Around a decade ago a new term starting creeping into the electrical appliance vocabulary: franchsing. Until then Harvey Norman installed 'proprietors' into its stores, and independant groups such as BSR had 'members'.

But now the term 'franchisee' is fairly common within the industry, although the exact intepretation may depend on individual contracts. In the recent IBISWorld newsletter, owner and leading Australian analyst Phil Ruthven gives an update on the state of the Australian franchise industry revealing some positive statistics that may give a retailer thinking of making a change, some hope.

According to Ruthven, the opening of the first franchised McDonald's outlet in Australia in the early 1970s marked the formal beginning of the Franchising industry in Australia. Forty years on, the industry has about 1,200 franchisors and nearly 90,000 franchisees.

Strong yearly growth

The number of franchise operators has grown by an average of 6.1% a year over the past five years and the number of franchisees has grown by a yearly average of 6.8%. Australia now has the greatest number of franchises per capita, with three times as many franchises per person as the United States.

Revenue for the industry is derived from the production of goods and services under a franchise licence and from franchise fees paid to the franchisor. IBISWorld estimates that franchise fees alone will account for about $12.3 billion in 2009-10. With the addition of revenue from the sales of goods and services, total industry revenue over the past five years is estimated to have increased from $138.09 billion in 2004-05 to $171.0 billion in 2009-10.

The total market share of the four largest players in the industry is less than 4%. McDonald's Australia has approximately 85,000 staff members in 780 stores. About two-thirds of these stores are franchised, while the remaining are company owned. KFC and Pizza Hut are subsidiaries of Yum! Restaurants Australia Pty Ltd. The company operates about 600 KFC stores in Australia and New Zealand, of which over two-thirds are franchised. Pizza Hut operates about 325 stores in Australia, of which about 80.0% are franchised.

Retail Food Group is regarded as one of the largest retail food franchisors in Australasia, operating the franchise systems to Donut King, BB's Cafe, Brumby's Bakeries and Michel's Patisseries. The company operates about 1,000 franchised outlets across Australia. It also has five outlets in China.

Influx of retail trade players

While fast-food franchises were the first and remain the key players in the franchising industry, in the 1990s they were joined by an influx of retail trade franchises. Now the nature of the industry is changing again, with service-based franchises growing the fastest.

Service-based franchises include travel agencies, domestic and industrial cleaning, and gardening services. Demand for these services has been fuelled by rising disposal incomes; time-poor, cash-rich consumers; and growth in the number of women returning to the workforce.

At the same time, the new franchisees to provide these services are baby boomers approaching retirement age who want to increase their savings, retirees wanting to re-enter the workforce and people seeking the flexibility of being their own boss.

Franchised businesses are relatively affordable, with total median start-up costs for a new franchised outlet at about $100,000. The majority of initial arrangements are for a fixed term, most commonly five years.

However Ruthven notes that it's not all smooth sailing. A growing number of businesses with aspirations of franchising their business model have experienced difficulty in attracting suitable franchisees and securing affordable retail sites. Contract disputes between franchisor and franchisees have been met with a series of government reviews and ongoing consultation regarding the Franchising Code of Conduct.

Despite these hiccups, IBISWorld expects the number of franchisors to grow by about 3.9% a year to 2014-15. An they note that these new entrants are just as likely to be washing dogs and clothes, as entertaining children and pampering consumers.