Australian & new zealand
Franchisor B u s i n e s s
VOL 02 ISSUE 04, 2013
Restraint clauses
what are the limitations?
lessons in
leadership multiply your
company’s growth
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Australian & new zealand BUSINESS FRANCHISOR VOLUME 2 ISSUE 4 CGB Publishing Pty Ltd TEL: 03 9787 8077 (AUS) FAX: 03 9787 8499 (AUS)
Franchisor B u s i n e s s
publisher: Colin Bradbury colin@cgbpublishing.com EDITOR: Stacey Evans editor@cgbpublishing.com.au
from the
SALES DIRECTOR: Vikki Bradbury vikki@cgbpublishing.com SALES and marketing manager: Kathleen Lennox kathleen@cgbpublishing.com.au SALES and marketing executive: Jodie Turner jodie@cgbpublishing.com.au SALES and marketing executive: Sarah Tarquinio sarah@cgbpublishing.com.au PRODUCTION: Joanne Tuffy production@cgbpublishing.com.au
A
Editor
s with any business, close examination from time to time helps to ensure that everything is in good working order; it identifies areas for improvement and identifies those that are working well. So with the review of the Franchising Code of Conduct in 2013, announced by Small Business Minister Brendan O’Connor earlier this year, it is hoped that the outcome will be a positive one for the franchising industry; for both franchisors and franchisees alike. In particular, the reviewer, franchise industry expert Alan Wein, is required to inquire into:
ACCOUNTS:
• good faith in franchising;
Di Mannes
• the rights of franchisees at the end of the term of their franchise agreements, including recognition for any contribution they have made to the building of the franchise; and
accounts@cgbpublishing.com.au DESIGN: Jejak Graphics (03) 9772 2571 COVER IMAGE: Chris Verebes and Ed Browne, Madgwicks Lawyers
• the operation of the provisions of the Competition and Consumer Act 2010 as they relate to enforcement of the Franchising Code. Stephen Giles, FCA Deputy Chairman, outlines the FCA’s core position on the review on page 16.
This edition of Business Franchisor is packed with advice from experts across the franchising industry. Michael Sheedy of FC Business Solutions discusses some of the recruitment trends currently in franchising, Ian Krawitz of 10 Thousand Feet tells us why customer satisfaction is the great multiply to your company’s growth, and Peter Buckingham of Spectrum Analysis covers Strategic Network Planning. Greg Nathan of the Franchise Relationships Institute gives us some tips on what makes an excellent franchisor, Griffith University’s Professor Lorelle Frazer explains why now, more than ever, franchisees need franchisor support, and Jennifer Seo of DCS Lawyers discusses the importance of protecting your intellectual property. There’s all this and much more, including profiles of the businesses that can assist you in your journey to become a successful franchise business. Enjoy the read. Stacey Evans Editor
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BUSINESSFRANCHISOR 1
CONTENTS issue 2, volume 4, 2013
On the Cover 8
Madgwicks Lawyers – Restraint Provisions – Use with restraint
19
Customer satisfaction – the great multiplier to your company’s growth
52
Lessons on franchisor excellence
Ian Krawitz, 10 THOUSAND FEET
Greg Nathan, Franchise Relationships Institute
Profiles 10 Commonwealth Bank 28 IP Solutions 38 Waivestar Group 46 Shape Shopfitters
also in this Issue 4
News Items
Announcements from the industry
45
Book review – Janine Allis, The secrets of my success
59
A-Z Directory
2 BUSINESSFRANCHISOR
8
24
40
56
Expert Advice 12 Trends in franchising
Philip Morrison, Franchise Accountants
45
16 Franchising Code Review
Stephen Giles, Franchise Council of Australia
18 Franchising New Zealand 2012 survey
Franchise Association of New Zealand
22 Lifting the franchisee performance ceiling
Jason Gehrke, Franchise Advisory Centre
24 Don’t walk away from your intellectual property
Jennifer Seo, DC Strategy
26 Could this mean death to the franchise salesman?
Julia Camm Evans, Corven
30 Effective communication
Bianca Keys, Office of the Franchising Mediation Adviser
32 Updating Disclosure Documents
Philip Colman, Mason Sier Turnbull
36 Recruitment trends in franchising
Michael Sheedy, FC Business Solutions
40 Building your franchise
Darren Wallis, G.J. Gardner Homes
42 Optimising franchisee performance
Tania Allen, Vision Alliance
48 The next generation of franchise field support
Lorelle Frazer, Griffith University
50 Strategic network planning
Peter Buckingham, Spectrum Analysis
56 The outlook for franchising
12
Michael Sherlock
BUSINESSFRANCHISOR 3
business franchisor
NEWSitems
New Organiser for Franchising Expo
NEWSER NI n A G R O ve e w o N ger! big
The Franchising & Business Opportunities Expo has new owners and they are promising to return the event to its rightful place as the pre-eminent showcase for franchisors, service suppliers and potential franchisees. The new owner is Specialised Events, a dynamic exhibition company that specialises in business events, including the popular Foodservice Australia show. Specialised Events have acquired the expo from Diversified Exhibitions, who launched it back in 1987. Managing Director Tim Collett says the show is a perfect fit with the Specialised Events portfolio. He commented, “The shows are still in great shape, but we look forward to adding a new level of energy and innovation that will deliver more business for exhibitors and information for visitors.”
