Are big retailers and franchisors eating Ma & Pa retailers?

Small retailers are selling at fire-sale prices. Is this a time to strike while the iron is cool, or is it just that the franchise model is taking over?

With most of Australia’s more than 800,000 privately owned businesses owned by individuals or families, it would appear that the family business is alive and well.

But a recent report from IBISWorld on the franchise industry reveals that the world of small business is frontier country for the franchise industry.

According to the IBISWorld research, the franchise industry will continue to grow at double digit rates for at least another decade, and by that time it will account for 20% of the retail industry.

With the top five retailers already accounting for over half the retail dollars (the new Wesfarmers is expected to account for 22% of the retail dollar) there is not a lot of space left for the nearly 200,000 other retailers to compete in.

Perhaps this is why even with strong retail trade figures and consumer sentiment, small retailers are selling at fire sale prices (see BizExchange Retail Businesses for Sale for some examples).

The key question for would-be retailers is whether they should take advantage of these historically low prices, or jump on the franchise bandwagon. While there is no clear cut answer to this, there are some interesting statistics to consider.

• An existing business is 10 times less likely to fail than a start-up.
• A franchise is 2.5 times more likely to succeed than a start-up.
• The majority of franchise agreements are for five years.
• Nearly 80% of franchisors have franchisees that have failed.

Another thing for business owners to think about in this changing world is whether converting your business to a franchise (as a franchisee or franchisor) should be considered as part of a longer term exit strategy.

It would be interesting to hear your thoughts.

Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. BizExchange has a directory of independent advisers and business brokers and information on valuations

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