James Thomson Editor

James Thomson is the editor of BRW. Previously he was editor and publisher of SmartCompany and a senior editor at Business Spectator. He writes regularly on Australia's wealthiest entrepreneurs and has deep expertise in small business and the mid market.

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Here’s to the health of franchising

Published 28 February 2013 06:43, Updated 28 February 2013 11:20

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Here’s to the health of franchising

Boost Juice’s Janine Allis helped kick-start the boom in healthy lifestyle franchises. Photo: Josh Robenstone

There’s more than a little irony in the fact that after years of fast food chains making us all a little rounder, Australia’s franchise sector is riding the health and beauty boom to impressive growth.

A trend that started with Janine Allis and her Boost Juice franchise now sees a sector striving to make Australians fitter, healthier and better looking.

From Mexican food franchises such as Mad Mex Fresh Mexican Grill and Zambrero through to Botox and hair removal giant Laser Clinics Australia and eyewear group OPSM, growth is being fuelled by the potent combination of a health-conscious society and an ageing population that’s determined that it will grow old beautifully.

And then there are the gym groups. Four health club operators make the BRW Fast Franchise list in 2013, and two are in the top three – rivals Jetts and Anytime Fitness. In the space of a few years, these two businesses have revolutionised the gym sector, introducing a low-cost, 24/7 business model that is great value for customers and franchisees alike.

The convenience market now threatens to become saturated, costs are rising and no one wants to stop opening clubs.

The rapid growth of these chains has been impressive. In the case of Jetts, revenue has grown at an average of 219 per cent over the past three years to just under $75 million. At Anytime Fitness, revenue has increased by an average of 166 per cent and is now $11.5 million.

Between them, these two have almost 450 gyms and the number of such “convenience” clubs has now topped 600 across the country. Since 2008, these gyms have delivered 80 per cent of he growth in Australia’s $2.9 billion gym sector. That’s put plenty of pressure on the market’s heavy hitters, including Fitness First, which was forced sell clubs last year.

But the rising stars face problems of their own: the convenience market now threatens to become saturated, costs are rising and no one wants to stop opening clubs. It will be fascinating to see whether the rise of these groups will give way to a period of consolidation.

In the meantime, the eyes of the sector are focused on Canberra, where the federal government has recently begun yet another review of the Franchising Code of Conduct, the third since 2008.

While issues such as disclosure are always on the agenda of these reviews, the real battle will once again be over the question of whether a provision for franchisors and franchisees to act in “good faith” should be included in the Code.

Franchisee advocates say such a provision would protect franchisees when the franchisor does not renew their contract, but does not pay the franchisee for the good will they have built up.

Franchisors say that good faith is already enshrined in common law and franchisors must have the flexibility to end contracts in some circumstances.

The government has rejected the push for good faith on two occasions and may do so a third time, although the looming election means it will probably have little time to act on the findings of this review.

The Coalition is also cautious on what would be a huge change for the sector.

Thanks to Jane Lindhe for all her hard work in putting the Fast Franchise list together and Bryan Cook for a fantastic design.

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