THE largest franchise operator in Western Australia says the resources boom, coupled with the reluctance of banks to lend, has resulted in fewer people venturing into the sector.
Jim’s Group founder Jim Penman said that, during the past couple of years, the company had experienced difficulties in attracting ‘quality people’ to invest in a Jim’s franchise.
Two decades on from when the company started as a part-time gardening business, there are now more than 3,000 Jim’s franchises worldwide, 298 of which are in WA.
Mr Penman said that, during the past 12 months in particular, banks’ lending practices had prevented potential franchisees from buying their own business.
“It has been really difficult for people to get finance for a business and there has never been a better time to go into business because there is so much work around, it’s just the banks just aren’t lending,” Mr Penman said.
“The economic climate is very good for us in terms of work, but we’ve had 48,000 people ring up this year asking to get a job done and we’ve said ‘sorry we can’t help you we are full up’ and it’s not even the busy time.”
Mr Penman told WA Business News the increase in the number of WA franchises – from 285 in 2010 to 298 this year – was not a sufficient level of growth for the company.
“We are not growing as fast as we like at the moment, we have enjoyed continuous growth for more than 20 years and sometimes we’ve had 40 per cent growth per annum, so getting 4 or 5 per cent growth is not something to get excited about,” Mr Penman said.
In addition, he said the kind of people who would typically buy into a Jim’s franchise had been lost to the mines.
“We tend to do better when the economy is slower, because when it is booming good people are in high demand,” Mr Penman said.
“The mines are certainly a big problem because you can make so much money and they take the kind of capable people that we need.”
The second-largest franchise in WA, commercial cleaning company Jani-King, has not had any increase in its 210 WA franchises during the past 12 months, despite a low buy-in cost of between $15,000 and $45,000.
However, the third largest WA franchise, Perth-based commercial cleaner CleanTastic, experienced a growth of 23 WA franchises, to 117 in the past year.
CleanTastic master franchisor Tony Kearney said the company had managed to maintain a steady growth of two to three WA franchises per month, which he attributed largely to the service offering of the company.
“We have experienced that kind of growth over the last three years ... there is definitely a demand for the services and everyone always needs a commercial cleaner,” Mr Kearney told WA Business News.
“It’s not like domestic cleaning, where the cleaner is the first person to go.”
Mr Kearney said the more franchises a company had, the greater the chance that number would remain static.
“If you look at Jim’s, they have almost 300 franchises in WA, so the more you have, the more [franchisees] are going to cease trading,” he said.
“So when you get to a certain point, some years you may only replace the ones [franchisees] that have left ... you’re not really losing a franchise but you’re not gaining one either, so it all stays quite static.”
Despite a large number of potential franchisees being lost to the mines, Mr Penman said the service-based franchise model would continue to be popular due to its lower buy-in price and the flexible lifestyle it promoted.
In fifth spot is Chicken Treat, which was founded by Frank Romano in Perth in 1974.
Chicken Treat is owned by Balcatta-based Quick Service Restaurant Holdings, which was acquired for $450 million by private equity firm Archer Capital in June.
QSRH has grown its Chicken Treat/Chooks, Red Rooster and Oporto brands to more than 600 restaurants nationally, with more than 70 Chicken Treat franchises in WA.
QSRH chief executive Mark Lindsay said the company changed to a mainly franchised model in 2008 after experiencing management problems at a number of the stores that it owned.
“Today we are 75 per cent franchised but three years ago we were 75 per cent corporate, so we made a significant change in order to realign ourselves to a franchise model,” he said.
The strategy involved closing more than 40 underperforming stores and opening more than 100 franchise outlets.
Electrical retailer Retravision and tax franchise Success Tax Professionals are the 10th largest franchises in WA, both with 45 franchises.
STP chief executive Darren Gleeson said there was always a demand for accounting advice no matter what the economic climate.
“The whole industry is huge, the accounting tax fees Australia-wide are something like $14 billion a year; we find it is so recession proof because unlike retail, which has taken a dive, tax services just roll on,” he said.
