Natalie Forte, Senior Manager - Business Advisory

Activity in the franchise industry has exploded over recent months.And many organisations are looking to the franchise industry as a viable option to maximise success.

The forecast for 2011 continues to be bullish. According to the franchisor expansion study for 2010 conducted by 10 Thousand Feet (a strategic marketing intelligence company), 70% of franchisors intend to recruit more franchisees in 2011 as their optimism returns to pre-GFC levels.

The franchise industry remained relatively strong through the economic downturn, and franchisors are now focusing on their organisational strategy and expansion plans, both at the concept and product level.

This outlook correlates with the results of the WHK SME Pulse Survey conducted in August 2010, where a majority of small and medium sized enterprises have a positive outlook for the economy and 67% believe the Australian economy will continue to grow without too much impact from the global economy.

There are however risks in franchising, and in 2010 we saw some franchise systems fail, in particular Allied Brands Limited which included the Baskin Robbins and Cookie Man franchises.

These franchises have since been acquired and removed from the administration process. Other franchise systems are on the rise with Grill'd Pty Ltd winning the 2010 Emerging Franchisor of the Year award and Crust Gourmet Pizza Bars receiving a nomination of merit.

Strong sectors in the franchise industry continue to include the food industry, such as fast food and coffee. Service industries, such as gyms/ fitness groups, cleaning providers and pet professionals are also exhibiting high levels of activity and enquiry in relation to establishing a franchise system.

During the GFC, franchisees maintained a cautious view of the franchise industry largely due to the financial commitment involved. The trend however for the 2011 year and onwards, indicates the franchise industry is a viable option for those looking to own their business with the support of an established brand. Additional franchising opportunities may also become apparent through strong international interest in the Australian franchise industry (for example from the United States).

Our experience has shown that no industry is without its challenges and without instances of under performance or failure. Many challenges continue to face the franchisor and/ or the franchisee. Franchisees continue to require access to funding and a deeper understanding of the franchise system. For a franchisor, it is finding the right franchisee and having the ability to benchmark through comparative reporting on performance/potential across their organisation.

The recent changes to the Franchising Code of Conduct have also added another layer of regulation to disclosure documentation, while the communication levels between franchisor and franchisee remain a focal point and a key requirement for maximum franchise success.

Financial Planning Pty Ltd ABN 51 060 092 631 (WHKFP). This is an information service only and is not financial advice. WHK and WHKFP do not provide any warranty regarding the accuracy and completeness of information in this newsletter. All material contained in this newsletter is based on opinions, conclusions and forecasts that are reasonably held at the time this newsletter was compiled. WHK and WHKFP assume no obligation to update the material to reflect any changes.

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WHKFP is the holder of Australian Financial Services Licence number 238244. WHKFP and WHK are both WHK Group firms. Produced in January 2011. © Copyright 2011