The Latest Issues in Australian Franchising: A Deep Dive into the Challenges
- Barry Money
- 3 days ago
- 4 min read
Franchising has long been a popular business model in Australia, allowing entrepreneurs to invest in established brands and operate their own businesses. However, recent years have seen a rise in controversies and challenges within the Australian franchising industry. In this blog post, we will delve into the latest issues affecting the franchise sector and explore the potential impact on franchisors, franchisees, and the broader Australian business landscape.
1. Lack of Transparency and Disclosure
One of the prominent concerns raised in the Australian franchising industry is the lack of transparency and disclosure between franchisors and franchisees. Franchisees often complain about the insufficient information provided during the initial stages of the contract, leading to unrealistic expectations and financial burdens.
The government has made some moves to bring about transparency of disclosure through the Franchise Disclosure Register. But here's the rub: it's a garbage-in, garbage-out system. There are no strict rules surrounding the input of data, meaning that the information provided is often unreliable. This can lead to significant issues for franchisees down the line, as they rely on this data to make crucial business decisions.
The Australian government is now actively working towards improving information disclosure requirements to safeguard the rights of franchisees, but it's clear that more needs to be done to create a more transparent system that benefits both parties.
2. Power Imbalance
Power imbalance between franchisors and franchisees is another issue plaguing the Australian franchise sector. Franchisors often hold significant control over franchisees, including dictating suppliers, pricing, and operations. This power imbalance can lead to a loss of autonomy for franchisees, limited negotiating power, and strains on profitability.
Balancing this power dynamic is crucial for fostering a healthy franchising environment. Franchisees need to feel empowered and supported, not restricted by inflexible rules and conditions that hinder their ability to succeed.
3. Wage Underpayment Scandals
Cases of wage underpayment have come to the forefront of Australian franchising issues. Several major franchise networks have faced legal action and hefty penalties due to underpayment of wages to their workers.
These wage scandals not only damage the reputation of the franchisor but also have significant financial and legal implications.
Governments and industry bodies are now placing stronger emphasis on compliance and proper oversight to mitigate these issues. Franchisors need to ensure that their operations are in line with Fair Work regulations to avoid legal action and protect their brand reputation.
4. Franchisee Failure Rates
Franchisee failure rates have become a growing concern within the Australian franchising landscape. Many franchisees are finding it increasingly difficult to achieve profitability and, in some cases, are having to close their doors altogether. Two key factors drive this issue.
First, some franchises were simply never meant to succeed. The system may not be replicable or profitable in the long run, and yet, these concepts are sold to unsuspecting investors. When a franchise business isn’t structured to scale or deliver on its promises, failure is often inevitable.
Second, the franchise recruitment process often focuses more on getting anyone with a pulse and cash to commit, rather than ensuring they are the right fit for the franchise. There’s a lack of a robust selection process, which means franchisees may be entering the system without proper screening or understanding of the challenges ahead. This leads to mismatched expectations, poor performance, and ultimately, higher failure rates.
To tackle this, the franchising sector needs to take a hard look at the processes in place for both franchise development and recruitment. More thorough screening and a focus on scalability and profitability can help reduce the number of franchisees walking away.
5. Legislation and Regulatory Reforms
To address the challenges plaguing Australian franchising, the government has initiated legislative and regulatory reforms. The Federal Parliament passed the Franchising Code of Conduct in 2015, which aims to enhance disclosure obligations, dispute resolution mechanisms, and strengthen the rights and obligations of both franchisors and franchisees.
However, reviews of the Code do not go far enough. Tinkering around the edges of existing regulations does little to better protect the interests of incoming and existing franchisees. The focus should be on the process to become a franchise – specifically in the franchise development space – as opposed to franchisors already established. Anyone can franchise – and perhaps therein lies the issue.
My Final Thoughts
While the Australian franchising industry continues to face distinct challenges, efforts are being made by various stakeholders to ensure a fair and transparent franchising environment. It is crucial for franchisors, franchisees, and relevant regulatory bodies to actively collaborate and address the issues at hand. But more importantly, it’s about time franchising lawyers and franchising consultants were also held to account. Surely, those who set up the franchise system have a duty to the industry to bring on board only those businesses which are ready to scale.
I’m confident that by driving more rigorous accountability and transparency, the Australian franchising system can regain its reputation as a flourishing and dependable business model that benefits all parties involved.
Bio - Barry Money, Founder - Bane Enterprises
For the first ten years of Barry’s career, he consulted in global franchise standards and led significant transformation and innovation projects.
Barry has diverse corporate experience across multiple disciplines including sales, marketing, customer service, product management, export, quality assurance, engineering, IT and supply chain with full accountability for P&L
At the end of Barry’s corporate career, where he earned the nickname “Goliath Slayer,” Barry transitioned to the C-Suite. Barry Money is a graduate of the Australian Institute of Company Directors and a C-Suite professional, with an MBA in entrepreneurship.
Barry has held director, board member, CEO and and leadership positions in start-ups, NFPs, Founder-operated entities, industry peak bodies and commercial organisations.
He held a leadership role at Australia’s largest franchise group, where he was instrumental in driving disruption and growth.
Barry has worked in franchised industries, franchise consulting companies and some of the largest franchised brands globally.
After many years living and working all around the world, he is fluent in Japanese, French, German and conversant with several other languages.
A dynamic, results-driven leader who prides himself on lateral, entrepreneurial thinking and creativity, Barry is renowned for developing and fostering strong teams and a collegiate spirit.
Barry Money now heads up Australia’s ethical, efficient, effective, end-to-end choice for franchising solutions,
Bane Enterprises.
Contact details
Comments