Establishing Franchise Operations in Australia

March 27, 2017

Franchising in Australia continues to face challenges, but brands have learned that providing better information helps recruitment and improves capital access for franchisees.

By Darryn McAuliffe, CFE

Australian franchising is arguably more similar to U.S. franchising than to any other country in the world. That also means that Australia faces most of the same opportunities and issues that franchisees, franchisors and lenders face stateside. It was those similarities that led FRANdata to address the uncertainties and challenges of the franchise business model in Australia.

Now in its fourth year of operations in Australia, FRANdata is well established and has become a key player in the Australian franchise sector. However, like any international expansion, success has come from not only executing an effective business plan, but most importantly, meeting the needs of a new client base and earning the trust of key stakeholders.

Why Australia?

For years, FRANdata’s interactions with leaders of the Australian franchise sector identified that many of the strategic challenges facing the Australian franchise sector were indeed consistent with those facing the U.S. franchise sector. For example, capital access, franchisee recruitment, emerging workplace relations (joint employer) issues and the broader reputation of the franchise model were recurring themes in both markets.

Having satisfied similar needs for U.S. clients, the opportunity presented itself to introduce a similar suite of products and services to support the Australian franchise sector. FRANdata even noted a high degree of similarity in the workings and effectiveness of the regulatory environment. For example, under the Australian Competition and Consumer Commission-supervised “Franchising Code of Conduct,” active Australian franchise systems need to prepare an annual “Disclosure Document” closely resembling the U.S. FDD.

Also of great importance was the clear vitality of the Australian franchise sector. With reportedly more than 1,100 active franchise brands and a population of around 24 million people, Australia is one of the most franchised nations per capita in the world. The Australian franchise sector is well recognized for its significant contribution to both GDP and employment.

While the challenge of capital access has also been a recurring theme throughout Australia, FRANdata was encouraged that the lending community, dominated by four major banks and only a few regionals, was a generally active supporter of the sector. It was apparent that all of those major banks had dedicated franchise banking units in place and were becoming increasingly tuned into the relevance of better information and the use of comparative performance measures to determine which brands they would include on their lending programs (or accreditations as they are locally called).

While FRANdata had its own view and understanding of the Australian franchise sector, it recognized the importance of strong support and connections on the ground. That led to my appointment as FRANdata’s Australian CEO. I’m a CPA, Certified Franchise Executive, and experienced bank executive who, when appointed, was running the franchising strategy for one of the four major Australian banks.

FRANdata CEO Darrell Johnson, CFE, helped me gain immediate traction with the lending community and deliver improved finance access for multiple franchise brands and
their franchisees.

We help brands close the information gap which so often holds back lenders. Lenders have responded positively to support brands that invest in making themselves more “lender friendly” by providing their information in a format that lenders understand and trust.

Key Strategic Relationships

A cornerstone of FRANdata’s business plan for Australia was building advocacy from key stakeholders in the Australian franchise sector. The valued support of the peak industry body, the Franchise Council of Australia, recognizes the value of strong information and has publicly endorsed The Australian Franchise Registry.

FCA also continues to work with FRANdata on key initiatives developing and recognizing brands that are pursuing higher standards across a range of contemporary issues particularly around the contentious and high-profile workplace relations issues that have plagued the sector in recent years.

FCA and franchisors are both keen to promote their commitment to transparency and high standards and the registry is creating a platform for both parties to achieve this objective.

On the key metric of revenue generation, referrals from active franchise lenders, leading professional advisors and repeat business and recommendations from existing clients has been the foundation of early business success. Somewhat like selling your first franchise unit, getting that first piece of work completed and in the market, was the most significant milestone in the company’s relative short history.

Sourcing Relevant Information

After attending the Australian National Franchise Convention and observing the foundations of the business being built on the early success of improving capital access, Johnson urged the Australian franchise sector to focus on building its information base. The approach was to create a franchise registry similar to that of the U.S. that had attracted 50,000 disclosure documents and drew 8,000 individual franchise lender subscribers.

However, with disclosure documents not publicly available in Australia, as they are in many U.S. states, an alternate collection strategy was required. Convincing franchise brands to confidentially share their disclosure documents was one of the more significant challenges the business faced.

Fortunately, Bruce Billson, the standing Federal Minister for Small Business and now Chairman of the Australian Franchise Council, saw great merit in pursuing improved information and higher standards for the sector. He attended and actively supported the launch of the registry where he addressed lenders, professional advisors and leaders of prominent Australian franchise brands. Attendees of the registry launch in 2014 were also addressed by the Deputy Chair of the ACCC and the Franchise Council of Australia.

Franchise brands initially sought comfort around how their information would be collected, stored and used. However, two years down the track with proven security and sensitivity around information and the role of the registry as a gateway to information for lenders, brands have recognized the registry’s role in helping them stand out in an often crowded and confused market.

The registry has grown quickly to now include well over 100 brands which cover 13,000 units or roughly 17 percent of the sector.

Utilizing the Information

Over the past 12 months, FRANdata has responded to many customized project and information requests where it has provided information-based strategic advice on a range of projects including market analysis, brand acquisition and divestment, franchise-specific financial modeling and information to Australian brands eyeing opportunities, advisors and business partners connected with the U.S. franchise sector. The availability of aggregated information from the Australian and U.S. data warehouses has played an important role in the completion of these projects.

While franchising in Australia continues to face challenges and uncertainties, franchise brands have learned how providing better information can help provide a recruitment edge and unlock improved capital access for franchisees. With employment issues expected to again dominate the 2017 franchise landscape, sourcing and representing better information will remain a key focus for FRANdata and the Australian franchise sector. As in the U.S., better information will continue to play a key role in confronting issues, influencing outcomes and promoting good ongoing practice.

Darryn McAuliffe, CFE, is the CEO of FRANdata Australia and has over 30 years of experience in the banking and finance sector. He is a CPA, CFE and experienced former bank executive across business banking, risk management and franchise industry specialization.