Sherpa Kids A South Australian businesswoman is helping nurture a new franchise globally with the aim of providing much-needed out-of-school-hours care for children of working parents.
Ms Prout, who is also director of franchising consultancy Sherpa Group, has already grown Sherpa Kids to six franchises across Victoria, New South Wales, Western Australia and SA.
She added, “The franchising model has improved over the years and the industry is much larger than it was a decade ago. I think the shows are more relevant than ever and I look forward to introducing some new ideas that will make them even better.”
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Franchise Council of Australia Chief Operating Officer, Kym De Britt says the association is delighted that the shows have a new organiser with the passion and experience to take them to the next level. He said, “We have been closely involved in the handover and are confident this is the right move for the industry.”
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Now, in alliance with her business partners in New Zealand where the sKids concept originated in 1996, Ms Prout has just helped expand the business into Europe following a landmark deal to sell the master franchise rights in the UK.
Fiona noted, “These events are the perfect place to showcase all the different franchising options available. I just love seeing the excitement of people’s faces when they discover a new business opportunity, or an exhibitor finds a new franchisee.”
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Sherpa Kids (formerly known as Safe Kids in Daily Supervision – or sKids) was launched in Australia last year by Vicki Prout to provide in-school care for primary students before and after school and during holiday periods.
The company has appointed Fiona Stacey as Exhibition Manager. Fiona ran the show from 1993 to 2005 and will be well known to many in the franchising community. She says she is looking forward to being involved again.
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“Parents and particularly mums are under increasing pressure to remain in the workforce while raising their kids, which is driving growing demand for safe and engaging out-of-school-hours care for young children,” said Ms Prout, a former Navy officer who has since become a four-time winner of the Franchise Council of Australia’s SA Franchise Woman of the Year.
Fiona says she has been working closely with the Franchise Council and Diversified to ensure a smooth handover and added “Everyone has been really supportive and focused on a positive outcome. The show has a proud history and nobody wants to lose that.”
“Schools are also desperate for before and after school services like this where fully trained supervisors come onto school grounds and conduct fun, learning-based programs for young kids outside of normal hours.
Sydney – 14-16 June
“In less than 12 months we’ve already attracted six franchises in four Australian states and expect to double that figure this year as demand builds.
2013 Expo dates are: Brisbane – 20-21 July Melbourne – 30 August – 1 September
“We also have firm goals to expand the business internationally so to already confirm a major franchise deal in the UK is a huge milestone and certainly very exciting for the entire Sherpa Kids organisation.”
4 BUSINESSFRANCHISOR
Sydney 14-16 June 2013 Brisbane 20-21 July 2013 Melbourne 30 Aug - 1 Sep 2013
ENDORSED BY
If yo then Bus Mee free Turn
BRW releases ONE IN 10 MAKE BEE-LINE FOR NEW Fast Franchises RETAILING TECHNOLOGY list for 2013 Bedshed is forging ahead with the rollout of its via subsequent direct mail activity,” said Mr Australian-first retailing technology, installing new IT functionality in stores for the benefit of customers and the business.
Bedshed’s new in-store internet touch screen kiosks provide customers with everything from product catalogues to a virtual wish list and the capacity to develop customised PDF brochures on their desired products. The technology, first installed in Joondalup in suburban Perth, was recently introduced into the company’s first Melbourne store at Moorabbin. Bedshed Chief Operating Officer Gavin Culmsee said early indications showed one in 10 customers were using the technology to assist them in their purchasing decisions.
Franchising proves a successful formula, reaching a growing market of people who want to look and feel great.
The 2013 BRW Fast Franchises List has shown that the trend for looking and feeling great continues to hold strong in franchising. Topping the list, a new entry into the top 25, is Laser Clinics Australia, which specialises in laser hair removal, laser skin treatment and cosmetic injections. The franchise achieved an average annual revenue growth of 246 per cent over the last three years to June 2012.
“We’ve already seen a handful of customers create PDF brochures, emailing them from the in-store kiosk to home for a post-shopping collaborative discussion and decision with their family,” he said. “We expect more and more of our customers to take advantage of this technology as they begin to understand how it can improve their shopping experience.” “From a business perspective the data will enable us to market our business to customers
Culmsee.
Mr Culmsee said the technology would be offered to the company’s entire franchisee network. “It’s a decision for our network of franchisees throughout Queensland, New South Wales, Victoria, South Australia and Western Australia,” he said. The technology is part of a broader innovation push by the business, which also introduced Australia’s first online Franchise Calculator, enabling would-be franchisees to financially compare different franchised businesses (available at www.bedshed.com.au). Graham Gibson is the franchisee at the helm of the company’s newly designed and relocated store in Moorabbin. The 45-year industry veteran joined Bedshed’s franchisee team nine years ago. “Retailing is in my veins. My father was in the industry and I’ve followed in his footsteps,” he said. Mr Gibson said he expects customers to make full use of the new technology. “It’s exciting to be the first to market. No other retailer has pushed the in-store ecommerce boundaries like Bedshed has,” he said.
