. The 2018 Senate Committee inquiry led to regulatory changes that came into effect in 2022; however, concerns remained about how fit for purpose the amended 2014 Franchising Code of Conduct was in ensuring fair contracts protecting franchisees and franchisors. The ongoing concerns of the federal government prompted a further review of the code in August 2023 by Dr Michael Schaper, the former deputy chair of the Australian Competition and Consumer Commission. While the ACCC and the federal minister were considering last year the amendments to the code that will begin to come into effect next month, the FCA’s voice was compromised by the association’s leadership and financial issues. In the two years between 2022 and 2024, the FCA had five CEOs and a loss of A$1.35 million for the 2024 financial year, A$900,000 of that was attributable to employment costs. The leadership shuffle straddled a critical period for the franchising sector, buffeted by the pandemic and the aftermath of the 2018 scandals involving three major national retail businesses. Mary Aldred departed from the industry body in February 2023 after five years, leaving the FCA in reasonable shape, considering the challenges confronting the association. Peter White became acting CEO after Aldred, until the appointment of Matthew Monaghan in May 2023, who then quit for “personal reasons” just 11 months later, with the government deliberating on its response to the Schaper review of the code. Tanya Robertson, a national FCA board member, filled in as CEO until September last year, when Jay Westbury was appointed to clean up the financial mess and restore confidence from members and credibility with governments, regulatory authorities and the public domain. Westbury also must help the sector navigate the updated code with higher penalties for non-compliance and an increased level of accountability, including a possible liability for franchisors if a franchisee doesn’t have a fair return on investment. The new code also provides for compensation in certain circumstances when a franchise is terminated, including when a franchisor withdraws from the market. Westbury is backed by a new chair and deputy chair, CouriersPlease Australia CEO Richard Thame and Just Cuts CEO Amber Manning, respectively. They were elected at the FCA’s annual meeting last November, a meeting apparently reflecting the frustration of the association’s 327 members, with just eight attending in person and 15 more online. The annual report for the 2024 financial year narrowly passed, amid discontent and even anger at the A$1.3 million loss that forced the FCA last October to agree to make monthly A$10,000 payments to acquit an Australian Tax Office debt of more than A$190,000. The association’s auditors, DFK Collins, warned there was a material uncertainty that may cast doubt on the group’s ability to stay afloat. Westbury’s immediate focus, and the FCA’s new national board’s, has been to stop the bleeding in the association’s finances, which have slashed reserves and the value of its assets. Thame has told members that cost-containment measures have been implemented and with membership renewals and other initiatives, a balanced budget is expected to be achieved by June this year. Westbury must also try to rebuild a declining membership and cure disenchantment with the direction of the FCA under Monaghan, along with a belief that the association has been found wanting in its crucial advocacy role. The declining membership reflects network consolidation in the sector as well as a levelling off in new systems with investment potentially exploring new business models, including online platforms. Franchising’s uncertain future Franchising has been around for a long time and does undoubtedly have its success stories but it is uncertain that retail franchising systems can survive in their current form. At the very least, retail franchising systems are likely to become much less lucrative for franchisors who are unlikely in the future to be able to obtain the level of franchise levies, marketing fees and even product supply charges they have received in the past. Moreover, they will face more risk under the revamped code if they become liable for compensation claims by franchisees on termination of agreements or on any system restructuring they believe is necessary to adapt to changing markets. Operating costs associated with the tightening of regulations and legislative provisions to ensure the appropriate governance and accountability for systems are already affected by the 2022 legislative changes and will no doubt increase with the revamped code requirements. Franchisees will face higher costs but the impact on franchisors will be much greater and is likely to deter investment in new retail systems and in expansion of existing systems. The franchise business model can work well for service businesses, which in many cases have low ingoing costs and provide a customer referral facility that shows a clear and direct value for the fees. Retail franchises are an entirely different matter, as they involve high entry costs for the franchise rights, store fitout costs, rent and occupancy charges for tenancies, inventory carrying costs, and hefty wage bills resulting from extended hours trading in most locations. Franchisees have to spend much longer hours managing a retail business than investors in other types of franchises and many are, in effect, working for a low return on investment after meeting operating costs and paying the various levies franchisors charge. The other big difference for retail franchises, compared with service franchises, is the level of exposure to online competitors. A franchisee’s need to adapt to their defined market characteristics – and match the offers of online competitors – is increasingly a major challenge for retail franchisees. The revamped code of conduct will increase the pressure on franchisors in selecting sites and franchisees because judgement errors could trigger hefty compensation claims. The new Franchising Code of Conduct coming into effect from April 1st aims to create a fairer playing field for franchisors and franchisees by addressing a perceived power imbalance. However, the revamped code is likely to deter investment in franchise models in retailing, if not across all industries. Westbury and the Franchise Council of Australia may well be overseeing further consolidation of the franchise sector and a shrinking share of the economy in the years ahead. The internal issues of the FCA over the past two years have certainly not helped the cause.