For many Australians dreaming of owning their own business rather than being a wage slave toiling to make money for someone else, the answer to their dilemma is " franchising ". In every suburb we see a range of national brand names offering products and services that are backed by national advertising campaigns.
One of the benefits of franchising is the expectation that the firm managing the franchise will provide the training to run that sort of business successfully. Usually they carry out a survey of the competition around the selected site and control both the shop fittings and merchandising arrangement to the pattern that is successful in similar franchise stores. The new owner and their family get the training to successfully operate this business model.
In the past, this has been very successful. All those McDonalds Golden Arches are actually separate businesses run on a franchise basis . A similar arrangements is in place with many of the other fast food name outlets that compete across the suburbs, and franchising has extended to many other aspects of the food and service industries.
Franchising is supposed to reduce the risk of starting a business on your own. You get the wisdom of the franchising agent and put the store setup and outfitting in their hands - and you pay a continuing fee for the use of that national brand name that brings in the customers. Usually, this new owner is mortgaged to the hock to get started, but with hard work they will earn a better than average living.
Many Australian franchise stores are under the control of the Retail Food Group as their managing agent. These brands include Gloria Jeans coffee, Michel's Patisserie, and Cafe2U. The RFG controls 1545 domestic stores and many of these are under pressure from rising rents and the under paying of staff in this business segment.
The commercial world was shocked to learn that RFG made a net loss of $87.8 million for the first half of 2018 and is under pressure from its bankers to improve its financial position. It is evident that some franchise stores under its management are struggling and it seems likely that about two hundred may be forced to close. That will be a financial disaster to families who have risked their entire assets in this business venture. It comes at a time when Caltex, another big franchise operator, is withdrawing from the franchise business.
Like all forms of business, running a franchise has a degree of risk. Getting a prominent site involves a decision on whether the rent asked equates with the expected sales volume and not every individual owner is temperamentally attuned to running a business. There is even a degree of luck which dictates which business will succeed - and which will fail.
Often, a franchise business that is not making the grade is put back into contention when a new owner takes charge and improves the customer flow. This bad news is gong to make the sale of franchises difficult and it seems likely that many will simply close their doors. That would be a financial disaster for families that have sunk their entire assets into such a venture.
It is also likely that these failures will put a thrall across the entire franchise sector. It has been a very successful way of enabling an entrepreneur who succeeded with a new concept to market that concept on a wide scale and at the same time allow individuals to enter the business world as partners by copying that format.
The sight of empty shops in shopping centres will not enhance business confidence in the retail sector.
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