Did you know that Mark Knopfler’s song “Boom, Like That" released in 2004, was written about the true story of how Ray Kroc discovered the original McDonald’s milkshake store in San Bernardino California?
Ray saw the volumes of kids lining up for milkshakes and pitched the idea of franchising to the McDonald brothers, bought them out and as we know the rest is history!
Ray was known to be ruthless, with lines like: "If any of my competitors were drowning, I'd put a hose in their mouth and turn on the water."
Which is my segue into the latest in food and franchising in Australia: what is happening here? What are the latest stats and trends, and where is franchising heading generally?
The Good, the Bad and the Ugly
7-Eleven is in the media for taking back profitable stores from franchisees without paying them any compensation or goodwill, leaving franchisees who worked for 10 years in the system with nothing at the end.
Sounds cruel and unfair — but the Franchisor says it has acted within its legal rights.
The driver seems to be that the company is moving more to corporate-owned stores rather than franchised stores, following the 2023 acquisition of 7-Eleven Australia by its Japanese parent company and their plans to transition Australian stores to the Japanese konbini convenience model.
I could write a whole article on this issue alone, but the reality is it is a timing issue for these poor franchisees who signed their franchise agreements under the old Code provisions which gave them little to no protection.
Even though under the new Code franchisees have better protection, it does not necessarily prevent a franchisor from deciding not to renew or extend the franchise term. Franchisees still need to show that the franchisor has not acted in good faith — for example, rejecting a proposed new franchisee for no valid reason.
Under the new Code changes, franchisors are prohibited from enforcing a restraint of trade clause if the franchisee requests a renewal or extension and the franchisor refuses.
The new Code provisions were aimed at addressing “churning” — where a franchisor forces a franchisee out and then resells the business and make a profit at the expense of the outgoing franchisee.
The lesson here for franchisees going into any franchise, is to ensure you do have options to exercise further terms under your agreement, in order to preserve your goodwill and your ability to sell your business as a going concern.
I believe the affected 7-Eleven franchisees do have some equitable arguments as to the franchisor’s breach of good faith, making an unfair profit from their actions (aside from contract law) and unconscionable conduct — but as is often the case, it is difficult to take on a mega wealthy franchisor.
The times they are a changin’ (thanks Bob)
We are all adapting to a new world order with inflation, higher interest rates, cost-of-living pressures, the new Franchise Code, AI’s impact on business generally and changing consumer tastes.
The new Franchising Code of Conduct (Code) kicked in on 1 April 2025, with tougher compliance around:
franchisor disclosure of capital expenditure,
compensation for early network changes, and
greater scrutiny from the ACCC.
Consumer spending has been impacted, and the hospitality sector has been hit with higher interest rates and inflation impacting many restaurants and venues. Many do not operate on a Monday or Tuesday to save on overheads.
The QSR (Quick Service Restaurant) sector has largely maintained its composure through use of technology and the ability to reduce staff levels and costs.
Overseas brands such as Wendy’s and Firehouse Subs have entered the market, with a number of new local brands offering specialist cuisines such as Indian, Vietnamese Thai, and other Asian brands establishing a local footprint.
Consumers are eating out less frequently but spending more per visit. The cost of eating out has increased significantly so businesses have had to attract customers with special packaged meal and drink offers and "happy hour" promotions.
Who would have thought you could charge $34.00 for a pizza or a spag bolognese!
Social media and Google
Who would have thought these reviews can make or break a business and influence customers decision-making.
One bad experience and a few bad reviews can destroy a business, so for franchisors and franchisees, maintaining quality standards and value is the key to remaining viable and attractive.
Consumers are still looking for that hidden gem where the balance of good quality food at a reasonable price will attract positive reviews.
Creative menus are also attracting younger consumers, where they can create their own Poke bowls or pasta dishes.
The QSR sector needs to show they are environmentally aware and focussed, rely on automation and offer healthier and more innovative food choices.
Asian influences and regional Indian cuisines seem to be carrying the new wave of franchise offerings.
Some statistics
The market size of the Franchise sector in 2026 in Australia is $179.5bn with over 1,343 businesses in the sector with a CAGR of 1.9% between 2021 and 2026. Although it did decline around 2% over the past 5 years, it is expected to grow over the next 3 to 5 years.
The company holding the most market share in the franchise sector in Australia is Metcash, with a foothold in many brands in the food, liquor and hardware sectors.
Food and QSR franchises remain one of the most popular business investment options in Australia.
There are still many attractions for a franchisee, instead of having to build a brand from scratch, as a franchise system will provide:
an established brand;
operational systems and training;
proven menu concepts; and
marketing support.
These reduce the risks of starting an independent business from scratch.
How to select a good franchise
So many systems and so little time! - advertised on-line directly, or on social media by brokers and consultants, all spruiking the best system and great returns.
Things to look out for:
An existing popular system that has an established brand is generally lower risk.
