Franchising under the hammer: opinion

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Inside Franchise Business: with franchising under a cloud, it's time for a reviewNot happy times for the franchise industry of late let’s be honest. I am a keen advocate of the industry and as members of the FCA we want to see successful and jolly outcomes in the industry for franchisors and franchisees.

From a negative there is always a positive and blue skies will arrive from all of this provided we all do some serious and at times painful internal assessment.

Over the past 12 months:

We have had changes last year to the Fair Work Act to protect vulnerable employees largely but not solely arising from franchisees underpaying staff.

RFG franchise woes which focused attention on the issue of how large corporate ownership by a public company can meet their obligation to return profit to shareholders on one hand against looking after, rather than nailing their franchisees on the other.

How does one reconcile that issue? Can you say to your shareholders we will be delivering a smaller dividend as we need to revise the franchise model to make it more financially viable for the franchisees? I think you can and they should if they are taking a long-term view.

Now a Senate inquiry on franchising in an industry that already has the greatest regulation in the world with a mandatory disclosure regime and Code and the overlay of the ACL and the Unfair Contracts Act obligations.

We have entrenched obligations of good faith in the Code and dispute resolution processes for either party to instigate mediation apart from common law and equitable rights and the ability to seek injunctive action.

So, do we need more legislation or a change in approach culture and or attitude?

We then have the Banking Royal Commission into the banks conduct particularly in relation to provision of insurance and financial planning services which then again found its way back to a focus on franchising.

This has raised recent media attention on Mortgage Choice franchisees who say they are suffering from unrealistic targets and a financial model that just works in favour of the franchisor.

We have now had a number of well-known franchisors under all this scrutiny come out and announce they are reviewing their model to make it more balanced and financially viable.

Good, I say! They should have taken this step earlier and not under the pressure of all the above commissions and enquiries.

Franchise systems do evolve and change just as the market they are in changes due to all sorts of factors many beyond their control.

Business is dynamic and you really can’t have a set and forget franchise model that will remain relevant for ever that’s not the world we are living in.

Ideally changes to the franchise model is done over time internally and not under public scrutiny and threat of further regulation.

It would seem to make sense to sit down with those you work with and say' hey things have changed how can we adjust the model to make it better for both of us?'.

New franchisors

New franchisors coming into the market would be foolish to ignore what’s going on in the Australian market and simply roll out yet another outdated model that does not work for franchisees.

Not a one-way street

Franchisees are generally highly geared have their house on the line and are working long hours under all sorts of performance and other personal pressures which can take a toll on them and their family. That is the case for most small business owners running their own business.

Franchisees can easily play the victim of course and complain when they fail to do the basic things required of them to give the business the best chance of success.

We have seen cases where franchisees have complained the system doesn’t work but they have failed to open their business or pursue leads, decide not to follow the operations system, don’t manage their own staff or have had personal issues that impact on the business from gambling to marital issues.

It is easy to the point the finger and blame the franchisor.

So where does the answer lie? It is a whole new world out there.

Franchising is embedded in the Australian economy.

Change is good it reinvigorates and those that adapt and embrace it will do well while those that don’t may be tomorrow’s news headline and be heading off to their media PR consultants.

 

Robert Toth

Robert Toth is franchise partner at Marsh & Maher Richmond Bennison. Robert is a Business Law Accredited Specialist, a member of the International Franchise Lawyers Association (IFLA), and a member of the Australian Institute of Company Directors. View More...
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