A bright future for franchising?

The outlook for the future of franchising is not as bleak as many claim, with growth projected for service-based franchises, according to IBISWorld.

The market-research company says the franchising industry has changed dramatically over the past decade: once being known for its prosperity, the franchising model has recently been called into doubt following financial-market instability and high-profile instances of franchisee dissatisfaction.

Well-known Australian franchise businesses Retail Food Group and Caltex are among those to have recently experienced difficulties.

RFG, a franchisor and owner of several food retail businesses including Donut King, Michel’s Patisserie and Gloria Jean’s, announced last week it expects to face a full-year loss of $87.6 million for the current financial year. The company plans to shut down up to 200 of its stores by mid-2019.

In February, Caltex announced that by 2020 all its petrol stations would come under company control, bringing an end to its franchise model. It will spend up to $120 million to take control of the remaining 433 franchise sites, run by 237 franchisees, by mid-2020.

IBISWorld says, however, that despite the perceived doom and gloom, growth in real household disposable income has supported consumer demand for franchised goods and services over the past five years.

The company’s Senior Industry Analyst Bao Vuong says he expects the franchising industry to encounter steady trading conditions over the next five years, with revenue projected to increase at an annualised 1.7 per cent over the period up to 2023-24, to be worth $195.4 billion.

“A stronger domestic economy is forecast to contribute to growth in disposable incomes, driving demand for franchised products and services,” he said.

“Rising incomes are likely to bode well for service-based franchises, particularly for those that serve time-poor consumers with high incomes. These consumers can pay for domestic services, such as gardening and house-cleaning services, reducing the number of tasks consumers must carry out themselves.”

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