The 7 Eleven saga and is wage cheating endemic?

7-elevenOf course there has understandably been a lot of press about 7Eleven recently – which appears to be more about franchisee employment practices than franchising per se. There are always a wide range of success and failure stories around franchising but I have found that within the well-managed franchise groups there is very little to complain about. Most franchises are well structured, well run and successful, which is why the failure rate is way below that for most small business.

For an independent view of franchising the PwC and KordaMentha franchise reports are worth referring to, as is Griffith University’s Franchising Australia Report. These show that franchising is by and large the most successful form of business. And that the scope for growth is very positive.

Yes, there have been a fair share of highly publicised franchise failures over the past few years, including Pie Face, Pets’ Paradise and Krispy Kreme, and in each case the boxes have apparently not been ticked on these items by one or both parties, and the same goes for conventional businesses such as OneTel, Gregory’s and witness Woolworth’s’ Masters nightmare.

Wage cheating occurs across the board as seen in recent high-profile Fairwork scandals involving Peter Doyle’s @Quays, The Thirsty Farmer, Mariana Markets and of course 7 Eleven. But dig a little deeper and you’ll see The Fairwork Ombudsman’s snap audits only reveal a handful of offenders.

But the vast majority of franchised businesses do it well.

As you can appreciate, success in a franchise group rests on a combination of sensible business practice from all parties, in just the same way as it applies to any business. And this is why I am so insistent that converting to the franchise model affects the whole business. You will be creating at least two businesses from the one you now have. And it is not understanding this and the responsibilities of the franchisor which is at the bottom of most of these failures.

The foundation of any franchise is good franchisee selection and due diligence, ensuring good potential profitability for all sides of the franchise, good site selection, and most fundamentally, good training and support. There has to be enough money in the formula to make sure both the franchisee and the franchisor are happily profitable and communication between both sides needs to be open and safe. Making sure this part of the equation can work is the responsibility of the franchisor. And it is in this arena I see some go wrong.

Of course, franchisees also have responsibilities to ensure they understand what they are taking on and to do their part in making their franchise outlet works. The preferred course of action prescribed by The Franchise Code is that franchisees have a certificate signed by lawyer, accountant and a business expert showing they have received professional advice. Unfortunately, some franchisees waive this, as is their right, and so basically accept the liability themselves. Franchisees saying they can’t afford due diligence it is not satisfactory – a bit like saying you don’t insure your car or pay the licence fee for the same reason.

In conclusion my long-held view is that the Australia’s government is sadly missing the chance to create a vast pool of employment opportunities that are waiting to be created by accelerating the growth of the franchise sector – for evidence look at the dynamic government promotion of franchising in countries like Singapore and Malaysia.

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