Also ranking well in the list are fitness franchises, with Jetts Fitness coming in second, and Anytime Fitness following in position three. Plus Fitness also made the top ten, placing in position eight. The continued success of Mexican cuisine franchises is strongly evident with three ‘fresh mex’ franchises featuring in the top ten – Zambrero (ranked 5th), Mad Mex Mexican Fresh Grill (ranked 6th), and Salsa’s Fresh Mex Grill (ranked 10th). To see the entire list visit http://www.brw.com. au/lists/fast-franchises/2013/
BUSINESSFRANCHISOR 5
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business franchisor
NEWSitems First Class Accounts welcomes founder back into the fold Australia’s largest financial support services franchise, First Class Accounts, will support growth efforts in 2013 by welcoming founder Joe Piovesan back into the business as its new CEO. Mr Piovesan founded First Class Accounts in 2000 and built it into the most successful Australian bookkeeping franchise organisation. During his 35 year career Mr Piovesan has been at the helm of a number of businesses spanning industries including retail, manufacturing, financial services, wholesaling and distribution. First Class Accounts Executive Chairman, Clive Barrett, said Mr Piovesan’s knowledge and experience would add exceptional value to the business. “Joe has maintained his enormous passion for the First Class Accounts brand,” he said. “The unparalleled support to our franchisees and level of camaraderie that exists in our network is a result of the culture Joe instilled from the company’s inception. “We see him as vital in helping us achieve our growth goals for the business this year. Joe really understands the ‘nuts and bolts’ of this business and his experience will prove invaluable when executing strategic and operational decisions.” Mr Piovesan said he was excited to be returning to the business that he started 13 years ago. “I am delighted to be making a return to First Class accounts after almost six years away from the business,” he said. “First Class Accounts has continued to flourish in the time I’ve been away, achieving above industry average growth of 22 per cent last year alone and taking on 45 new franchises in the past 18 months. “I look forward to furthering the great relationships we already have with our clients and franchisees in order to achieve our business goals for the year ahead.” Mr Piovesan successfully completed a Financial Management course at the University of New England and has a diploma of Company Directorship from the Australian Institute of Company Directors. He has been a Company Director for over 20 years as well as a long term member of the Franchise Council of Australia. available.
Nominations open for Young Retail Stars The National Retail Association (NRA) has issued a call to all retailers that aspire to be recognised as the best in their field, to prepare their nominations for the annual Young Retailer of the Year Award. Established in 1973, the Young Retailer of the Year Award is recognised nationally as the highest accolade in retail and serves to reward excellence in leadership, innovation and industry knowledge, throughout the Australian retail sector. NRA CEO Trevor Evans said this year, as the award marks its 40th anniversary, the range of competition will reflect the changes of the industry. “The retail industry is certainly evolving – with the continual expansion of online shopping, and the level of innovation required to overcome economic uncertainty – so we expect to see a diverse group of individuals in this year’s nominations that reflect this,” Mr Evans said. “The definition of a retailer is no longer confined to the role of a shop assistant – the lines are blurring and we should recognise the contribution all areas are making to encourage consumer spending and stimulate growth in our industry. “The Young Retailer of the Year Award is the Oscars of the retail industry, and just like the Oscars, the winner will be put on the world stage, joining industry leaders on Westfield’s renowned World Retail Study Tour in 2014. “Over two whirlwind weeks, the Young Retailer will be immersed in the very best that retail has to offer, across five of the most stimulating retail cities on the planet.” Entrants will be given a complimentary ticket to attend a retail Workshop, giving them the chance to network with some of Australia’s most prominent retail figures. Award Finalists will be announced on Friday, 28 June and will also receive a ticket to the NRA Gala Dinner and Award Ceremony held in Melbourne on Wednesday, 31 July where the 2013 Young Retailer of the Year will be announced. To find out more about the 2013 Young Retailer of the Year visit http:// www.nra.net.au/2013-young-retailer-of-the-year. Nominations close on Friday, 24 May.
6 BUSINESSFRANCHISOR
Optimism Builds within NZ Franchising sector The Franchize Consultants’ April 2013 Franchising Confidence Index has shown improved optimism for most key growth drivers, as reported by responding franchisors and service providers. The Franchising Confidence Index (FCI) represents the views and expectations of franchising, an important domain of business within the New Zealand economy. The FCI reports on franchisor and specialist service provider attitudes toward general business conditions, as well as key franchisor growth determinants including access to capital, suitable potential franchisees, staff and locations. In the most recent survey, franchisors were most positive about improvements to franchisor growth prospects, sales levels per franchisee, general business conditions, franchisee profitability levels, and access to financing, respectively. A neutral to negative outlook remained for availability of suitable staff, franchisees and locations, and operating costs per franchisee. The Franchize Consultants’ April 2013 Franchising Confidence Index demonstrates a general trend towards improvement in confidence across overall sector growth drivers. • Franchisor sentiment for general business conditions (at net 53 per cent) tops that indicated in recent general business forecasts, as reported in the March NZIER (23 per cent), ANZ Business Outlook (35 per cent) and BNZ (25 per cent) business confidence surveys. • Both franchisor and service provider forecasts for franchisor growth improved, with franchisors substantially increasing from 41 per cent to 58 per cent, and service providers from 61 per cent to 67 per cent. • Franchisor outlook for access to suitable locations also rose from a net negative 5 per cent to 0 per cent. Service providers were also positive (net 33 per cent). • Both franchisors and service providers reported improved sentiment in their outlook for access to financing. Franchisors relayed a substantial net increase of 15 per cent to net 28 per cent. Service providers echoed this, rising to a net 46 per cent. • Franchisor expectations for franchisee sales levels rose substantially this quarter, from a net 32 per cent to 56 per cent. • Franchisor outlook for franchisee profitability levels reached record levels this quarter, increasing from a net 13 per cent to net 44 per cent. Service providers were slightly less optimistic, reducing sentiment by net 5 per cent.
