Franchising in Australia is regulated under the provisions of the Competition and Consumer Act 2010 (Cth). Franchisors must have a keen understanding of issues that can become problematic in running a franchise. Most franchising systems also require ongoing support services in the form of training, marketing and group advertising. While not always strictly mandated by the franchisor, most commercial franchising in Australia involves some element of control by the franchisor of these elements. A franchising lawyer can assist you understand your obligations under the Competition and Consumer Act 2010. This article examines the three broad categories of franchises in Australia.
System franchises (or business format franchising) are the most common form of franchising in Australia. Examples of industries where system franchises are most common include fast food outlets, service industries (e.g. dry cleaners and laundries) and accommodation industries. In this form of franchising, the franchisor has developed a unique or individual manner of doing business or conducting commercial processes. In these systems, the franchisor permits the franchisee to use the system in the operation of the franchisee’s business.
This type of franchising is also a method of marketing goods and services utilising a successful business format. In entering this franchise arrangement, the franchisor sells the franchisee the right to use the business format, which will usually tie the name or trademark of the business, product or service. In return, the franchisee typically pays a fee usually based on a percentage of turnover, to the franchisor for advertising and support services.
The amount of control exercised by the franchisor can range from granting only use of the trade mark and the pattern of doing business, to the ability to sell goods and services provided by the franchisor exclusively. Consequently, it is common for the franchisor to act as the principal supplier of the assorted products used in the business. Make sure your franchise agreement and supplier agreement clearly set out the obligations of both parties.
A product franchise is where a distributor franchisee acts as an outlet. Typical examples of product franchises in Australia include fuel stations, convenience stores and motor vehicle dealerships. This can be in the form of wholesale, retail or otherwise, for the products or services of the manufacturer franchisor. Under most product franchise arrangements, the distributor franchisee is granted the exclusive right to sell the product within a particular geographic market.
Processing or Manufacturing Franchise
Manufacturing (or processing) franchise systems are an arrangement where the franchisor provides technical know-how or ingredients on how to produce, manufacture or process a particular good or service. This is most common for processor or manufacturer franchisees. In Australia, processing or manufacturing franchise systems are most evident in the food and drinks industry.
One of the biggest benefits of running a franchise is that the franchisee benefits from the name, reputation and goodwill already created by the franchisor. Each type of franchise system is different, and it is important to remember every franchise agreement is different. Speaking to a franchise solicitor will assist you in understanding your rights and obligations. Call LegalVision today on 1300 544 755 – we provide fixed-fee quotes and high-quality legal advice from our team of experienced franchising lawyers.