New battle for internet profits

Russell Emmerson
National Features
November 19, 2012

THE growing presence of online systems is raising questions about whether franchisees are receiving their fair share.

Australian Competition and Consumer Commission deputy chairman Michael Schaper says the split of online business is a building issue in the sector.

Franchisors generally retain control of an entity’s intellectual property and stand in the driver’s seat for developing an effective online presence.

This could come at the risk of franchisees, who are geographically bound by their contracts, Schaper says.

“I’m not aware of anything we have come across as yet but we need to think about it,” Schaper says.

“People wouldn’t think about it – they would look to their franchise agreement, and look for their franchise territory, what are the terms of sale, their rent, and so on.”

He says this doesn’t mean franchisees are being exploited.

“The best long-term interests of franchisors is to develop a good network of franchisees that are viable, so that’s not the problem,” he says.

“The problem is the outliers, and we may need to ask whether there is a problem.”

Griffith University’s recent Franchising survey, released last month, shows 40 per cent of franchisors are selling online and another 32 per cent are eyeing the space.

“Although it is evident that online selling is gaining momentum among franchise systems, most franchisors are concerned with the impact of online selling to individual franchisees in this new landscape,” the report says.

However, it says franchisees do benefit from direct online sales as a result (32 per cent) or a trickle-down of profits (21 per cent) or revenue (17 per cent) from online sales.

But the results also highlight Schaper’s concerns about “the outliers” – 9 per cent retain all online profits.

Franchise Council of Australia executive director Steve Wright says it is wrong to presume franchisees are powerless in the battle for online control.

“It is a business for the franchisor as well, so they are looking at what works – for the business model and what is fair,” he says.

“The contract model is not the only thing – this is a commercial relationship. The success of the franchisor and franchisee is bound, they are interdependent. You make it work for both parties.”

FRANCHISE GOING OFF ONLINE?
* Check your franchise agreement for online rights clauses.
* If you have no rights, speak to your franchisor about changing the contract so you do.
* Ask for payments to be made to the marketing fund, which results in benefits to all.
* Speak with other franchisees about their contract details.
* Talk with your Small Business Commissioner for an alternative resolution to the issue.