Franchising friction

At last week’s Master of Business function at PwC, I was lucky enough to spend some time with Sarah Allen of electrical tagging and testing franchise, ATS.

As the winners of the franchising award in the Smart50, Allen is one of many in the franchising sector coming off a great year. ATS’s revenue has increased at an average annual rate of 69% in the past three years, while a recent report from PwC showed total sector revenue grew at 12% and profit was up by 18%.

Like many in the sector, Allen’s biggest problem is recruiting great franchisees – but she is perfectly poised for more strong growth.

The franchising sector’s performance during the GFC should really mean it is poised for a great few years. And yet this morning the sector’s reputation is under fire on two fronts.

The first big concern is the unfolding situation at franchise brand manager Allied Brands, which operates the Baskin Robbins, Villa & Hut, Cookie Man, Kenny Cardology and Awesome Water franchise chains.

The company is in disarray. After a series of profit downgrades and the sacking of its CEO, Allied announced last month that the US owners of the Baskin Robbins brands had attempted to terminate Allied’s Australian master franchise.

With that dispute still yet to be resolved, it has now emerged that a creditor of Cookie Man has successfully put that business in liquidation.

It’s little wonder that Allied’s auditors have been unable to sign off in the company’s accounts as a going concern.

There is a lot at stake here. Allied has more than 160 franchisees under its various brands, and right now the value of those brands is taking a hammering.

That is not a good look for the wider sector.

In addition to this, we’ve got the South Australian Government launching new legislation designed to weed out “rogue franchisors” through the creation of a specific, legislated “good faith” obligation. The Franchise Council is fighting the move tooth and nail, but they do appear to be losing this battle.

This situation is clearly less than ideal. Franchisors in South Australia will now be exposed to two sets of laws – the national Franchising Code and the state-based laws – and that may have an impact on the growth of state’s franchising sector.

We need certainty – and one set of rules – for this crucial sector.