Being a pioneer in a newer brand, system, or food category is a greater risk as you will be testing the market with the franchisor.
Selecting a QSR franchise will generally involve a lower upfront capital cost and ongoing operational costs as opposed to a full-service restaurant.
QSRs generally offer more acceptable working hours than a restaurant.
Look at the trends in your local shopping centre and neighbourhood: which venues are full and which ones are empty? What is the local demographic? Who will be your customers?
Healthy fast-casual dining with packaged deals and home delivery menu concepts.
Franchises operating in high-demand categories often experience more stable customer traffic.
Franchises that offer efficient kitchens, streamlined menus and structured training systems allow franchisees to operate their stores without needing highly specialised chefs, which helps to reduce costs.
Investors look for franchise brands that are still expanding, or brands in early or mid-stage growth phases into which they can invest and grow the system through marketing, systems development and innovation.
Should I buy an existing franchise or go into a new ‘greenfield” site?
Buying an existing franchised business
The great benefit of buying an existing franchised business is that from day one you have revenue coming in the door, which hopefully means you need less working capital for the first 12 months of operation.
It also generally means paying an element of goodwill and therefore a larger outlay than a greenfield new location.
The key things to look out for when buying an existing franchise are:
The Lease
What is the lease term and how does it fit with your franchise term?
Who will hold the lease — you or the Franchisor?
How much is the security deposit that needs to be held by the landlord?
Rent reviews: many leases provide for annual CPI increases which now favour the landlord. Fixing an annual 3% or 4% increase means you can budget for those increases.
Plant and Equipment
– Is the equipment fit for purpose and functional, as the cost of upgrade or replacement can be expensive.
Refit or rebrand
– Check if the franchisor or the lease requires you to refit the premises or rebrand shortly after you buy the business, as again, that can be a substantial extra capital cost.
Establishing a new greenfield site
The benefit of establishing a new greenfield site is that you have the latest fit out and you may be able to negotiate a reduced rent for the first 12 months. But, it may pose a greater risk than buying an established franchise as you have to build the business from scratch.
This may require you to have greater working capital for the first 12 months of operation.
Franchisees should weigh up the option of taking up a new franchise system or buying into an established system and seek appropriate financial and legal advice.
New players in the market
There are many new brands and systems local and from overseas entering the market.
We have seen many cycles and trends over the years in franchising: the Pizza era, Chocolate and ice creameries, Coffee franchises, Burgers, Chicken, Bubble tea, Childcare (Early learning) and Aged and Home Care Services (now on offer).
This reminds me of the time when it was all about Pizzas and my article “How many pizzas can one country eat?” Quite a lot apparently.
Now it could be an article on “How many Bubble Tea franchises can one city have”?
Burgers and Coffee: still going strong
We continue to see increased competition and new players in the burger sector with an increase in plant-based burger chains and also some new “boutique burger” brands such as Huxtable and Betty’s.
And we still have a love affair with coffee. We love our coffee — whether it’s from a café, a van or a hole in the wall ... but it must be good coffee!
Choosing your franchise: lifestyle, skill set and exit plan
For new franchisees we recommend that you look at a franchise that suits your lifestyle and skill set.
Think about the exit plan before you go into the franchise – will you be there for 5 years or 10 years? What will you have to sell at the end?
Every franchise has a “life span” after which the franchisee will want to sell or exit — and once you are in a franchise, there are only limited options to exit the system.
Make sure you can take a reasonable salary out of the business as you go, as there may not be any large capital gain or profit at the end.
So do your cash flow analysis before you commit, and get financial advice to make sure the business is viable and can cover your costs and salary.
if the numbers don’t work, we suggest you walk away and look elsewhere as there are many franchise systems out there.
Good News Week! (and a practical checklist)
With all of the challenges confronting business, there are still excellent opportunities for franchisees, but before you jump in, here is a checklist:
Do your due diligence on the franchisor, just as much as they do their due diligence on you.
Is it a greenfield site (which may be a higher risk than an existing site)?
Are you being offered an A, B or C grade site?
Is the Franchisor big on technology and innovation? if not, how will they compete in the market sector they are in.
Is the store fit out due for an upgrade and refurbishment?
Is the plant and equipment new or will it need replacement?
Will you hold the lease or trade under an occupancy licence.
Be clear about your budget – what can you afford?
Ensure they have adequate working capital to cover the first 6 to 12 months of operation (particularly for a new greenfield site).
Factor in rent increases and fit out upgrades in your cash flow forecasts.
Make sure the numbers work and you can take a salary for your efforts along the way.
So, you can make an informed decision and limit your risk by seeking advice from a Specialist Franchise Lawyer who is a Member of the Franchise Council of Australia (FCA) and obtain independent financial advice before you jump in!
Contact
Robert Toth I Special Counsel I Accredited Commercial Law & Franchise Specialist
Email: [email protected]
Mobile: 0412 673 757
