Franchising in Australia is big business. There are about 960 franchise systems across the country, employing over 426,000 people in over 60,000 outlets – it now accounts for 14 percent of Australia’s Gross Domestic Product*. From the popular Subway, Baker’s Delight and Boost Juice to the smaller dog-wash and pool cleaning businesses, there is a franchise available in almost any goods and service industry you can think of.
So what is franchising exactly? Franchising is essentially a method of distributing goods and services. It provides big business with the ability to expand their distribution and presence while providing small business with the methods and resources of an established system - at relatively low financial risk for both parties.
And while it’s considered that franchising has matured in this country and steadied in the past year, there is no doubting the growth experienced by franchising over the past 30 years in Australia. From the early 70s when some of the first franchise systems - McDonalds and Pizza Hut - reached our shores, franchising has expanded to one of the fast growing sectors of our economy.
And there is a good reason why franchising is proving a popular choice for those that want to be their own boss. A franchisee has a success rate of 2.5 times greater than stand-alone or small business.
One of the key success factors of traditional franchises is in the standardisation of all aspects of the business - from the product to the marketing strategies and operational standards. The franchisee is given the right to sell an established product or service in addition to the use of brand names, trademarks, copyrights, patents, storefronts and interiors. It’s a powerful method to duplicate and expand the network and distribution of products and services for the franchisor, while providing the franchisee with all the necessary tools and methods to operate the business.
There are considered four types of franchising.
Business Format Franchises
These are the franchises you will be most familiar with and feature throughout SEEK Commercial. In this arrangement, the franchisor provides a franchisee with the process, methods and opportunity to operate a business using the name and trademark of the company. In addition they may also get access to product, storefronts, staff training and marketing strategies, and in return the franchisee pays a fee or royalty.
Product Format Franchise
As the name implies, this type of franchise involves products, and is primarily used to set up distribution networks through dealer companies. It is also known as a Manufacturer-Retailer franchise type.
This allows the franchisor to define the marketing of the product and can also limit the sale of competitive products through dealers. In return the franchisee receives the recognition of a well established product and can receive additional benefits through the association with the franchisor including marketing support. An example may be Arnott’s Tim Tams in a supermarket.
This is quite a common franchise model for tyre and auto companies.
Manufacturing Franchises
Another variation of the Product Franchise, the Manufacturing Franchise gives a franchisee the rights to manufacture and sell a product to the public, using the franchisor’s name and trademark. This method is popular with bottlers of soft drinks and alcoholic drinks.
Business Opportunity Ventures
These are generally smaller scale franchise opportunities that require the business owner to purchase and distribute the products for one specific company. The company provides customers, accounts or regions to the business owner and, in return, the business owner pays a fee or royalty. Examples of these include vendor machine distributors.
For the purpose of this site, we will refer to the most common form, ‘business format franchises’, as simply franchises. And while they share many similarities to an existing business, there are several distinct differences.
To read more about the advantages and disadvantages of both, visit Deciding between franchises and businesses.
* Griffith University Franchise Survey 2006.