Is your franchise unit turnover on par? [Report]

The latest report to measure the franchise sector in Australia indicates an 11 percent turnover of franchised units.

This rate is consistent with the average franchise agreement term of 10 years, according to Frandata Australia’s CEO, Darryn McAuliffe.

However, the higher rate of 18 percent in the food franchise arena is “more worrying” and could be caused by a number of factors, he suggested:  “The challenges of leasing longevity in major shopping centres, long trading hours, businesses being easier to sell, harder working conditions.”

In its first Report on The Australian Franchise Sector, Frandata Australia uncovers facts about unit turnover, royalty and marketing contributions, as well as trends around initial fees and the cost of renewals.

Franchise unit turnover

There were seven causes for franchised unit turnover cited in the report:

  1. Terminated and acquired by the franchisor
  2. Not renewed
  3. Terminated by the franchisor
  4. Transfers
  5. Bought back by the franchisor
  6. Terminated by the franchisee
  7. Ceased other

Franchise unit turnover was three times as likely to be initiated by the franchisor than by the franchisee, but McAuliffe stresses this indicates a trend in closing underperforming outlets, with the turnover declining between 2011 and 2013.

He said the relatively high number of transfers is positive, assuming the reporting of transfers is accurate, but the high number of ‘ceased other’ merits further examination.

Franchise registration

There are about 900 franchised brands operating around the country, according to Frandata which runs the Australian Franchise Registry, a voluntary registration that enables franchise systems to confirm their regulatory compliance.

More than 100 of those have met registration requirements and been allocated a registration (FRUNS) number and the first 58 of these (one of which is a multi-brand franchisor) have formed the basis of the sample*.

But McAuliffe is looking for a stronger take-up of the voluntary registration.

“The franchise sector does face a moment of truth if it seeks to be genuinely transparent and demonstrate the levels of compliance expected by regulators and the Government.

“Questions will be asked of the franchise sector if the number of confirmed franchise systems does not increase substantially by October 31, 2-15, the deadline for updating franchise disclosure documents.

“One would expect that regulators keen to ensure regulatory compliance would focus on franchise systems without ‘confirmed’ status, as that could be due to non-compliance. Given the ease of registration and only nominal cost there really is no excuse for franchise systems not to register,” said McAuliffe.

[*The information is based on the aggregation or average of data extracted from documents]