RFG proves a top choice for international franchisees Interest from new Australians in purchasing a franchise is at an all-time high, with Retail Food Group (RFG) reporting that over the last six months over 50 per cent of successful franchisee applicants were from a culturally diverse background and spoke English as a second language. The security of a proven brand, product and business model, as well as a corporate model that champions and supports cultural diversity, have been cited by potential and existing international franchisees as the number one reason for their decision to invest in an RFG franchise. South Korean immigrants and Michel’s Patisserie Helensvale franchise owners since 4 June 2012, Kevin Hyun and Young Yoh Rho said they chose to buy their franchise due to its strong Aussie brand name and excellent products. “Coming from overseas, we entered the country without a particular knowledge of specific retail food brands in the Australian market. Once we arrived, we became familiar with the strength and local recognition of the Michel’s Patisserie brand, as well as the unparalleled reputation that RFG has within the market,” Mr Rho said. RFG National Sales and Leasing Coordinator Faith Manning said the growing trend was not surprising given RFG’s strong reputation as a long standing and innovative participant in the development and management of retail food franchising systems. “We believe the rising number of immigrants expressing interest in becoming RFG franchisees is mainly due to our proven business model, which along with our excellent training programs and committed support system, is a great option for first time business owners who are new to the Australian market,” Ms Manning said.
BUSINESSFRANCHISOR 7
Cover story
RESTRAINT PROVISIONSUSE WITH RESTRAINT
By Ed Browne (Partner), Alix Osborn (Senior Associate) and Chris Verebes (Special Counsel), Madgwicks Lawyers.
R
estraint of trade covenants are commonly included in franchise agreements to protect the goodwill associated with a franchise system, and the franchisor’s brand. There is a widely held view amongst franchisors that restraint clauses will be enforced by courts as a matter of right. Unfortunately this is not the case. Additionally, in the light of recent case law it is important for franchisors to recognise the limitations of restraint clauses, and to take these into consideration both during drafting and when seeking to enforce them. This short article highlights some of the learning of the Madgwicks Franchising team in this tricky area.
Restraints generally Generally speaking, restraint clauses seek to prevent current and former franchisees from conducting business in competition with the franchise during the term of and for a period of time following the expiration of the franchise agreement. Most restraint clauses impose this obligation within a particular geographical area and for a specified period of time. What many franchisors do not realise, is that
8 BUSINESSFRANCHISOR
courts approach restraint clauses on the basis that they are unenforceable. A court will not enforce a clause that is considered anticompetitive, or restricts someone’s ability to legitimately derive income from their chosen profession. However, a reasonable restraint will be enforceable. For a restraint to be reasonable; “it must afford no more protection than adequate protection to the party in whose favour it is imposed” (Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707). In other words, if there is another way of protecting the franchisor’s interests, or the clause goes beyond what is reasonable to protect those interests, it is unlikely that the restraint will be upheld.
Onus of proof The burden will be on a franchisor seeking to enforce a restraint clause to demonstrate to the court that the restraint is reasonable. As well as considering whether a particular restraint clause is reasonable, a court will also look at the interests of the parties to the franchise agreement, and the interests of the public, in order to determine whether the restraint is enforceable.
Legitimate interest to protect? In order to enforce a restraint provision, the franchisor must demonstrate that it has a legitimate interest to protect. Accordingly when drafting the restraint, consideration must be given to the nature of the interest that the franchisor is seeking to protect. For example, where a franchise agreement contains other clauses designed to protect the franchisor’s intellectual property, a restraint clause designed to protect intellectual property alone is unlikely to be held to be reasonable. The case of EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd & Ors illustrates this point. In EzyDVD, the franchisor sought to enforce a restraint provision following the expiration of a franchise. After the licence ended, the sole director of the former franchisee commenced operation as a new retail DVD business under a different name, but from the same premises. The court considered that because the agreement itself provided a comprehensive level of protection for the franchisor in relation to its IP and confidential information (and the clauses relating to the delivery up of that material had been complied with by the franchisee), the restraint clause was not reasonably required to protect the franchisor from the possibility of the franchisee’s use of the confidential information. This was particularly so as the court considered that whatever confidential information was retained by the franchisee would be retained on a short-term basis, and was unlikely to be used in the new business. The court found that the clause was invalid as it was unreasonable. In the EzyDVD case the wording of the particular restraint clause was also problematic, as it referred to the protection of IP and confidential information, but not goodwill. Had the restraint referred specifically to the protection of the franchisor’s goodwill, the result may well have been different.
