Five franchise predictions for 2012

The year 2011 has provided many challenges for franchising. Further attempts by state governments to interfere with the legislative framework that applies to the sector nationally, along with a turbulent retail environment and a general shortage of franchise candidates have challenged almost all franchise systems operating in Australia.

Here are a few predictions for what the year ahead will hold:

1. European instability will affect access to finance

The euro crisis may well result in the failure of at least one European bank. If and when this happens, interbank lending will be severely restricted, and we may well see a repeat of 2008 when banks collectively reviewed their lending policies based on their access to funds. This could mean that getting and retaining finance to start or grow a franchise (or any other business for that matter), despite low interest rates, will be more difficult.

2. Franchisors will expand their range of recruitment incentives

Unemployment in Australia may increase slightly in 2012, but is unlikely to result in the kind of stampede toward self-employment experienced in the early 90s. Consequently, there will continue to be a scarcity of franchise candidates, which, combined with a tightening of access to finance, will require franchisors to think of new ways to attract franchisees. Vendor financing will be offered by more franchisors, and other incentives such as income or profit guarantees and reduced investment levels may become more widespread.

3. The mining boom will provide more regional opportunities

Regional Australia is experiencing unprecedented growth as a result of the mining boom, and while the volume of fly-in fly-out (FIFO) workers temporarily swells local communities, it has not resulted in major improvements in community facilities. Nonetheless, the mining populations could represent opportunities for franchises in transport, telecommunications, food and other sectors.

4. More US systems will seek to enter the Australian market

With the US economy still in the doldrums and almost zero franchise growth achieved in recent years, mature US systems will continue to look overseas for growth opportunities, and Australia with its steady economy and strong currency is a perfect target. Expect to see more US systems heading this way, some of which will be ready to tackle the Australian market, and others for whom it way well be an unrealistic pipe dream.

5. The Federal Government will announce another review of the Code

The last Federal review of the Franchising Code of Conduct recommended that a review of the Code not be conducted before 2013. However, increasing attempts to regulate franchising at state level virtually guarantee that the Federal Government will move to hold a review as early as possible in 2013, and may well call the review in late 2012. Whether or not this will be timely enough to head off further moves for state legislation is anyone’s guess, but it would be a brave state business minister indeed who attempts to sneak in state-based franchise legislation now that political heavyweight Mark Arbib has been anointed Federal Business Minister.

Of course, this is not an exhaustive list. Anything could happen next year to change these predictions, but the odds are that most of these are likely to occur. There is little that either franchisors or franchisees can do to prepare for the finance prediction, other than get their balance sheets in order and deleverage themselves as best they can. For the rest, 2013 will be an interesting year indeed.

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for nearly 20 years at franchisee, franchisor and advisor level.

He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia, and publishes Franchise News & Events, a fortnightly email news bulletin on franchising issues and trends.