It was a shaky 2008 for franchise businesses but this year could be even worse, a leading academic warns.
As administrators and franchisees pore over the wrecks of last year, such as Midas, EzyDVD and Kleins, those considering entering the $128 billion-a-year industry should be more careful than ever, according to Frank Zumbo, an associate professor at the University of NSW’s school of business and taxation.
Car care company Midas is the latest franchisor to go into administration. The franchise, which has 11 stores in WA and is part-owned by former Coles boss John Fletcher, will be the subject of a creditors meeting in Melbourne this week.
Mr Zumbo said as economic conditions worsened, more franchise systems would be under pressure, or fail altogether.
“Undercapitalised franchisors needing finance to survive or grow will be the hardest hit, as will those franchisors that relied on cheap credit to expand,” he said.
Aggressive expansion plans were a “recipe for disaster” if consumer spending continued to fall, and if franchisors cut corners on franchisee selection and training, Mr Zumbo said.
However, some franchises are pressing ahead. Continue reading.