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Why is Franchising so popular!

They say you can franchise anything - and with the highest number of franchises per head of population in the world, Australians continue to put this claim to the test by franchising concepts ranging from noodles to banking to nail care.

There was even a rumour that the Daily Planet - the first brothel in Australia to list on the Stock Exchange - was thinking of franchising (eyes glazed over at the thought of their Operations Manual).

So what is the attraction of this business format that started in medieval France, took on a new lease of life in the US in the 1930s and has become so popular in Australia that it now contributes $85 billion a year to the national economy?

For franchisors, the answer is that franchising provides access to:

• capital for growing their businesses, and
• a pool of talented, highly-motivated individuals who want to be part of that growth.

For franchisees, the main attraction is that franchising offers a high likelihood of success. On current figures, up to eight out of 10 franchisees succeed, while eight out of 10 independent small business owners fail within five years. Other factors, like wanting to be your own boss or achieve a better work/life balance, also contribute.

Why does Franchising work?

"Take one franchisor with experience, skills, resources and big picture focus, add a committed and enthusiastic franchisee, blend with the desire of both to make a profit, and you have a recipe for success," is the answer our Managing Director, Sergio Alderuccio gave in a recent article in Wealth Creator magazine.

Sergio cites the following as the main benefits provided by a good franchise system:

• a proven business formula
• group strength in purchasing and lease negotiation
• readymade systems that help franchisees get going faster and avoid costly early mistakes
• brand power to influence customers and suppliers
• efficiencies through centralising core functions such as marketing, accounting and reporting
• access to business relationships and contacts.

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Facts and Figures about Franchising

Franchising is currently Australia 's fastest growing business segment, increasing in size by 17 per cent over the last four years. It accounts for some 10 per cent of the nation's GDP.

It is currently estimated to involve more than 850 franchise systems comprising 50,600 franchised units and 3400 company-owned units that between them employ 507,180 people. (Lorelle Frazer & Scott Weaven, Franchising Australia 2004 . Figures exclude 8000 fuel retail outlets and 2400 motor vehicle retail outlets.)

There is still potential for further growth within Australia, with many Australian-grown franchises who are now also looking to expand into overseas markets.

There are no reliable figures for franchising worldwide, but the statistics for the US alone are impressive. A report commissioned by the International Franchise Association (based on 2001 economic data) found that US franchisors:

• operate more than 760,000 outlets
• generate jobs for more than 18 million people
• account for US$1.5 trillion in economic activity.

The latter represents 9.5 per cent of the US's private sector output comparable with Australia 's 10 per cent.