Written on the 16 July 2009
More than 400,000 Australians are employed by a $160 billion franchise sector that is holding its own despite the crash and burn sentiment in the Queensland economy.
GOLD Coast entrepreneurs are duplicating the franchise trend with big brands such as Baskin Robbins, Donut King, Brumby’s Bakeries, Cookie Man, Espresso Essential, Hydro Dog, Zarraffas Coffee and Bartercard stamping national and international presence.
While several high profile franchises have collapsed — think Kleenmaid (owing $102M), Samsara, Strathfield Group and Kleins — franchising in Australia represents a dynamic small business sector that contributes around 14 per cent of the country’s national GDP.
South East Queensland is now a major contributor to the industry, equating to 28 per cent of Australia’s franchise system. On the Gold Coast, new service franchisors are arriving on the scene to create their own luck in retail and service-related industries.
The sector has faced close government scrutiny too. Not surprisingly, franchisors view the next 12 months as challenging, but conservatively estimate that sales and profitability will remain constant despite employment surging.
She is a member of the International Society of Franchising, which meets annually to debate worldwide franchising issues. Frazer urges prospective franchisors to exercise due diligence in the current climate.
“We have seen some examples of franchisors offering new franchisees incentives such as no fees upfront. Generally when unemployment is on the rise, we seen an increase in the number of people investing in franchises. There is always risk, but people don’t know what else to do.”
Mike Koolen knew exactly what to do. The Espresso Essential founder will increase growth by 25 per cent this year after brewing $20 million in revenue last year. Listed in BRW’s fast 100 in 2008, the company has catapulted onto the international stage with franchises in Australia, New Zealand, UK and Singapore. China is next, but it’s at home in Australia where domestic sales generate 80 per cent of revenue. There are now 40 franchisees and eight master franchisors managed by 16 head offices, including Tasmania.
Founded by Mike and Gayle Koolen in 2001, the business began in a garage, selling coffee machines and products from the boot of a car with start up capital of $5000. Koolen, who left the brand manager Retail Food Group in 1997 to set up Essentially Coffee, is confident — and with good reason. Export opportunities are about to be seized in China and deals with several NRL clubs are imminent.
“Our machines have five blends of coffee and hot chocolate is a major part of the business. Essential Coffee machines are now prominent in BP service stations following an agreement with BP Reliance.
Espresso Essential is setting a frenetic franchising pace with 45 coffee vans Australia-wide and service and installation services increasing by the day.
“We are the perfect model. It is very sales driven but it sorts the wheat from the chaff. A lot of people hate having to go out and have to sell a product. But overheads are low, there’s no rent and no wages. We’re quite liquid, own our stock and we have cash,” concludes Koolen.
Beware the ex
“Changes to the Franchising Code of Conduct mean ex-franchisees have more power than ever to influence the future success of a franchise system, with franchisors now required to disclose contact details of former franchisees.”
“Understandably, franchisors have been more focused on providing prospective franchisees with the technical skills required to run the franchise business to explore additional training programs in core business skills, like record keeping, financial management (such as cash flow and budgets) and negotiation.”
Shugg says that it’s time for franchisors to accept the broader responsibility that comes with their role as business advisors.
The expectation is that the franchisee will have an accountant or advisor to help them with these day-to-day business management issues. Unfortunately, this is rarely the case.”