Master franchise
What it means
In a master franchise structure there are three tiers: the original franchisor, the master franchisee, and the individual sub-franchisees. The master franchisee buys the rights to develop a region and then recruits, supports and collects fees from sub-franchisees under it.
This model is common when an overseas brand enters Australia, or when a national franchisor wants a local partner to develop a state or region. The master takes on much of the franchisor's role locally, sharing initial fees and royalties with the head franchisor under a master franchise agreement.
Because the master franchisee sits between the brand owner and the operators, sub-franchisees should understand who supplies support and who they can enforce rights against. The Franchising Code's disclosure and good-faith obligations flow through these layered relationships, and a sub-franchisee's disclosure document should make the structure clear.
In practice
If you are buying into a network run through a master franchise, check the stability of both the master and the ultimate franchisor. A master franchisee that is under-capitalised or loses its rights can leave sub-franchisees exposed, so understanding the chain of agreements matters.
For an investor considering the master role itself, the appeal is scale: you earn from every sub-franchisee in your territory rather than a single outlet. The risk is that you carry recruitment, training and support obligations across the whole region, which is a much larger commitment than running one unit.
A real example
A US smoothie brand grants an Australian company the master franchise for Australia. That company opens a few outlets itself, then sub-franchises the rest, collecting a share of each sub-franchisee's royalty and remitting a portion to the US brand. The Australian company is the master franchisee.
Master franchise — FAQs
How is a master franchise different from a normal franchise?
A normal franchisee operates outlets. A master franchisee has the right to grant franchises to others in a territory, effectively acting as the franchisor for that region.
Who supports a sub-franchisee day to day?
Usually the master franchisee provides local recruitment, training and support, while the head franchisor supplies the brand and system. The agreements define who is responsible for what.
Does the Franchising Code apply to master arrangements?
Yes. Master and sub-franchise relationships are franchises under the Code, so disclosure, cooling-off and good-faith obligations apply at the relevant levels.
What if the master franchisee fails?
This is a key risk. Sub-franchisees should understand what happens to their agreements if the master loses its rights, and whether the head franchisor will step in.
See the full franchise glossary, the Fee Index or our buyer guides.