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Franchising
today is much more than a dictionary definition.
It has made a
significant contribution to the Australian economy by enabling
companies to grow faster, in many cases much faster, than their own
manpower and capital would otherwise have permitted.
It has also
given tens of thousands of people the opportunity to start their
own businesses, with a high probability of success. By
providing a tried and proven business system, plus the type of
support that monitors performance, quality and business standards,
the Franchisor vastly improves the chance of success for
Franchisees, and they are willing to pay for that benefit.
That business success, and the natural wish of a prospective
business buyer to enjoy that, is the very key that sustains a
market share growth rate far beyond the levels most businesses are
able to achieve through traditional business growth
methods.
Statistical
surveys have been conducted for the Franchise Council of Australia
in 1998, 1999, 2002, 2004 and 2006. The most recent survey,
Franchising Australia 2006 was prepared by Lorelle Frazer, Scott
Weaven and Owen Wright and some aspects of the results of the
survey have been detailed below.
The
Executive summary states;
The results
of the Franchising Australia 2006 survey reveal that the Australian
franchising sector continues to expand and experience impressive
growth. Franchising now occurs in a range of industry sectors
and there is evidence of Franchisors adopting innovative approaches
to stimulate system growth.
Franchising
activities in motor vehicle and fuel retailing were not captured in
the survey due to the unique characteristics of these industries.
However, relevant data on these franchises has been generated
from publicly available sources, including the Australian Bureau of
Statistics, Australian Institute of Petroleum and the Federal
Chamber of Automotive Industries, and this information has been
incorporated into the Executive summary only.
Total
number of franchise systems in Australia:
•
1998 - 693
•
1999 - 708
•
2002 - 700
•
2004 - 850
•
2006 - 960
The growth in
franchising experienced since 2002 reflects a confident regulated
franchising sector in a strong local economy. It should be
noted that 24 Franchisor organisations appear in the BRW List of
Top 500 Private Companies in Australia, demonstrating that
franchising has a significant impact on Australian
business.
Total
number of business format franchised units:
•
1998 - 38,500
•
1999 - 40,900
•
2002 - 44,400
•
2004 - 50,600
•
2006 - 56,200
It is
estimated that there are 56,200 business format franchised units
operating together with 5,660 company-owned units, producing a
total of 61,860 units in business format franchise systems.
In addition, there are approximately 5,700 fuel retail
outlets and 2,690 motor vehicle retail outlets.
Employment
in business format franchise systems
(franchised
and company owned):
•
1998 - 583,000
•
1999 - 553,200
•
2002 - 388,500
•
2004 - 507,180
•
2006 - 426,500
Turnover of the Australian franchising sector
The total
sales turnover of business format franchise units was estimated at
$67 billion in 2005. In addition, motor vehicle sales were
estimated at $30 billion and fuel retail at $31 billion, resulting
in a total sales turnover of approximately $128 billion. This
represents an impressive 14% of Australia's gross domestic product
(GDP).
Industries:
The majority
of franchising takes place in the retail non-food industry (29% of
Franchisors and 36% of franchise units). Next, the property
and business services sector accounts for 21% of Franchisors and
some 7 percent of franchise units.
Age
of systems: Franchisors
have been operating their businesses for an average of 16 years and
franchising for 10 years, demonstrating the level of maturity in
the sector. On average, Franchisors trialed their systems for
four years before adopting a franchising strategy. However,
many Franchisors still enter franchising at a very early stage of
their business development, with close to 20% of businesses
franchising immediately and a further 13% doing so within the first
12 months of operation.
Size
of systems: The average
number of franchised units per system was 22, together with 1
company unit. Nearly half (48%) of the Franchisor respondents
held fewer than 20 units.
Geographical
distribution: The majority
of franchising activity occurs in New South Wales (34% of total
units). Victoria represents 24% and Queensland 20% of
franchising. The proportions reflect the relative populations
in each state.
System
structure: Two thirds of
Franchisors have now adopted Master Franchising arrangements in
their domestic operations. Slightly more than one quarter
(28%) of franchise systems have Franchisees operate from home and
22% of systems have mobile Franchisee operators, compared with 45%
operating from a retail site.
Franchising Disputes and Unit Closures;
The level of
reported disputes remains low with the proportion of Franchisees in
dispute at less than 4%. Mediation is being used more than
twice as often as litigation as a means of resolving disputes.
Patterns in
changes in franchise unit ownership continue to provide evidence of
stability within the sector. During 2005, 91% of franchised
units did not change ownership. Fewer than 2% of franchised
units ceased to operate, supporting the notion that Franchisee
failure rates are low. In addition, Franchisees remain in the
system for 7 years, indicating that their businesses are operating
profitably.
International expansion by Australian franchise
systems
Slightly more
than one quarter of Australian based systems are currently
franchising internationally, targeting New Zealand, Singapore,
Malaysia, China/Hong Kong, United Kingdom and the United States of
America. The majority of systems have only ventured overseas
within the last 5 years. Master franchising and 100%
ownership are used by the majority of Franchisors to structure
their overseas operations.
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