Let your business flourish with an international franchise network
Most successful franchisors are not content with letting their franchise networks stagnate, but instead are constantly looking for ways to nurture and grow their businesses. For many franchisors this usually means that once they have expanded their concepts across their own country they start looking at international expansion.
Building an international franchise network can reap huge rewards, not only in terms of profits made but also in helping to increase brand awareness. However, as with all franchise expansion, growing a franchise internationally involves a lot of planning, research and commitment. Many new factors also need to be taken into consideration, including cultural differences, different laws and regulations, and whether the new market has good growth potential.
For franchisors based in English speaking countries, such as the USA and the UK, Australia provides a great franchise opportunity, as it not only shares a similar culture and has no language barrier, but it also has huge market growth potential.
At a recent International Franchise Seminar, which was held in the UK and hosted by Franchise Development Services (FDS) a franchise consultancy company that has experience in helping franchisors expand internationally, Australia was highlighted as a growing franchise market. Peter Buberis, a lawyer who specialises in franchising and who is based in Adelaide, was at the Seminar and he explained that Australia offered good growth potential for franchisors.
A growing franchise market
Compared with the USA, which has one of the most developed franchise industries in the world, the Australian franchise industry is still relatively young. A report published earlier this year, Franchising Australia 2010, stated that: “Although franchising began in Australia in the 1970s, most operators began franchising in the 1990s and beyond.”
The report also found that between the years of 1998 and 2008 the franchise industry experienced steady growth (from 693 franchisors to 1,100 franchisors), however between 2008 and 2010 the number of franchisors fell to 1,025 and the number of franchise units operating in Australia fell from an estimated 71,400 in 2008 to an estimated 69,900 in 2010. Despite the fact that the Australian franchise industry has been affected by the global economic crisis, the report highlights the fact that the Australian economy has remained strong, especially when compared to other developed nations, and that: “The overall decline in franchise systems reveals that only the most robust systems will survive and will bring the Australian sector more in line with other developed sectors, such as the United States, whereby the density of franchise systems is lower.”
It is clear that the Australian franchise industry has shown that it is able to both withstand a severe economic crisis and is also maturing into a more developed market.
Another indication that the Australian franchise industry is developing into a market on a par with other mature franchise industries is the number of multiple units owned by franchise owners. Franchising Australia 2010 found that 58 per cent of franchisors encouraged multiple unit ownership in their systems and on average franchisors had three multiple unit holders in their systems and these franchise owners generally held a total of two units.
According to the report 32 per cent of multiple unit owners were within the food retail sector, 16 per cent were in retail trade, and 11 per cent were in the administration and support services industries.
Overall retail is the largest franchise sector in Australia, and Franchising Australia 2010 found that 26 per cent of franchisors and 24 per cent of franchise units were involved in retailing. Another prominent sector was the accommodation and the food service industry, which includes fast food. Franchisors involved in administration and support services tended to have relatively small networks and accounted for approximately six per cent of franchise units.
Despite the economic climate Franchising Australia 2010 found that the total start-up cost of a new franchise unit increased since 2008, particularly in the non-retail sector. The report found that: “The median start-up costs in a retail franchise in 2010 was $275,000, compared with $89,000 in a non-retail franchise. Within retailing, non-food franchises cost more to enter ($304,500) compared to $254,500 in food franchises. Across the sector total start-up costs ranged from $1,600 to more than $1.2 million.”
Between 2008 and 2009 franchisors have experienced modest growth, with an average new franchise sales of five units and re-sales of four units. According to the report 39 per cent of franchisors granted between one and five new franchise units, 19 per cent reported sales between six and 10 units, and 11 per cent approved between 11 and 20 new franchise agreements.
Although Australia avoided entering into an economic recession that has affected many other developed economies, including the USA and the UK, the economic crisis has had an impact on its economy, especially on the retail industry.
In an attempt to find out how much this has impacted on the franchise industry, Franchising Australia 2010 asked franchisors about changes to their financial situation over the last few years. The report found that: “While approximately one half of franchisors noted increases in their gross sales/revenue margins (56 per cent) and profitability (54 per cent), around one quarter of franchisors had witnessed declines during the same period. While 36 per cent of respondents indicated increases in staffing levels, 24 per cent had reduced their staffing numbers. A similar pattern emerged in relation to capital investment with 35 per cent reporting an increasing commitment and approximately 18 per cent decreasing their capital investment contribution.”
Your next step
Many franchise networks only flourish when they are able to expand into new territories and, with a relatively young franchise industry that is steadily maturing into a developed sector, the Australian market a good opportunity for franchisors.
All franchise expansion requires thorough research, planning and commitment by the franchisor to ensure that it is a success. Entering a new territory or market, however, a franchisor should expect to dedicate a greater amount of energy and resources to their development strategy.
There are numerous franchise consultancy companies and individuals who are able to advise and assist franchisors with their international franchise expansion plans. FDS, for example, has one of its offices based in Australia, which is able to both aid Australian-based franchisors looking to expand across the country and international franchisors interested in entering the market.
Written by Derin Clark
Franchising Australia 2010 was published by Griffth University and was sponsored by the Franchise Council of Australia. To read the report in full, please click here.