This article which was first published in 2015 and is even more relevant in 2018.
In the wake of a wave of negative issues surrounding some of the biggest franchise brands in Australia, one of the country’s leading franchise experts says fairness and balance are the key ingredients to long-term sustainable success in the sector.
Michael Sherlock, the former Managing Director of Brumby’s Bakeries says the franchise model in Australia is not broken, but admits there is cause for concern following a series of damaging events associated with high-profile franchise brands such as 7-Eleven, Pizza Hut, Pie Face and Wendy’s Ice Cream.
“I believe the biggest lesson to be learnt from 7-Eleven is to keep the relationship fair between the franchisor and franchisee,” Mr Sherlock says.
“The franchisee should be able to work hard, follow the system and make a reasonable profit without breaking the law. When the franchisor attempts to extract too much from the partnership the essence of franchising is lost.”
“Often when the founders sell to listed companies or venture capital investors get involved, there becomes an imbalance where the new owners do not understand the franchising balance and try and take too much profit from the table.”
“Achieving fairness and balance allows both the franchisor and the franchisee to make a return on their investment. Franchisees that do not follow the system should be able to be disciplined by franchisors. However, the 7-Eleven model made franchising a wages-only model. I believe there are other franchisors that extract too much money and leave the franchisee working 70 hours a week for a minimum wage.”
Mr Sherlock says franchising will continue to grow and thrive, but new growth will come in more specialist service areas such as early childhood education, tutoring and in-home health care for the aged in response to market needs. He says the disruptive marketing trend across all areas of business presents both challenges and opportunities for franchising.
Franchisors need to get more creative by allowing the ‘best of both worlds’ that gives franchisees some discretion while still having a branded framework. This can then be localised to suit what the customer wants
“It should be all about the customer’s preferences, not the franchisor’s preferences.”
“Franchising will also need to cope with the ongoing disruption trend. The like of Uber and Airbnb have disrupted taxi and hotel businesses, so what is to stop areas that franchising currently dominates, such as lawn mowing and home cleaning, from suffering a similar fate.
“The answer is to focus on being ahead of the trends, working with your franchisees for the good of the brand and creating ‘Shared Value’,” Mr Sherlock says.