OVERSEAS SURVEYS SUGGEST FRANCHISING STILL STRONG
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According to one survey, the Australian franchise sector has seen a decrease in the number of franchise systems following the economic downturn while research from PwC’s Franchise Sector Indicator released in September indicated that Australian franchises have met the ambitious growth targets they set in 2009 growing revenue by 12 per cent and profit by 19 per cent.
Franchisees also did well with revenue growth of 7 per cent and profit growth of 6 per cent – double the growth of the Consumer Price Index (CPI). The retail sector was the biggest driver of growth. There was also a strong performance from the services sector which bounced back from negligible gains in 2009 to double digit growth in 2010.
However, the Franchising Australia 2010 study, released in October by Griffith University’s Asia-Pacific Centre for Franchising Excellence and sponsored by the Franchise Council of Australia (FCA), showed a decline in franchisor numbers and a slight decline in the number of franchisee units.
Professor Lorelle Frazer, who led the Griffith Survey and is also involved in the Franchising New Zealand survey being carried out by Massey University, said although a decline had occurred the consolidation of the sector was a positive outcome as many systems had been small and unsustainable.
’The number of franchisors declined 7 percent over the last two years, from 1100 in 2008 to 1025 in 2010. Previously the number of franchisors had grown steadily since 1998,’ Professor Frazer said.
’The overall decline in franchise systems means only the most robust systems survive and will bring the Australian sector more in line with other developed sectors, such as the United States, where the density of franchise systems is lower.’
’The Franchising Australia 2010 research also provides evidence the surviving franchises are growing despite the economic slowdown, and the majority of closures were in retail, reflecting the broader Australian retail sales slump.’ This is an interesting contrast to the findings of the PwC Survey and suggests that, as is often the case, good retail franchises are thriving while weaker ones struggle.
Other highlights from the Franchising Australia 2010 survey are:
- There has been a slight decline (2%) in the number of franchise units since the 2008 study, although nearly 70,000 franchise units are still operating in Australia.
- The franchise sector is estimated to contribute $128 billion to the Australian economy.
- The retail trade industry continues to dominate franchising with 26 percent of franchisors and 24 percent of franchise units involved in retailing.
- 91 percent of franchises operating in Australia are home grown.
- A quarter of franchisors reported they had made operational changes in response to environmental concerns, including adoption of green products and services and environmentally-friendly packaging.
- The proportion of franchisees in dispute with their franchisor is estimated to be 1 percent, which is a slight decline compared to the 2 percent in 2008.
- 28% of Australian franchisors are operating internationally, with New Zealand the most popular destination.
Meanwhile, in the UK the annual NatWest/British Franchise Association franchise survey offers an insight into the state of play in that country. It shows that, compared with the expected results from the NZ survey due to be released in November, franchising remains a surprisingly small part of the economy in that country given its population base. The UK franchise industry is now estimated to be worth £11.8 billion, which at current rate of exchange is probably only 2-3 times the size of the New Zealand sector – despite having almost 15 times the population
At the recent National Franchise Expo in Birmingham, the British Franchise Association told our editor that, as in Australia, good franchises had fared reasonably well throughout the recession although there had been some non-renewals among the membership. Others we spoke to were less positive, saying the last two years had been the most difficult they had ever experienced and that franchise sales and resales had effectively ground to a halt, and despite the UK’s Enterprise Finance Guarantee scheme (see separate story), access to capital was a huge barrier for many would-be franchisees.
Highlights from the UK Survey:
- The overall number of franchise systems in the UK is 842
- There are an estimated 465,000 people employed in franchising in the UK
- The average (mean) turnover for a franchised business is £353,000
- Property Services remains the largest sector. Personal Services is the second largest.
The Franchising New Zealand survey is due to be released next month.
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