Calls for franchising sector inquiry gather steam, but should it only focus on the “negative stories”?

The prospect of a parliamentary inquiry into Australian franchising will be back on the table next week, but those familiar with the sector say it will only help the system if the good examples of franchising are also featured in a review.

Fairfax reports Nationals Senator John Williams is set to move a referral next week to hold a joint parliamentary inquiry into the franchising sector after numerous stories of problems in the sector that have left franchisees in dire financial straits. 

Senator Williams has reportedly been working with Small Business Minister Craig Laundy on the terms of reference for the inquiry, which would focus on the effectiveness of the franchising code, as well as rebates and fees that flow through to franchisors through franchise arrangements.

According to Fairfax, Williams and Laundy met last week with franchisees from organisations including Retail Food Group, as well as representatives from the Australian Competition an Consumer Commission and Australian Securities and Investments Commission.

When contacted by SmartCompany, Laundy confirmed he had worked with Williams to draft terms of reference for the inquiry after hearing stories of some Australians’ “challenging experiences with franchising”.

“I will be interested to look at the findings of the inquiry and if there are improvements that can be made,” Laundy says.

“Senator Williams is a champion of small businesses, a passion I share with him. I support his efforts to ensure franchisees are given every opportunity to prosper.”

But while there is a broad consensus that unscrupulous operators and problematic business models should be removed from the system, not all those who work in the franchising sector agree that an inquiry is a bulletproof solution for fixing the sector.

Chris Levy, who founded the organisation now known as the Franchise Council of Australia and spent decades managing franchises, including as chief executive of Pizza Hut in Australia, says he would support a parliamentary inquiry into the sector, but only if it acknowledged that franchising can be a strong business model if executed properly.

Levy told SmartCompany a review would only work if politicians “widen the scope from coffee shops” and into the hundreds of businesses that use franchising well, including those successfully operating maintenance businesses as franchises, for example.

He also believes a review would only work if “as well as franchisors, they get some happy and contented franchisees to give evidence — franchisees from some of the real estate chains, from business-to- business companies, paint stores and so on”.

“You only ever hear the negative stories”

Other business operators in the franchise space say the trouble with the recent coverage of Australia’s franchising sector is that the bad news stories are never presented in context.

Alan Payne is the director of franchising operations for Australia and New Zealand for “no dig” pipe repair business Nuflow. He has worked in franchising for 30 years and believes that “when you look at business success rates under franchising, the failures are lower” than when small business owners go it alone.

Nuflow, which appeared on 2016’s Smart50 Awards list and generated $3.5 million in revenue in 2016, is currently looking at converting all of its licensees into its franchise system, believing this will present the best opportunities for growth. Nuflow currently has 45 franchisees across Australia and New Zealand.

When it comes to the idea of a franchising inquiry, Payne believes the government should be looking at businesses that have worked well under a franchising model, in order to determine a best practice system.

He also believes any conversations around compliance in the franchising space should be compared to trends among businesses that are not franchised, to get a better sense of the space overall.

“When we have these conversations, we should be looking at the behaviour of the franchising sector and asking how does that compare to other, non-franchising sectors. We’re [the franchising sector] so highly regulated, we are very heavily regulated already,” he says. 

Senator Williams has been calling for an inquiry into franchising since late 2017. In December, executive chairman of the Franchise Council of Australia, Bruce Billson, told SmartCompany that while it’s not yet clear what such an inquiry into franchising will look like, the organisation is always “happy to engage constructively with politicians, government agencies, opinion leaders and the franchise community”.

Meanwhile, legal experts have said that class actions within the sector, or wide-scale reviews of it, might not be enough on their own to secure reparations for those who have been burned by the system.

While franchising can work well as a business model when the right controls are in place, other commentators, like franchise consultant Howard Bellin, have told SmartCompany the problem lies more in the fact that in Australia, there is little incentive for the more problematic franchisors to change their ways.

*This article was updated at 3pm on Tuesday, March 13 to include comments from Small Business Minister Craig Laundy. 

NOW READ: Can you ditch a franchise agreement? Retail Food Group claims lead to legal warnings on franchising