By contrast, the earlier case of Raine & Horne Pty Ltd v Adacol Pty Ltd & Ors illustrates that the courts may be willing to uphold a restraint clause where the clause is designed to protect the franchisor’s goodwill, and significant goodwill has been built up in the franchised business over a period of years, notwithstanding that the goodwill has been contributed to by a former franchisee. In this case, the franchisor terminated the franchise agreement after the franchisee converted its office to a Ray White franchise and then continued to operate a real estate business from the same premises. The court held that the franchisor had an interest in the franchise itself, over and above the revenue it derived from it. The court recognised that this interest included the right at the end of the franchise agreement to enter into a new franchise agreement with a new franchisee to take over the existing territory. The court was of the view that the franchisor had the right to exercise this ability without having to do so in the face of competition from the former franchisee operating as a Ray White franchisee from the same site. However the 2009 case of BB Australia Pty Ltd (Blockbuster) v Karioi Pty Ltd NSWSC 1089 took a much more restrictive approach. In this case, after converting his two privately owned video stores to Blockbuster franchises, Karioi de-branded the stores on expiration of the term of the franchise agreement and continued to operate from the same premises. The court held that given that the franchisee had operated a video rental business from the premises prior to becoming a Blockbuster franchisee, there was insufficient goodwill in the site attributable to the franchisor to support the restraint. The court took the view that due to the adequate protection of the franchisor’s intellectual property afforded by other clauses in the franchise agreement, the protection of the intellectual property was not a legitimate interest that needed to be protected by the restraint.
Conclusion Recent cases where franchisors have sought to enforce restraint provisions such as the Blockbuster case and others have demonstrated the increasingly narrow approach that courts have taken towards upholding restraints. It is clear that if there is not a legitimate interest to protect or the franchisor interests are adequately protected by other means, the court will be reluctant to enforce the restraint provisions. In order to avoid having to rely upon restraint provisions that may ultimately turn out to be very costly and difficult to enforce, we strongly recommend that franchisors look first to other commercial and legal avenues to protect their interests. These include: • smart system design that is difficult to replicate; • low cost supply chains and efficiencies of scale making it difficult for others to compete commercially; • ensuring that the intellectual property in the system and the brand is unique and properly identified and protected other than by way of restraints; and • maintaining control over the business site where the franchisor does not hold the lease via a step in rights with the lessor. If on the other hand it is the intention to rely upon restraint provisions they require careful consideration and drafting from the very outset if they are to have any chance of being effective. Madgwicks’ Franchising team has experience across a variety of franchise industries representing both franchisors and franchisees. Contact: Phone:
03 9242 4781
Email:
Ed.Browne@madgwicks.com.au
Web:
www.madgwicks.com.au
BUSINESSFRANCHISOR 9
Commonwealth Bank
Future-proof your business W
ith online businesses stealing market share from bricks and mortar franchises, and customers
increasingly frustrated by delays at the checkout, it’s more important than ever to keep up with the latest technology. Wade Jolly describes how to future-proof your business and keep your competitive edge. Everyone who runs a business knows the world is changing — and that businesses need to evolve or risk being left behind.
Four innovations to futureproof your business
1. Contactless payments
Pi is the most amazing innovation of all. In fact, we think it could change the way Australian franchises do business for ever.
Pi combines an open software platform with a powerful multifunction touch-screen device to create a new level of flexibility and customisation. By downloading apps from the Pi platform, you can tailor your device to become anything you like: a wireless payment terminal, an interactive catalogue, a loyalty program interface, and more.
Because Pi is open platform, it gives you constant access to new apps designed by a community of developers around the world. So you can make your business more productive and create an exceptional customer experience with a device customised for your brand, your customers and your products.
Pi is on track for delivery to market in the second quarter of 2013. To learn more and register your interest, go to commbank.com/pi
on traditional bricks and mortar franchises. Commonwealth Bank card data shows that online sales grew by 36.5 per cent in 2011, compared to just 1.6 per cent for traditional retailers. And it isn’t just cost driving customers online.
You’ve probably already heard about Commbank Kaching, our mobile payments app for Android phones and iPhones, already downloaded by more than 100,000 Australians. But you may not realise that Commbank Kaching has big benefits for businesses, as well as consumers.
Install Commbank Kaching on an Apple iPhone 4S or iPhone 4 with an iCarte (available for purchase for $54.95 via the application) and your phone turns into a contactless smart card. So customers can buy from you with a single tap, even if they’ve left their wallets behind. And Commbank Kaching comes with a host of other handy banking and payment options as well — including BPAY, peer-topeer and Facebook payments.
as having to wait to pay at the register. An overwhelming majority said they wanted a better in-store customer experience, with faster access to information, less time in queues and a more
Today’s customers are better informed and more demanding than ever before. To win and keep their business, you need to create a unique experience, every time they visit. You also need to deliver the speed, flexibility and convenience they have come to expect. That means finding new ways of doing business that simplify life for both you and your customers.
