Franchising

Calls for franchising sector inquiry gather steam, but should it only focus on the “negative stories”?

Emma Koehn /

John Williams franchising

Nationals Senator John Williams. Source: AAP/Mick Tsikas

The prospect of a parliamentary inquiry into Australian franchising will be back on the table next week, but those familiar with the sector say it will only help the system if the good examples of franchising are also featured in a review.

Fairfax reports Nationals Senator John Williams is set to move a referral next week to hold a joint parliamentary inquiry into the franchising sector after numerous stories of problems in the sector that have left franchisees in dire financial straits. 

Senator Williams has reportedly been working with Small Business Minister Craig Laundy on the terms of reference for the inquiry, which would focus on the effectiveness of the franchising code, as well as rebates and fees that flow through to franchisors through franchise arrangements.

According to Fairfax, Williams and Laundy met last week with franchisees from organisations including Retail Food Group, as well as representatives from the Australian Competition an Consumer Commission and Australian Securities and Investments Commission.

When contacted by SmartCompany, Laundy confirmed he had worked with Williams to draft terms of reference for the inquiry after hearing stories of some Australians’ “challenging experiences with franchising”.

“I will be interested to look at the findings of the inquiry and if there are improvements that can be made,” Laundy says.

“Senator Williams is a champion of small businesses, a passion I share with him. I support his efforts to ensure franchisees are given every opportunity to prosper.”

But while there is a broad consensus that unscrupulous operators and problematic business models should be removed from the system, not all those who work in the franchising sector agree that an inquiry is a bulletproof solution for fixing the sector.

Chris Levy, who founded the organisation now known as the Franchise Council of Australia and spent decades managing franchises, including as chief executive of Pizza Hut in Australia, says he would support a parliamentary inquiry into the sector, but only if it acknowledged that franchising can be a strong business model if executed properly.

Levy told SmartCompany a review would only work if politicians “widen the scope from coffee shops” and into the hundreds of businesses that use franchising well, including those successfully operating maintenance businesses as franchises, for example.

He also believes a review would only work if “as well as franchisors, they get some happy and contented franchisees to give evidence — franchisees from some of the real estate chains, from business-to- business companies, paint stores and so on”.

“You only ever hear the negative stories”

Other business operators in the franchise space say the trouble with the recent coverage of Australia’s franchising sector is that the bad news stories are never presented in context.

Alan Payne is the director of franchising operations for Australia and New Zealand for “no dig” pipe repair business Nuflow. He has worked in franchising for 30 years and believes that “when you look at business success rates under franchising, the failures are lower” than when small business owners go it alone.

Nuflow, which appeared on 2016’s Smart50 Awards list and generated $3.5 million in revenue in 2016, is currently looking at converting all of its licensees into its franchise system, believing this will present the best opportunities for growth. Nuflow currently has 45 franchisees across Australia and New Zealand.

When it comes to the idea of a franchising inquiry, Payne believes the government should be looking at businesses that have worked well under a franchising model, in order to determine a best practice system.

He also believes any conversations around compliance in the franchising space should be compared to trends among businesses that are not franchised, to get a better sense of the space overall.

When we have these conversations, we should be looking at the behaviour of the franchising sector and asking how does that compare to other, non-franchising sectors. We’re [the franchising sector] so highly regulated, we are very heavily regulated already,” he says. 

Senator Williams has been calling for an inquiry into franchising since late 2017. In December, executive chairman of the Franchise Council of Australia, Bruce Billson, told SmartCompany that while it’s not yet clear what such an inquiry into franchising will look like, the organisation is always “happy to engage constructively with politicians, government agencies, opinion leaders and the franchise community”.

Meanwhile, legal experts have said that class actions within the sector, or wide-scale reviews of it, might not be enough on their own to secure reparations for those who have been burned by the system.

While franchising can work well as a business model when the right controls are in place, other commentators, like franchise consultant Howard Bellin, have told SmartCompany the problem lies more in the fact that in Australia, there is little incentive for the more problematic franchisors to change their ways.

*This article was updated at 3pm on Tuesday, March 13 to include comments from Small Business Minister Craig Laundy. 

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Emma Koehn

Emma Koehn is SmartCompany's senior journalist.

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  • Michael Ratner

    We all castigate the media for sensational news but what would we do without them.
    Here’s a typical example of a reaction to news stories specifically RFG.
    The franchise industry has undergone more inquiries over the last number of years. Toothless Tigers and without such a thing as class action not affordable in the hands of individuals.
    There is a proposed impost on Franchisors to toe some sort of line and then there are the gullible people who actually don’t go responsible for themselves.
    You need a drivers licence to drive a car but no licence to part with life savings based on a sales spiel.
    It’s bloody David versus Goliath when things go pear shaped or there has been incorrect communication between Franchisors and Franchisees.
    Working on the premise of “Will you Love Me in The Morning.” there’s nothing set in concrete. There has to be more thought put into it negating the need in the future for lawyers.
    In the retail world, shouldn’t a franchisor be obliged to run their own business for 12 months and then it can be franchised out. Doesn’t mean that the franchisee won’t mess it up but it might mean franchisors go more responsible instead of taking the first mug with a cheque’s money.
    Disband The Franchise Council. Cancel all previous agreements and put the sector in charge of The Bikie Gangs.
    Hooray – again we have another enquiry called for by a Pollie who has read the paper, defended by nameless and faceless people who are supposed to be looking after the sector and we sit with baited breath waiting for heads to roll.
    No shortage of players in this scenario. It’s happening daily with franchisors a lot smaller than RFG.
    The time is here for not another enquiry but an accountable set of definable goals where the buck has to stop.

  • Ben

    Greed, growth at any cost, opening sites too close to each other, failure to understand what business franchisors are in, not enough fat in the business models, lack of training, franchisees poorly selected, franchisees without enough money for the journey, not everyone should run a business, no deterrence for dodgy franchisors, people knowing its wrong but doing it anyway, franchisees not willing to pay $$ for any advice before going in, lack of financial sophistication all round, what ACCC??!!,if a fool and their money meets a narcissist…what else could possibly happen??
    Please franchisees…pay for advice, have enough money for the journey and a back up plan and talk to EVERY single franchisee in the system first…and if you find tales of woe then tread carefully. Good luck everyone