The future of the Australian franchise industry hinges on strategic growth, a unified effort to elevate its public profile, and fundamental shifts in recruitment and customer engagement.
A discussion between industry leaders Jay Westbury (CEO, FCA), Selina Bridge (CEO, KX Pilates), and Peter Fiasco (CEO, Hip Pocket Workwear & Safety), unpacked key challenges facing franchising, starting with its public image.
FCA CEO Jay Westbury said “I think one of the things that I’ve found as a relative newbie to franchising is that we perhaps aren’t as great as we should be at talking about ourselves in a positive way.
“The other thing that I think really is critical is this notion of entrepreneurship. I think we need to do a lot more in talking about how we provide that pathway to entrepreneurship. And I think that in itself will elevate the notion of franchising,” he said.
Elevating the profile of franchising
The industry must actively promote itself as a clear pathway to entrepreneurship and stress the support system it provides, he said.
From a consumer perspective, there seems to be something of a disconnect. The Australian Franchise Outlook’s consumer survey found just 18 per cent of respondents were willing to recommend franchising to friends or family.
It raises the question of whether the Australian public understands which brands are franchised.
The panel agreed that developing trust, whether in a consumer-facing business or a B2B brand is about one-on-one engagement, and delivering on the brand promise at a local level.
Westbury emphasised the need for the industry to better articulate its multi-dimensional value to consumers. With the millions of dollars spent on articulating brand promises to connect with consumers rarely does a brand reference that as part of the engagement process, he pointed out.
“The question is, does it add value? I think if you walk down the street and bumped into three people and asked them, is McDonald’s a franchise?, probably two out of the three may well say, I don’t know, or maybe I don’t even care.
“So it’s something that we need to think about as an industry association, certainly about where do we add value by talking to consumers about the value. And I think the piece for that is around the recruitment of potential franchisees, more so than a consumer’s intention to purchase.
“I think it’s a space that we certainly can lean into more and certainly something we’re going to draw out from this research as a way to help support industry, connect with consumers who might think that franchising is a place for them to go,” Westbury said.
Another challenge is that people think franchising is not like a small business, suggested Selina Bridge.
“You are still a small business owner as an operator within a franchise system. What people have to really weigh up is do they want to run an independent business and be a sole trader or independent entrepreneur, and then look at the pros and cons and expenses and risks of that, and then fairly evaluate where do they sit best, or do they want to be part of an established brand with a certain level of support?” Bridge said.
“When we’re recruiting people, we do ask why they’re not going to go and open up their own individual business.”
The challenges of recruitment
The primary challenge in recruitment is the mismatch between buyer motivation, most commonly independence and financial rewards, and the perceived risks, led by buyers’ concerns about cost and fear of failure.
There’s a tightrope to tread to showcase the value a franchise offers in both providing an element of independence matched by support, which can reduce concerns of risk.
In the discussion it was agreed that peer mentoring is a powerful confidence booster – a point that potential buyers raised in the Australian Franchise Outlook survey as a big drawcard to a franchise opportunity.
And it was suggested that involving internal teams early in the recruitment process helps to build trust with franchise buyers.
A key factor in assessing potential franchisees is to treat recruitment as strategic growth, not sales, Peter Fiasco said. He admitted it can be a challenge for a business focused on the commercial benefits of recruitment.
“It’s easy for me to say but it’s a different thing to actually execute on the ground when you’ve got all these commercial decisions and challenges ahead of you. But you should be treating recruitment as strategic growth and not sales.
“It’s all about building a network, not chasing franchise fees. Fees will come if you build the right network,” Fiasco said. It’s also important to say no, when the fit is wrong, he emphasised.
Once franchisees are onboard, franchisors can scale peer mentoring by running cluster group meetings and formalising buddy programs. Backing this up with ongoing support that is agile and customised to individual needs is crucial.
It is also important for the CEO and other leadership roles to maintain contact with franchisees throughout their term.
The perceptions of barriers to entry
When it comes to the question of costs, Westbury is clear that franchising offers a broad spectrum of costs, from million dollar businesses to those that can be bought on a credit card.
“The other point, of course, is that this is one of the really important pieces that has to come out through the filtering system as a person makes a decision to want to go into franchising. And that is that you’re not buying a job. You’re buying a business. And therefore, there is a cost. And so that is something that is certainly on my mind about how we get that narrative, perhaps better squared off and better articulated so that there is less sort of perception of barrier.
“I think that’s one of the narrative pieces for me that’s come out of this survey that we need to, as franchising, need to think about to try and demystify this concept that franchising is expensive and there’s a big financial barrier to entry.
“There’s a big financial barrier to going into business for yourself, regardless of whether it’s franchising,” Westbury said.
Adapting to grow
With rising costs and leasing challenges, the adaptation of a traditional store or studio into a smaller footprint model continues, bringing with it the benefits of reduced expenses for the franchisee.
Regionally-based Hip Pocket Workwear is turning its attention to urban markets, and to boost growth in these areas has introduced a 200sqm entry-level store, down from 450sqm, Fiasco revealed.
Multi-unit ownership is a key internal driver of growth and becoming almost standard across franchise networks. It does of course come with its own challenges. KX Pilates controls this growth through a percentage cap of 7 per cent to manage network power dynamics and ensure owners are set up for success.
“It’’s almost intimidating for other owners to be in a network with multi-studio owners with so many studios and this perception of power in the network, but also to make sure people don’t take on more than they also can,” Bridge said.
She questioned whether franchisors have the systems to support multi-unit franchisees.
“That’s the bit that franchisors have to think about – how do you support franchisees who go into multi-unit? Because once they go into multi-unit, you are removing that person from day to day in that store. They have to be a person who’s working on the business full stop. There is no ifs or buts on it.”
Hip Pocket has developed a dual multi-unit model, enabling franchisees to open multiple stores within one territory. It operates like a hub and spoke model, with a smaller footprint store feeding into the main store.
“And then we have the multi-unit, which is another territory with another store and so on, you know, with another footprint store. So it’s quite multifaceted in what we’ve done,” Fiasco said.
Taking this one step further, the US model of multi-unit, multi-brand operations (MUMBOs) could present a route to growth, suggested Westbury, particularly where there are complementary brands.
“It hasn’t really started to stick in Australia yet, but [it can work] where you’ve identified really clever, smart business people that are running a business who’ve got the mind to be able to go into something more,” he said.
To find out more about the consumer and franchise buyer surveys, and read about growth initiatives in franchising, download the Australian Franchise Outlook here.
