Australia’s transparent financial system and ease of doing business make it one of the best and most profitable markets in the world.
The most successful franchise brands are prepared to invest in initial market research and personnel to support their master franchisees in getting their first store open. By overseeing the on-boarding processes, such as identification of locations, logistics, and all the operational, training and supply chain issues that are critical to success, the best outcomes are achieved by the committed franchisors.
Potential franchisors face several challenges that are unique to the local market and should undertake market entry analysis and review before entering the Australian market. Now is the perfect time to start planning and researching your market entry into Australia, and you could quite possibly, find your international franchise influencing Australia sooner than you think!
Set out below are some practical considerations for franchisors:
1. Register your trade mark - Your trade mark is your identity! Ensure your trade mark is registered in Australia before you start to talk to prospective franchisees, master franchisees or partners. There are many stories globally of people who have gone into a market, talked to local players, and then later found that their trademark has been registered as a result of them making mention of their brand and entry intentions in that market. There is a history of companies having to buy back their own brands from opportunistic registrants as a result of simply speaking of development plans in the market without the trademark being registered.
2. Understand Australian franchising law - The franchise relationship is a contractual one where the agreement between the parties determines their rights and obligations. The regulatory code that governs the operation of franchising in Australia is known as the “Code” – Competition and Consumer (Industry Codes – Franchising) Regulations 2014. The Code is operative nationally and administered by the Australian Competition and Consumer Commission (ACCC).The ACCC is Australia's competition regulator and national consumer law regulator. The Code applies to all franchise agreements operating in Australia; regardless of whether the agreement refers back to the law of the franchisor territory. The legislation dictates what is considered to qualify as a franchise relationship.
3. Understand your competitive differentiation - Do a competitive analysis to understand your competitors. There are many failed international franchise operations who underestimated the degree of competition and the degree of sophistication in the Australian market, especially in the food service business. Many business sectors in Australia are very sophisticated, so you need to understand how your brand or business model will differentiate itself in the marketplace and compete with incumbents. Businesses that cannot differentiation their model have little chance of success.
4. Understand labour costs - Determine how labour costs are going to impact your operation. There is no doubt Australia has a high cost of labour, with additional “hidden” costs such as payroll tax, superannuation and penalty rates creating a major impact on operating expenses in comparison to many other countries. Operationally, if you are coming from a market with relatively modest labour costs, you might find that your business won’t be as efficient in Australia, or it will be much more expensive to have the same labour hours as you might have on a roster that you operate with in your home country.
5. Understand occupancy costs and conditions - Australia has very high occupancy costs. A considerable amount of retail and foodservice revenue is generated through shopping malls which offer retail, foodservice, and entertainment precincts anchored by major supermarkets. High traffic street-side strip precincts often associated with tourism and entertainment are in high demand in many cities. Good retail and foodservice locations in these higher-traffic destination precincts and shopping malls are expensive and will impact on your total operations. It is important that you understand the customer demographic needed to fit your business model, to ensure your location targets the right consumers and occupancy arrangements to meet your requirements of fit-out costs, revenue and annual occupancy costs. You may need to consider the footprint of your retail space, as occupancy costs are higher in Australia, this may change the concept and design of the retail space of the premises. As part of the occupancy negotiation process, it is worth noting that fit-out contributions from landlords as an inducement to commit to a lease term are a feature of occupancy negotiations so ensure any binding offer to lease contains fit-out contributions and rights to license or sub-lease to a franchisee.
6. Determine your market entry strategy - Determining your market entry strategy is going to be critical to your success. Consider the following;
Are you going to grant a master franchise, which will allow sub-franchising?
Are you going to grant an area development arrangement, requiring multiple locations to be opened by the one organisation?
Are you going to grant a single unit franchise and prove your concept that way?
Are you going to make a direct entry by establishing a business here to provide proof of concept?
Are you going to buy your way into the market by buying a currently operating similar competitor in the market with a view to converting the business to your brand either as a 100% acquisition or partnering with the current owner? With good due diligence it provides a fast start and low risk option and access to local knowledge.
7. Determine your city of entry - Australia has 5 large cities with little population between them. Each of our capital cities are quite different. Each one differs geographically, economically, climate wise and in terms of taste, sophistication and lifestyle. If you are coming to Australia you need to consider in which city to establish your brand, and how to establish a proof of concept and critical mass in one of those cities as quickly as possible. There are no economies of scale between capital cities, and as a result don’t try to open in multiple markets or cities; think about creating and developing the brand in one market and invest in achieving that goal.
8. Be prepared to invest - Be prepared to invest to establish a footprint in Australia. If you are serious about building the brand and network in this market, even by granting a master franchise, you will need to invest most of any upfront fees you might receive and more back into the market to support your local master franchisee or joint-venture to get your business model established and ready to scale. If you are undercapitalised and you are looking to sell a master franchise as a simple way of getting into Australia, history shows us that the vast majority who have used that simplified approach of leaving it all to the master franchisee are often not successful. In the long run it will damage the perception of the brand.
9. Engage from the outset with legal advisors and franchise consultants - It is important to invest in legal and consulting expertise. Hire a franchise lawyer and a good franchise consultant. This might sound self-serving but it’s going to be cheaper in the long run, and you will get direct in-market expertise. The reality is you will need to hire the best advisers you can in the marketplace to take you through the complexities of how to establish yourself and build a substantial brand in Australia. Manookian Solicitors has the expertise to assist with your market entry plans and provide guidance and assistance to ensure that all your legal compliance requirements are satisfied to achieve success Down Under!
Contact Rostom Manookian (e) rostom@manookiansolicitors.com or (m) +61 416 716 960
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