Contactless payments are a great way to overcome the frustration of customers left standing at the cash register. As soon as you ring up the sale, they simply tap their card on the contactless reader and go — it’s as simple as that. Your customers will love the simplicity of paying with a single tap, and you’ll love the productivity savings and security of super-fast electronic payments.
2. Commbank Kaching
they were frustrated with delays in-store, such
personalised service.
Combine a Commonwealth Bank merchant facility and business account, and you’ll enjoy same day, settlement, every day of the year (available on transactions made before 10pm AEST). So if you make a sale today, you’ll get paid today, even on a weekend or public holiday.
4. Pi
with online retailers putting increasing pressure
four out of five Australian consumers revealed
At the Commonwealth Bank, we’re constantly working with franchisors, franchisees and other business owners to find better and faster ways to collect and process payments, accelerate cash flow, and deliver an outstanding customer experience. Here are four recent innovations that every franchise should consider.
The Internet has created a global marketplace,
In a Commonwealth Bank survey in June 2012,
3. Everyday settlement
Wade Jolly is the Acting Executive Manager for Franchise Banking Specialists at the Commonwealth Bank. If you would like to know more, contact Wade at: Phone: Web:
0403 604 986 commbank.com.au/franchising
10 BUSINESSFRANCHISOR
CBB
DON’T WAIT FOR YOUR MONEY. Turn today’s card sales into today’s cash-in-hand with Everyday Settlement. Unlike some banks, we don’t make you wait up to three days for the money from credit card and EFTPOS sales. We give it to you 7 days a week, 365 days a year.
To enjoy the benefits, visit commbank.com.au/IOU or call 1800 730 554, anytime.
Things to know before you can: Available on transactions made before 10pm AEDT for customers with a CommBank business transaction account and a linked CommBank merchant facility. Consider if product is appropriate for you. Conditions at commbank.com.au. Commonwealth Bank of Australia ABN 48 123 123 124.
CBBUS 0174-3 210x297 Everyday Settlement Press Magazine.indd 1
7/02/13 10:01 AM
Philip Morrison
Trends in Franchising C
hange is a constant and franchise businesses are not exempt. The economic climate, global financial crunch, changes in legislation, competition, technology and taxation, amongst many other factors, can shape how franchises will operate in the future. Successfully responding to change is critical to ensuring a franchise is sustainable, viable and profitable. Picking the trends on a timely basis is vital to maintaining a competitive advantage. Astute franchisors navigate their businesses like a captain sails a yacht. They know where they are heading and are looking for favourable wind shifts to get there, tacking and trimming the sails to get maximum performance. Early identification of wind shifts and capitalising on them can be the difference between leading or being left behind. Team work can also be a defining factor - successful execution of strategies is often down to how well the franchisees work with the franchisor. Creating high performing teams within a franchise network can be the difference between a market leading franchise and a follower.
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Whilst different industries are impacted in different ways there are some emerging trends facing franchisors today. These trends are based on our observations of clients we work with on a consulting basis.
ECONOMIC CONTRACTION Worldwide Credit Crunch The ripples from the 2008 world wide credit crunch continue to have significant bearing on the economy. Things seem more fragile with the latest rounds of bail outs in the EU preventing a financial domino effect. The economic contraction has seen increased competition for the customer’s dollar, fighting to maintain market share of a smaller pie. This is evident in almost all industry sectors from food and beverage to retail sectors. This has seen trends towards deep cut discounting and corresponding reduced margins. This has conditioned customers to expect 30 per cent off margins as normal and to wait for regular promotions. With some sectors having a 10-20 per cent contraction, this has seen highly geared franchise businesses collapse. This has contributed to franchise business default rates increasing in some cases. It has also impacted on recruiting franchisee’s with sufficient capital to purchase a franchise. Internet Based Trading The trend towards internet based sales has been increasing. This low cost business model has seen pressure being put on landlords to adjust rents or face empty premises. This competition has seen franchises increase focus on retaining their existing customer base by building brand loyalty using programs with added value incentives. Accordingly, franchisors have had to accommodate this trend by building a hybrid internet model blending into the existing franchise model. Franchise Sales, Re-sales & Recruitment The knock on effect from this is that due diligence for purchasing franchise businesses is taking longer with new franchisees proceeding with
caution. Mirroring this is the price paid for existing franchise businesses. Franchise owners have seen a contraction of the earnings multiplier being applied for franchise businesses. So overall there has been a slowing in new franchisee sales. To counter this there has been a trend from many franchisors to increase their franchise size by offering existing franchisees the opportunity to become multi site owners. This has worked with various degrees of success. The transition from working in your franchise to working on your franchises has seen mixed results. It has seen pressure put on franchisors to upgrade systems and up-skill franchisees to make this change. Securing Franchise Finance Accordingly banks focus more on cash flow projections and are taking a more conservative lending policy. This is evident with new franchise systems which do not have critical mass or a proven track record. Franchisors of new or emerging franchise systems have been required to profile franchisees with strong asset backed lending to secure finance, whereas proven mature systems can secure cash flow lending finance. Reformatting Franchise Business Models Accordingly the pressure on franchise owners to tune their business model to viable and profitable has seen a trend for some franchise owners to buy back franchises and operate them as company owned and managed stores to bolster cash-flows. In some cases, where the business model is no longer competitive, this has seen the retrenchment of some franchise systems. This has resulted in some franchisors reformatting the franchise model to maintain a competitive advantage.
