A new survey of conflict management issues in the franchise sector has revealed an extraordinary level of distrust between franchisees and their franchisor, with 28% of respondents claiming they cannot count on their franchisors to be honest with them.
The survey of 345 franchisees –undertaken by the Griffith University’s Asia-Pacific Centre for Franchising Excellence and backed by the Australian Competition and Consumer Commission –examined the level of research franchisees undertake prior to entering a franchise agreement, and the relationship between franchisees and franchisors.
While Australia’s $125 billion franchising sector is growing strongly as the economy recovery gathers pace, the survey suggests there are some fundamental problems with the level of trust between franchisees and franchisors.
Asked whether they can count on their franchisor to be honest in their dealings with them, 28% of franchisees disagreed or strongly disagreed.
A staggering 30% said they could not rely on their franchisor to keep their promises, while 30% also said they could not trust their franchisee to “do what is right”.
Professor Lorelle Frazer, lead researcher and executive director at the Asia-Pacific Centre for Franchising Excellence Director says she is not surprised by the survey findings, which largely confirms previous research on the level of conflict in the sector.
“We know that conflict exists in any business relationship, particularly in a franchising relationship. If that conflict sits and festers it can ultimately become a dispute, so our attention was to look at what was causing the conflict.”
Frazer says the key to reducing the level of conflict is better communication; 36% of respondents said communication in their franchise system was not prompt and timely.
“It’s down to communication. The communication style of the franchisors can either alleviate that conflict or make it a bit worse.”
“Getting it out in the open early and really trying to resolve the issue quickly is important. Some franchisees feel the franchisor is remote, particularly in a big system. “
The problem of managing franchisee expectations prior to franchises signing a franchisee agreement also needs to be addressed.
The survey showed 18% of respondents said their franchisor “withheld important information” prior to the signing of the agreement, with 20% saying they had “no idea” of what they were getting into when they bought a franchise.
Frazer says franchisors and franchisees need to work on pre-entry education, to ensure franchisees make an honest appraisal of how becoming a franchisee might affect their lifestyle and financial position.
“We know that a lot of people go into franchising with their eyes wide shut. Sometimes the prospective franchisee only sees what they want to see and franchisees need to avoid entering the franchise with unrealistic expectations. “
“The onus is really on the prospective investor. Most franchisees are first time business owners, so they can be very naive and inexperienced.”
However, Frazer admits that figuring out how to get more prospective franchisees into education is not easy.
“While there are people who are prepared to paid $50,000 or $200,000 on a franchise, they are not always prepared to spend on due diligence.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
