What is franchising?
Franchising in Australia is among the most dynamic and progressive business sectors in the economy. It is a recognised and reputable way of doing business in Australia.
According to the Franchising Australia 2016 survey, there are now an estimated total of 1,120 franchise brands (franchisors) operating in Australia. With close to 80,000 franchisee businesses, the franchise industry employs more than 470,000 people across the country and has a sales turnover estimated at $146 billion.
“Franchising” is used to describe a number of business models, the most commonly identified of which is “business format franchising”. But there are other models which are also dependent on franchise relationships. These include:
Retailer-Retailer: Where the franchisor markets a service, or a product, under a common name and standardised system, through a network of franchisees. This is the classic business format franchise.
The business format franchise, however, differs from product and tradename franchises through the use of a format, or a comprehensive system for the conduct of the business, including such elements as business planning, management system, location, appearance and image, and quality of goods.
Standardisation, consistency and uniformity across all aspects are hallmarks of the business format franchise.
Business format franchising is today the fastest-growing segment of franchising and has spread to virtually every sector of the economy in Australia. It has significantly more franchise systems, more outlets, more employees and more opportunities than product and tradename franchises.
Business format franchising requires a unique relationship between the franchisor (the owner of the system) and the franchisee (the owner of the individual outlet), which is commonly referred to as a “commercial marriage”.
This ongoing business relationship includes the product, service and trademark, as well as the entire business concept itself from marketing strategy and plan, operational standards, systems and formats, to training, quality control and ongoing assistance, guidance and supervision.
In short, it provides small business (the franchisee) with the tools of big business (provided by the franchisor).
The “commercial marriage” between franchisor and franchisee is ultimately a legal relationship, with the full obligations and responsibilities of both parties outlined in a highly detailed franchise agreement. This commercial contract varies in length and conditions from one system to the next, such that it would be almost impossible for any two franchise systems to have identical agreements.
By nature of the relationship, the franchise agreement will be imbalanced in favour of the franchisor, as the franchisor must at all times remain in control over certain standards critical to the ongoing success of the business format.
Source: Franchising Australia
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