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NEWS - PLANNING
Work ethic is the key to franchising
10/3/2001
Australia has become a nation of chore outsourcers: gardening, cleaning, sewing, parenting, plumbing, dogwalking, deflea-ing, cartridge-changing ... with no end in sight to franchisors' ability to come up with an ingenious idea.
With a recession on the way, Australia's 750 or so franchisors are well poised to take up the jobs slack, as they did in the mid-1990s, and take advantage of this insatiable thirst for services. For those who like the idea of working for a ready-made brand or concept, are willing to work hard and are a technical, practical or cosmetic whiz, franchising may well be the answer.
The most recent industry research, commissioned by the Franchise Council of Australia and published two years ago by researchers Colin McCosker and Lorelle Frazer, found that on a percapita basis Australia had more franchisors than any nation (39 per million people). The industry's 49,400 franchises employed nearly 652,000 people and were turning over $76.5 billion a year.
Anyone interested in giving franchising a go should start by looking at the Franchise Council of Australia website, www.franchise.org.au. It has a directory of franchisors, lists franchises for sale and is packed with advice for prospective franchisees. Also worth a look is the FCA's magazine, Franchising And Own Your Own Business, and an associated website called Franchisenet.
The FCA also runs an accredited executive program for franchisors and introductory "Is it for you?" seminars for franchisees.
The Commonwealth Bank of Australia has a Complete Guide to Franchising booklet and officers at the Australian Competition & Consumer Commission also offer advice on legal and fair trading obligations.
Frazer, an associate professor of marketing at Queensland's Griffith University, is midway through a new survey that may challenge the industry's claim to be 21/2 times more successful than independent small businesses.
It also hopes to shed more light on failure rates for franchisors and franchisees.
"The success figure is often quoted but was based on research done in the 1980s and its methodology has since been criticised," Frazer says. "The truth is we don't really knowwhat the failure rates are, butthe franchising sector hasgrabbed the figure because it's very favourable."
Frazer and a PhD student are trying to establish why franchisees and franchisors fail and what helps them succeed, as well as what happens to the franchisees of the systems. Frazer's interim results are not unexpected, though.
"I'd say a lot of franchisees are only just making a living some do exceptionally well and become rich, but the majority see it as `buying a job'," she says. "Franchisors tend to complain about giving franchisees `all this support' and [the latter] will say `the franchisor didn't helpus enough'."
Success depends on factors such as sales ability, the appropriate selection and training of franchisees, a franchisor's level of experience and the level of compliance within the business system (whether uniforms are worn, whether procedures are adhered to and whether the franchisee was ambitious enough to progress above a "holding pattern income".
And Australia wouldn't be Australia without regulation. The Franchising Code of Conduct introduced in 1998 had not really made its presence felt when the FCA had its survey done, and still raises the hackles of some industry players, but has had the benefit of making franchisors pay more attention to their records, as well as weeding out substandard operators and improving the industry's reputation, says Frazer.
The newly amended code of conduct, as well as the "misleading and unconscionable conduct" provisions of the Trade Practices Act (policed by the ACCC), and State fair trading laws, add up to arguably the toughest franchise regime in the world and one that is being copied or considered by other countries.
Rod Young, managing director of Deacons Corporate Consulting in Melbourne, says banks will lend between 20 per cent and 60 per cent of a franchise's total set-up costs because they recognise that they have a better record of staying in business, with perceived failure rates for franchises after five years estimated at 12 per cent versus 30 per cent for all small businesses.
The big four handle franchise customers differently, with Westpac and ANZ having dedicated franchise managers and the Commonwealth running a strong lending program. He says although the NAB does not have a specific franchising focus, the bank has a strong reputation for supporting such businesses.
Some "bankcard" franchises are so cheap (basic labour-intensive carwash or mowing services) they can be bought for as little as $10,000. A mobile cleaning service will cost a little more ($15,000-$25,000) and carpet-cleaning between $40,000-$60,000, with retail at the top of the pile ($150,000-$200,000). Food, with high equipment and low stock costs (such as Adelaide-based and Melbourne-bound Boost Juice) will need a capital outlay of $180,000-$200,000, whereas merchandise has lower fit-out ($80,000) but higher stock costs ($100,000-$120,000).
If there was any room for doubt about the supply or demand for "Mr Fix-its", the experience of the 240 Hire A Hubby franchises should dispel it.
The home-maintenance business was flooded with 230 inquiries from potential franchisees after a recent national radio campaign, says managing director Brendan Green.
A Hire A Hubby franchise costs between $22,500 and $25,000 depending on location and State, with Sydney and Perth top of the price list.
Green controls the franchisor operation and oversees a master franchise for each State, which issues licences to regional sub-franchise groups.
Rather than a percentage of turnover, franchisees pay a $100 management fee and $60 advertising levy, a policy Green says provides a real incentive for bigger earners.
Hire A Hubby is also trialling a scheme for Sydney franchisees that guarantees them $800 a week for the first three months but after that, they're on their own.
"We're not interested in spoonfeeding, but we do recognise that 90 per cent [of our franchisees] haven't been in business before and are taking a step out of their security zone," Green says. "It is for someone who wants to go into business and avoid the trial and tribulation of setting it up, but who has a desire to get off their backside, follow the system that's in place and meet performance criteria."
Young is helping franchisors develop greenfield ideas that will take them "beyond burgers" to management and marketing, where the stakes and rewards are greater and will give rise to opportunities for franchisees who want to do something different.
Like Frazer, he senses that franchisors are moving beyond the "man in a van" stage; they want people capable of managing a team covering multiple territories.
David Acheson, a senior partner at Acheson Franchise Advisors in Queensland , probably has more experience of running international operations than anyone in Australia.
He had made it to managing director of Wimpy International, a British fast-food franchise by the age of 28. He went on to head KFC in the UK and Europe, the British School of Motoring, taking on several other franchise operations. Now an author and visiting professor (of franchising in the UK), Acheson is blunt about a person's chances of succeeding if they aren't prepared to work for it.
"Anyone who says you won't have to work hard is either a fool or a rogue," Acheson warns.
"All too often in Australia there's an emphasis on `lifestyle', but that doesn't mean anything."
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