TECHNOLOGY CHANGES Improved Financial Management The pressure on franchise businesses to perform and provide satisfactory returns has seen trends in franchisors seeking to provide improved benchmarking systems to work with the franchise owners to drive KPI’s. This has seen franchise
systems lose the frills and focus on doing the basics well. Building business dashboards for franchise systems is an emerging trend. This has been made possible by using web based technology which enables franchisors to deliver low cost real time accurate information that focuses on the main drivers in the business. This in turn provides tools to improve the profit generation of the franchise. The power of the franchise network can be leveraged with peer to peer comparison versus an independent business owner. Web Based Application Franchise support team members are now being armed with iPad tablets. The webbased applications are being used for various applications such as compliance of processes and procedures. The trend towards web-based applications allows franchisors to deploy software solutions quickly and cost effectively. For example no hardware requirements except an internet connection and email address, software updated in one place so everyone is using the same system, online backups of data allowing data security and integrity. Natural disasters such as floods, power spikes,
BUSINESSFRANCHISOR 13
Philip Morrison
hardware failures that cause business disruption are things of the past. There is a trend towards subscription based software, away from large upfront costs to purchase the software. Social Media There is a greater focus on measuring customer experience. Reaching and retaining customers has seen increased surveying and building touch points. The trend towards using social media to interact with the client base has seen a transformation on how franchise businesses connect with customers. We are in a Facebook and Twitter generation with customers becoming product evangelists and followers or fans of a franchise brand. Those franchise businesses that have adopted this strategy have re-tooled how they interact with customers to build brand loyalty by providing added value to customers. There has been a shift from using the traditional printed media sources of advertising to online advertising. In particular to channelling more of the marketing spend directly to clients in the form of coupons, vouchers and price offs. Smart Phone Apps Franchisors are now placing more importance on building and profiling their client databases. Increased analysis of customer buying patterns has seen more targeted marketing initiatives, such as the need to capture mobile numbers and providing targeted campaigns to reach customers through the use of SMS /text campaigns and smart phones for redeeming coupons. This, along with the use of email addresses, has seen franchisors looking to cut through the bombardment of traditional sales and marketing methods. There has been an emerging trend of targeted personalised sales strategies hitting your smart phone - offering buy now advertising for loyal customers. There is a growing trend towards utilising social media to reach customers via platforms like Facebook and Twitter.
COMPLIANCE COSTS Legislation Creep & Litigation There are increased layers of compliance costs
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with each new tax ruling the ATO or IRD pass. Whilst in New Zealand there is no franchise legislation, there is in Australia with both federal and state legislation to comply with. This legislative creep places more and more costs onto the franchisor. Another consequence of tightening economic times is a corresponding increase in franchisee/ franchisor litigation. Underperforming sites, breaching, turf wars, the use of internet based sales channels and the impact on existing franchises are becoming more commonplace. There has been a trend to establishing Franchise Advisory Councils (FACs). This allows franchisees to have a voice and be heard and provides a channel of communication between franchisors and franchisees. Where this has been successfully employed we see group pressure from franchise owners bringing rogue franchisees into line and autocratic franchisors becoming more collaborative in their leadership style. Branding One bad apple can spoil the barrow of apples. Protecting the investment of franchise owners as a whole has seen a continued trend of enforcement of compliance by issuing breach notices and in some cases revoking franchise licenses. The trend towards reinvesting in the brand has been evidenced by a large number of franchisors refreshing their franchise brand. We have seen mature brands that have had nothing done to them for a decade re-position themselves by reimaging. The importance of brand management from top down has taken on increased importance. Back to the Future Change is something we all deal with. How we adapt to the challenge of change is question. Are we leaders or followers in our franchise businesses? The well documented illustration of industry leaders who failed to pick the trends in the business they dominated were the early railway barons. They had not recognised the
business they were in. They thought they were in the business of railways not transportation. History tells us how they lost their market to other modes of transportation and are no longer the force they were. Knowing what business you are in and maintaining a competitive advantage within a franchise network is as vital as it ever was. So in summary looking into the future, what are the emerging and growing trends that franchisors will need to work through? Here are some of the things I see: • More collaboration between franchisor and franchisees – communication, feed forward, a culture of we not just me. • Strategic investment in maintaining competitive advantage – technology, fit outs. • Reinvestment in brand management – refreshing image and re-positioning. • Increased spend on social media to retain and attract customers. • Leveraging technology to gain competitive edge, reach and target customers. The challenges of picking the trends in a changing market place remain unchanged. The pace of change remains relentless. Identifying the strategic shifts and responding to these will often fall and rise on the leadership of you, the franchisor. Philip Morrison is the Director of Franchise Accountants. With over 25 years of accounting, business and financial management experience, his passion is to empower people to succeed in their franchise business Franchise Accountants are the only chartered accounting practice in New Zealand that exclusively focuses on the franchising industry, and provides both accounting and consulting services. Phone: Email: Web:
(NZ) 09 265 2657 info@franchiseaccountants.co.nz www.franchiseaccountants.co.nz
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franchise council of australia
Franchising Code Review
a chance for improvement, but balance must be retained
T
he Federal Government has promptly honoured its commitment to review the Franchising Code of Conduct in 2013, with then Small Business Minister Brendan O’Connor announcing on January 4, 2013 a review of the Franchising Code of Conduct by franchise industry expert Alan Wein. The Minister advised that “the primary purpose of the review is to verify ... that the amendments of the Franchising Code in 2008 and 2010 were working as intended,” but flagged that the review would consider in this context issues including:-
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previous reviews and inquiries into franchising,
inquiries into franchising and the 2010 inquiry into unconscionable conduct. This is important, and hopefully will help ensure that issues that have been debated and resolved in the past are not unnecessarily re-opened. The appointment of an industry expert, in a similar manner to the way previous minister Craig Emerson appointed three experts to consider unconscionable conduct, appears designed to limit the capacity of people to criticise the outcomes of the review. It probably also indicates that the Government is likely to adopt the thrust of any recommendations.
