The retail franchise industry is facing challenges, including economic volatility, heightened international competition and legislative challenges. Because of recent high profile cases behaving badly there is greater focus on the retail franchising business model itself. Of course many retail franchisors are thriving and do not suffer poor relationships with their franchisees. These retail franchisors have committed, proven and evolving systems, with many franchisees that are well supported.
So in today’s highly competitive retail franchise environment success depends on swift management decisions and solid relationships. When these components are missing, things can quickly become unprofitable and turn ugly.
Recent Media Stories
Let’s take look at these stories so we can highlight why the retail franchise industry is struggling at present. Some of the bigger challenges highlighted in these stories include:
Increasing competition (market share)
Several foreign-owned brands such as Starbucks, Burger King and Domino’s Pizza have expanded into the local market. While this provides a positive economic impact and gives consumers more choice, it significantly increases competition putting more pressure on established Australian brands. The battle for market share is increasing, with businesses constantly finding new ways of satisfying customers who favour value for money and convenience over price and ambiance.
Shrinking customer disposable income
As the cost of living increases due to a number of economic factors, including low wages growth, consumers are beginning to spend less. When looking at the market for each franchisee many are marginal. This is one of the biggest threats facing the retail franchising industry.
Rising supply chain costs
The weather and farming conditions has had a direct impact on food price inflation. Because of these factors the supply chain has passed on significantly increased costs for franchises within the retail sector. With consumers already struggling due to shrinking disposable income, it will be difficult for franchisees to pass on these costs to them. Other costs factors, electricity, salaries, transport and maintenance are also putting more strain on the bottom line of retail franchisees.
Falling staff morale
When business conditions are not great, some franchises often cannot afford to hire more staff or bring in temporary staff, leaving employees severely stretched and demotivated. Job security issues are also heightened during this time as some employees may fear losing their jobs. Motivating staff and constantly updating them on how the business is doing is extremely important since quality customer service goes a long way during this time.
Adapting to consumer needs
Following a tried and tested business model is no longer a guarantee for success in the retail franchising sector. Convenience and innovation in technology is increasingly becoming important to customers. Consumers now want the option of ordering meals online and getting them delivered to their homes. Moreover, there is an emerging focus on wellbeing. Consumers opting for healthier food options and preferring to patronise businesses with ethical and sustainable business practices.
How Big Is The Problem?
What we advocate for any successful retail franchise, is that the franchisor’s own network of related entities and associates should be aligned with a franchisees’ success. However, in several high profile franchise disaster stories of recent times franchisees have bought their business from one franchisor. Unfortunately following the sale of the franchise system, often a new business owner will have different motivations. In some cases venture capitalists and public companies have shareholders with different priorities at variance with the ongoing success of franchisees’ business. The retail franchise industry has suffered high profile examples of franchise systems getting into difficulties including the 7-Eleven and Retail Food Group.
The Australian Consumer and Competition Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) are responsible for regulating franchise systems. The ACCC administers Australian Consumer Law and the Franchising Code. ASIC administers the Corporations Act. Consumer Law protects franchisees that have been misled, deceived or treated unconscionably, or whose contract terms are unfair. But court actions are slow and expensive and can end in business failure.
As the business landscape continues to evolve, it presents retail franchise entrepreneurs with a new set of challenges and opportunities. Those who stay ahead of industry developments will continue to grow and remain a step ahead of their competitors. There are many important questions for anyone considering entering into the retail franchise industry. We would encourage retail franchise stakeholders to do their due diligence covering:
- Strategy & Vision
- Governance Processes
- Funding for growth
- Franchise performance
- Workforce culture
- Business Risk management
There is a better way to work relationships. As in any collaborative business partnership if there are not two winners it will not last and potentially end in tears.
If you need help with your franchise business and relationships we would love to talk with you. To discuss how to maximise the value of your franchise business call 0401767639 or email firstname.lastname@example.org. Good luck and hopefully we will not read about a scandal with your retail franchise business in the media.