Franchising 101: What is a franchise business?

FAQs: February 17, 2020

What is a franchise business

Australia’s franchising sector is big, and it’s only growing. According to the Franchise Council of Australia, franchising is a $182 billion industry.  There are around 1,160 different franchise systems across the country, and almost 80,000 franchised businesses employ more than 500,000 people. 

But what IS a franchise business and how does it work?

The definition of a franchise business

In simple terms, a franchise is a way of doing business. The franchisor owns a trademarked business formula, which they offer for sale to another entity (the franchisee) to run a business. 

The Australian Government defines franchising as a business model that, “… allows a business to operate under the established brand of another business. You (the franchisee) can sell their products and/or services for a specified period in return for payment to the franchisor.”

So, what does this definition actually mean?

While you own your business as a franchisee, you buy the rights to use the franchisor’s brand. This means that you get access to a well-recognised, trusted brand, including:

  • all brand assets like logos, slogans and packaging
  • all of the franchisor’s tried-and-tested systems and processes
  • access to an established, loyal customer base.

So, how do you decide which franchise business is the right one for you? Start by considering which type of franchise business model suits you best. 

What franchise models are available in Australia?

There are four franchise business models that are commonly used in Australia.

  1. Manufacturer-retailer: This is where a retailer (franchisee) sells the franchisor’s product straight to the public. This is commonly seen in new car dealerships.
  2. Manufacturer-wholesaler: This model is where a franchisor licenses the franchisee to manufacture and distribute their product. Soft drink companies use this model with their bottling arrangements.
  3. Wholesaler-retailer: In this model, the franchisee retailer buys products from a franchisor wholesaler to offer for retail sale. You’ll see this type of franchise agreement in action in places like your hardware or automotive parts store.
  4. Retailer-retailer: This is the most common model and is what you probably think of when you hear the word ‘franchising’. It’s where the franchisor sells their product or services through a network of franchisees who all use a common name and a standard set of systems and processes. This model is used in all kinds of sectors, from Quick Service Restaurants (QSRs, like us here at Red Rooster) to lawn maintenance. 

The Red Rooster franchise business model

Red Rooster is a retailer-retailer franchise model, which is also often called “business format franchising”.

What makes the retailer-retailer model most stand apart from all the other types is that franchisees must comply with their franchisor’s guidelines as they run their business. 

Some of the main restrictions you’ll come across include:

  • where you can locate your product or service 
  • the image of your business
  • the quality of the goods you offer
  • how you run your business.

The franchisor needs to enforce these restrictions to protect their brand integrity and keep their customers’ experience consistent across every store, regardless of location. This means that ultimately, their guidelines benefit both the customer and the franchisees.

Why should you consider a franchise business?

There are many advantages to buying a franchise business that you simply don’t get if you set up an independent small business. These include:

  1. Power of a big brand. Brand awareness is one of the main reasons to buy into a franchise business. Customers already know and trust the brand, so franchisees have an existing following from the day their store opens.
  2. Established business model. You’ll get to use a proven business model. The franchisor has already done the hard yards of working out what products, pricing, systems and marketing works. You just have to follow their formula to a T to increase your odds of success.
  3. Easier financing. Because of the higher success rates of franchise businesses, financial institutions are generally more inclined to lend you the money to get started.
  4. Established commercial relationships. Your franchisor has already established relationships with suppliers and distributors, and negotiated the best deals with them. You can leverage these relationships, and enjoy lower costs due to the franchisor’s collective buying power.
  5. A whole team of experts. A professional franchisor offers you a great deal of support to set you up for the best chance of success. Here at Red Rooster, we believe in ‘winning together’. That means providing new franchisees with comprehensive training before they open their doors. We’ll also help with launching the new store, and offer ongoing, day-to-day operational support after opening.
  6. Leading systems and processes. To remain competitive, professional franchisors need to continually invest in technology and innovation. This means that as a franchisee, you can access market-leading systems to help you continually deliver value to your customers.
  7. Marketing at scale. Franchisors are responsible for delivering their national marketing program. This includes everything from brand marketing and activation through to online marketing, promotions and overall customer experience. As a franchisee, you get to leverage their large-scale advertising activity, which drives foot traffic directly into your store. 

Are you ready for a franchise business?

Being part of a big brand franchise like Red Rooster has many benefits for any new small business owner. For one, it can save you a lot of time, energy and money that you’d normally need to invest in setting up a new business.

And let’s not forget that as a franchise operator, you get the best of both worlds. You can still be your own boss, while also having access to all the support and resources of a large head office organisation behind you.

Want to learn more about becoming a Red Rooster franchisee? 

Our Franchising Team will be more than happy to answer your questions.

Get in touch with them today!

  • QLD & TAS: Sean O’Connor – Sean.OConnor@craveablebrands.com – 0427680221
  • NSW & ACT: Fernanda Camerini – Fernanda.Camerini@craveablebrands.com – 0419736345
  • VIC, WA, SA & NT: Leisha Fontana – Leisha.Fontana@craveablebrands.com – 0408927750