Operating within the fast food sector, Australia’s food franchising market has boomed over the last five years, and better yet, it’s still in its growth phase.
Franchising is incredibly different in structure to other businesses: ‘operators provide branding, marketing, administrative support, training and other services to franchisees in return for annual royalties and marketing fees’.
The industry is highly concentrated, with four major players dominating the Australian pizza market, owning an estimated 95.3% of franchised pizza stores: Domino’s, EBA Pizza Holdings, Retail Food Group and Yum! Restaurants Australia.
This sector displays an inherent knack for first identifying and then capitalising on shifting patterns in consumer behaviour, namely that of health and a growing fascination with premium, quality ingredients.
Franchises that have positioned themselves as healthier alternatives to more traditional options have performed well. Gourmet and speciality pizzas have drawn consumers in, and also encouraged new players to enter the market.
When it comes to consumers of takeaway franchises, there’s one thing that’s always top of mind: convenience.
Technology and social media have become a focus and investment for major industry players.
The way in which businesses and consumers interact is radically changing, and those that capitalise on these opportunities will reap the benefits.
Domino’s Pizza certainly paved the way in this space with clever social media campaigns and smartphone and tablet applications to speed up the purchase process.
Others have since followed suit with similar online platforms. Allowing customers to order, pay and provide feedback online have proven to be major catalysts for industry growth.
This industry segment has always had (and always will) a reasonably high cost of labour. A typical pizza franchisee spends roughly a quarter "of their annual revenue on wages and associated labour costs".
While technology has helped to automate some processes, labour is still an intensive cost to franchisees. Franchising and licensing fees and marketing levies also eat into their profit margins.
This sector can require a substantial level of capital, which reduces the pool of potential franchisees considerably. One of the main capital requirements for a franchise is kitchen equipment, and this cost has grown over the last five years.
Successful franchises such as Domino’s, Crust and Subway have funded their kitchen equipment through Silver Chef to save capital, protect cash flow and avoid having depreciating equipment on their books.
As all franchisors know, business performance hangs on franchisees replicating the original business idea exactly, down to its systems, layout and equipment models.
Franchisees who assume a well known brand alone will guarantee a profit are making a significant error in judgement. Finding the right franchisees for your brand is pertinent to your business’ success.
With nearly 30 years of experience and industry knowledge, Silver Chef is Australia’s only dedicated hospitality equipment funder.
Article source: Silver Chef, and the Hospitality Industry Success Index Report 2015.