Franchise recruitment is always a hot topic and one that was covered at a recent FCA breakfast in Brisbane by Jason Gehrke. I always appreciate Jason’s insights based on his extensive experience in franchising.
Jason indicated that many franchisors are expressing concern that the decline in potential franchisees is due to the Parliamentary Inquiry. He mentioned that franchising has had many inquiries previously yet franchising ‘’still goes on’’. His perspective is that unless your brand has particularly been mentioned, then the impact on your brand is minimal.
He then outlined the economic forces at play that, in his opinion are impacting recruitment.
1 Low Unemployment – Australia essentially has full employment as our unemployment rates are 5%. The heyday of franchise recruitment was when unemployment was high – particularly in the early ’90s. When people were retrenched, they looked for alternatives to finding a job, and that was often to be self-employed.
2. High levels of Household Debt – many candidates presenting themselves today have high levels of personal debt and therefore find it difficult to access finance through the standard financial institutions.
3. Finance being harder to Access – linked to number three means that people are looking to access finance from their families which can sometimes lead to a disastrous outcome.
4. Australia has a growing population which is a positive economic trend. Population growth is a result of migration who are mostly coming from non-English speaking backgrounds. This means increasing numbers of migrant candidates from these backgrounds too (China and India in particular) and in Jason’s opinion, will be an ongoing source of franchisees.
5. Lower levels of home ownership, particularly Gen Y. Home equity has been a source of security for loans, and this will be less and less in the future.
Jason made some great points about the current issues affecting franchise recruitment. However, I think the fact that franchisors are finding it more difficult goes beyond these economic factors. Let’s delve a bit deeper into some other issues I have uncovered, issues that go to the very fabric of the franchise business model.
1. Structural changes in the economy and the opportunity for people to be self-employed with very little capital. Think Uber drivers, Airbnb hosts, lime scooter juicers. These are all opportunities that have emerged in the past five years taking away from the potential pool of franchise candidates. People don’t have to resort to a franchise to buy themselves a job anymore. They can now easily use their current resources (car or home) to leverage their income and be self-employed. Not to mention, these opportunities need virtually no entry capital. My prediction is that this will have an ongoing and major impact on the numbers of potential franchisees.
2. Changing demographics that impact people’s willingness to commit to long franchise terms. Many people don’t want to be tied down for a minimum of 5 years and for the long hours required in a franchise. Recent research from Uni of Qld on Uber drivers indicated that flexibility is the key issue for Uber Drivers as many are the primary care givers. Furthermore, Gen Y likes to change jobs regularly so being tied down to a 5-year franchise agreement may not cut it anymore. My prediction is that there will be an increase in the flexible style of franchises to cater to this emerging trend. Franchise term agreements will also be reduced.
3. Negative sentiment in franchising hitting new migrants – the very growth source for new potential franchisees. OK, this is a bit of feeling on the streets. I’ve had a couple of recent conversations with Business Advisers who help migrant business people come to Australia. They are saying they are keeping away from franchises when assessing potential businesses. The first person talked about particularly the Chinese community in Sydney being burned by food franchises. The other person will not recommend franchises to any business migrant they assist (and this is several each month)! My prediction is that this ”trend” will continue while there is relentless negative publicity on franchises.
So more than ever, franchisors need to prove their advantages to a more skeptical and dwindling pool of potential franchisees. But not only do they need to think of other franchises as potential competitors, they also need to consider other business models that provide the Australian dream of business ownership. More than ever, a compelling franchise offer that proves it is a good investment and adapts to the needs of the future franchisee is the only way forward.
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