Franchise sector shrinks but is still strong, report claims

Australia’s $128 billion franchise industry is in good shape, despite suffering its first decline in franchisor numbers in a decade during the economic downturn, according to a new report.

The study, conducted by Griffith University’s Asia-Pacific Centre from Franchising Excellence and sponsored by the Franchise Council of Australia, found that the number of franchisors has shrunk by 7% over the last two years.

Following a steady increase since 1998, franchisor numbers dropped from 1,100 in 2008 to 1,025 this year. The number of franchise units is also down, by 2% to nearly 70,000.

Despite this, the report claims that the franchise sector is still strong, with many of the “small and unstainable” systems going out of business.

Other findings include the continued dominance of the retail trade in franchising, comprising 26% of franchisors. Nine out of 10 Australian franchises are homegrown, with 28% of them operating internationally.

A quarter have changed their operations to reflect environmental concerns and the proportion of franchisees in dispute with their franchisor has dropped from 2% to 1% this year.

Professor Lorelle Frazer, lead researcher for the study, said that the report also reveals a shift in employment trends.

“The proportion of people employed on a casual basis has increased,” she says.

“In the previous Franchising Australia study there had been a shift towards increasing part-time permanent employees, however that trend is now reversing back to casual employment.”

“The findings suggest the sector has adapted to suit the current economic conditions, and the majority of franchisors are proactively investing more in staff training and marketing in order to build and protect their brands.”

“The Franchising Australia 2010 findings show the overall size and contribution of the sector remained reasonably stable despite the impact of the global financial crisis.”

“However, a longer term analysis, to be provided in the Franchising Australia 2012 study, is necessary to draw meaningful conclusions.”