had been a voluntary code of conduct in place. Bringing in a compulsory code brought the sector directly under the Trade Practices Act.

Uncertainty about how the code would affect the sector caused a slowdown that lasted about 12 to 15 months.

Franchises employ more than 700,000 people Australia-wide, which works out to about 70,000 in WA. There are believed to be about more than 4,000 franchise outlets in WA.

The cost to buy into a franchise system varies from about $5,000 up to the millions of dollars.

At the lower end of the scale, the new franchisee is usually given some advice, a small marketing budget, the rights to use the business’ name or brand and a territory, but little specialised equipment

The top end of the price scale includes franchises such as the Perth Wildcats and Formula One racing teams.

Mr Etrelezis said, on a per capita basis, Australia had the most franchises of any nation in the world.

“One benefit of franchises is they have good systems in place and their marketing is concentrated on all the time,” Mr Etrelezis said.

Mr Brown said specialty retailing looked like becoming a growth area in franchising.

“People who traditionally went to department stores are now going to specialty shops,” he said.

One example of that is Ranger Camping, which has taken to franchising to boost its number of outlets.

“Services – both personal and to business – is one of the fastest growing franchising sectors,” Mr Brown said.

“The GST has bitten some sectors, such as hospitality and retail, but no particular franchise sector seems to be dwindling.”

However, while franchising seems to offer an easy way for people to move into business, there are some pitfalls.

Hayes Knight GTO partner Andrew Thompson said in some cases running a franchise could be little different than working for salary or wages.

“The big problem with franchises is the legal complexity and size of the agreements franchisees have to sign,” he said. “But there are some good systems available.”

Mr Etrelezis said prospective franchisees needed to do their homework before signing up.

“They should speak to not only the franchisor but some of the franchisees as well and seek professional advice,” he said.

“They should also make sure the franchise is compatible for them. There’s no point taking on a business involving customer contact if you’re not interested in customer service.

“People should also plan and never overcommit their funds. You need a reserve.”

Wojtowicz Kelly consultant Barry Stark said besides the cost of buying into a franchise, there were other fees people needed to be aware of.

“There are usually two fees a franchisee has to pay on an ongoing basis. One is a royalty, usually based on turnover. The other is a marketing levy,” he said.

“Some shops have to carry certain lines of stock.

“Probably the most important part of going into a franchise is getting advice from an accountant or financial planner.

“There are a whole number of business costs that many people overlook when going into franchises – things such as rent and staffing costs.”

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24th↓Kimberley Ports Authority$19.2m
25th-Aqwest$15.0m
26th-Small Business Development Corporation$14.6m
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29 state government businesses ranked by total revenue - this year

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