The great franchise giveaway

The problem franchisors face in recruiting quality franchisees isn’t a new one, but only recently have industry players begun to offer bold incentives, such as the reduction or elimination of fees.

In December, pool and spa franchise Swimart made headlines with the announcement that it will waive its $45,000 joining fee for independent operators prepared to rebrand as a Swimart store.

Then last month, kitchenware retailer King of Knives said the first three franchisees who sign up before April 30 will receive $20,000 worth of stock, valued at $40,000 at retail.

“It’s not an easy climate and there are lots of systems competing for the same customer,” franchise manager Daniel Hochberg says.

“We hope this will differentiate us, and motivate potential franchisees to consider joining us. In difficult times, it will also ease the financial burden on new franchisees.”

According to Jason Gehrke, director of the Franchise Advisory Centre, there are three main factors affecting franchisee recruitment, the first of which is relatively low unemployment.

“Anyone who wants a job has got one. They may well be thinking that with wages and salaries at record-high levels, why take the risk on any kind of business, franchised or otherwise?” he says.

Gehrke identifies the gloomy economic outlook as another factor, claiming would-be franchisees are opting to reduce rather than increase their debt levels, namely by paying off their mortgages.

Finally, he says access to finance is becoming increasingly difficult because the banks have tightened their lending criteria as a result of the GFC and the more recent global economic uncertainty.

Steve Wright, executive director of the Franchise Council of Australia, says the prospect of state-based franchising laws in both Western Australia and South Australia isn’t helping matters.

“Both franchisors and franchisees are telling us they don’t need or want this legislation,” Wright says.

“With increased compliance costs, a disincentive to investment in [both states] and duplication of the national regime, this approach is all risk with no benefit.”

Gehrke says Australia also has more franchise brands per head of population than any other country, “with the possible exception of New Zealand”.

“The number of franchise systems has more than doubled over the last 20 years, but in the last couple of years has receded from its peak of 1,100 systems due to market forces,” he says.

“It is likely that as smaller systems struggle to recruit franchisees and achieve critical numbers, there will be more sales and merger activity, with larger and more established franchises.”

“This may result in a further reduction in the number of brands in the market.”

This is already happening, as seen last month by Tasty Trucks’ acquisition of Lunch Express – a Newcastle-based business that operates a network of 17 lunch vans.