CODE SHOULD ALLAY FRANCHISING FEARS AFTER RECENT PRESS

THERE has been a lot of interest over the past few months concerning the viability of franchised businesses as a result of media focus in relation to the actions of a few well-known franchise brands.

However, this should in no way be seen as indicative of the industry.

Franchising has often been called the greatest business model ever invented since its modern form was introduced by Singer sewing machines in the 1850s.

Its success is due to the advantages for both franchisors and franchisees far outweighing the disadvantages.

For franchisors – most of whom are small businesses seeking to expand their business or leverage their methodology and system – expansion can be achieved without the need to increase capital expenditure by borrowing or some other method.

For franchisees, they can benefit from the franchisor’s proven business model or unique new concept to achieve success as a small-business owner themselves.

Inevitably – as with any relationship of a personal, social, or business nature – there can be breakdowns and at times formal disputes, but franchising has proven over the past 160-plus years to provide franchisees with a far greater opportunity for success than a new independent business which statistics show 60 per cent will fail within three years of opening.

The majority of retail food outlets, cafes, petrol suppliers, motor vehicle dealers, clothing retailers and many service industries that operate in Australia use the franchise model. Australia is a leader in franchising and there are more franchises in Australia per head of population than anywhere in the world.

This is largely due to the introduction of the Franchising Code of Conduct in October 1998, which was initially viewed by some as the end to franchising and franchisors strongly resisted it, but it is now seen to be robust legislation which requires strict compliance.

The recent bad press for franchising should be viewed in light of the overall industry, which in Australia achieved sales in 2014 of $144 billion estimated in 2017 to be $175 billion and within which only 1.5 per cent of franchisees had a substantial dispute with their franchisor. The Code requires a strict standard of compliance by franchisors at commencement and throughout the term of each franchise agreement.

Failure to comply with the Code carries substantial penalties and the ACCC is taking an increasingly vigorous approach to breaches of the Code by franchisors and the levying of the statutory penalties.

The actions of a few bad eggs is not an accurate reflection of the majority of franchisors, who thrive on the success of their franchisees.

Franchising in Australia is here to stay and current and prospective franchisees of those franchisors who comply with the Code and act in good faith should feel encouraged that their franchisor is “a good one”.