Today FRANdata Australia released its first report on Australian Franchising. The Report does call into question some of the macro-economic data, as the Australian Franchise Registry™ has to date only been able to validate the substantive existence of around 900 franchise brands, rather than the oft quoted 1,100. This may also call into question the accuracy of assertions as to the number of franchised businesses, industry turnover and employment; although the Registry does confirm that the sector is a very large feature of the Australian economy. The voluntary registration feature of the Australian Franchise Registry™ that enables franchise systems to confirm their regulatory compliance is a strong positive for the sector.
“Questions will be asked of the franchise sector if the number of confirmed franchise systems does not increase substantially by October 31, 2015, being the deadline for updating franchise disclosure documents. One would expect that regulators keen to ensure regulatory compliance would focus on franchise systems without “confirmed” status, as that could be due to non-compliance. Given the ease of registration and only nominal cost there really is no excuse for franchise systems not to register.” Says Darryn McAuliffe FRANdata Australia CEO.
Data from the World Franchise Council shows the potential for expansion in the South East Asian region, with countries such as Japan, South Korea, Taiwan, China and Indonesia seeming to be experiencing the exponential growth Australia enjoyed in the 1990’s, whilst it is now clear that Australia is a mature franchise market. The challenge this represents is significant given around 75% of franchise systems have fewer than 25 franchisees, which could well be under viable critical mass. FRANdata Australia sees industry consolidation likely to continue, and probably increase.
In the first ever study of franchise unit turnover the Report confirms that turnover is within expectations. The 11% turnover rate is relatively consistent with the average franchise agreement term of 10 years, although the 18% turnover figure for food concepts is more worrying. This could be caused by a number of factors – challenges of leasing longevity in major shopping centres, long trading hours, businesses being easier to sell, harder working conditions etc. The relatively high number of “transfers” is positive, assuming the reporting of transfers is accurate, but the high number of “ceased other” merits further examination.
The Report also contains interesting information on franchise royalty methodology, marketing contributions, initial franchise fees, renewal fees and other matters that will assist franchise systems to benchmark their performance against their peers.