Should small business owners avoid franchises?
IBISWorld suggests the future of franchising isn't as bleak as it seems.
The joint parliamentary inquiry into the franchising sector is underway in Brisbane, but tales of misconduct in the industry have been rife for months. So much has come out about franchisees losing businesses, life savings and properties that it's become understandable for small business owners to shy away from high-profile franchises that were once seen as stable and safe business decisions.
But should small business owners turn their backs on franchising all together? Global business intelligence and market research company IBISWorld has figures that show despite the "bad eggs" that have been forced to rethink business models or conduct internal reviews to bring their businesses up to scratch, the franchising industry as a whole is still forecast to grow.
IBISWorld senior industry analyst Bao Vuong expects the franchising industry to encounter steady trading over the next five years. Vuong projects revenue to increase at an annualised 1.7% over the five years through 2023-24 to be worth $195.4 billion.
“This growth is likely to stem from increased demand for service-based franchises such as those that provide health, nutrition and wellbeing services and household services," said Vuong.
He also said that a stronger domestic economy is forecast to contribute to growth in disposable economies which will drive demand for franchised products and services.
"Rising incomes are likely to bode well for service-based franchises, particularly for those that serve time-poor consumers with high incomes. These consumers can pay for domestic services, such as gardening and house cleaning services, reducing the number of tasks consumers must carry out themselves,” he said.
Vuong also said that other aspects of the franchise industry are going to drive change, such as a capacity for change and innovation. For example, online retailing is currently being used by 36.7% of franchise systems, with 36.7% of them planning to participate in online sales in the future.
Australia Post's Inside Australian Online Shopping 2017 found that Australians spent $21.65 billion online in 2016 across both physical goods and digital services, an increase of 10.4% on the previous year. And with new platforms and services becoming available for small businesses all the time, it's never been easier to implement technology to sell products online. This could bode well for the franchising industry if it continues to embrace these innovations.
If you're looking to invest in a franchise business, IBISWorld has the following tips:
- Have a clear customer base. Loyal customers are more likely to have clients that are repeat buyers.
- Have a clear market position. Follow the business structure set out by the franchisor. This ensures it projects a consistent image of the company.
- Operator's business expertise. Take advantage of the expertise of your franchise leader to grow the company.
- Can you control stock on hand? If you're able to control stock on hand you can meet client demand, reduce inventory costs and ensure adequate stock turnover.
- Does the franchise have an established name? This is more likely to attract customer attention.
- Experienced workforce. Ensure your employees have enough knowledge to provide sound advice and quality customer service.