including in particular the 2007 and 2010 Federal
Minister O’Connor noted that Mr Wein is
• Questions of good faith in franchising; • The rights of franchisees at the end of their franchise agreements, including recognition of any contribution they have made to the building of the franchise; and • The operation of the Competition and Consumer Act with respect to enforcing the Code. The terms of reference are aimed at building upon the collective efforts of the numerous
“appointed to prepare a report suitable for public release within three months.” He also noted that “in gathering evidence to support findings the reviewer is required to undertake appropriate consultation with industry and State and Territory stakeholders.” Use of words such as “evidence” and “verify” indicate that empirical material will be important, as will consultation with the FCA and State Governments that have shown an active interest in franchising. Hopefully this can led to a re-harmonisation of franchising laws under an exclusively Federal regulatory framework. Although at first glance the review appears relatively limited, the review is likely to be significantly broader in substance. Indeed the Discussion Paper accompanying the review announcement poses 29 separate questions, many clearly inviting a much broader response. The FCA intends to work collaboratively with Mr Wein, the Government and the Opposition to attempt to achieve a consensus outcome. Our focus is therefore to be pro-active in proposing some changes that have minimal compliance cost, and help address any negative perceptions of franchising. At the time of writing, the FCA is preparing a comprehensive submission. The submission will be finalised after franchising forums to be held across Australia with FCA members, and after input from the FCA Legal Committee.
The FCA’s core position Our sector has been formally regulated by the ACCC since 1998. The foundation of this regulation, the Franchising Code of Conduct (the Code) was created to assist and foster the ongoing relationship between franchisees and their franchisor. The FCA is strongly supportive of the current regulatory framework, which is clearly world’s best practice when compared to franchising regimes around the world. There are strong protections to franchisees contained in the
Code, and these are supplemented by the prohibitions on misleading and deceptive conduct and unconscionable conduct contained in the Competition and Consumer Act. The Franchising Australia 2012 Survey confirmed the relatively low levels of disputation in the sector, and the recent PwC report indicated that the franchise sector continued to outperform the general economy notwithstanding relatively difficult economic times. Complaints to the ACCC remain relatively low, and there is no evidence of any endemic problems or industry concerns. Accordingly, although some improvements to the Code can be countenanced, the FCA is strongly of the view that no fundamental changes are appropriate. The FCA considers that there is a need to clarify the position in relation to good faith, and accordingly will be proposing the inclusion of the current common law duty of good faith into the Code such that it applies to all parties to a franchise agreement in relation to the exercise of any right or power. However the FCA opposes the introduction of any new defined statutory duty of good faith, as this is unnecessary and will create legal uncertainty. The FCA is prepared to consider a proposal for specific penalties for blatant non-compliance with the fundamental disclosure provisions of the Code provided the ACCC is empowered to give clear guidance as to their enforcement policies so that there is no prospect of regulatory abuse. The support for good faith and penalties means there is little if any rationale for separate State based laws in South Australia or else. The FCA also supports calls to tighten the provisions in the Code that currently recommend that franchisees obtain legal and business advice. The FCA is concerned that franchisees are still not seeking advice in many instances, and sees a high correlation between disputes and a failure of franchisees to take advice. (Under the FCA’s own internal disputes process, in almost 100% of the
80 complaints made to the FCA the franchisee has failed to obtain advice.) The FCA also supports improvements to mediation, but does not support the establishment of any new court or tribunal, as this will seriously harm the effectiveness of mediation. The FCA is continuing its plea for Code simplification, increased Government commitment to pre-entry education for franchisees and other improvements to the Code that do not add material compliance cost. The FCA opposes the creation of automatic rights of extension of franchise agreements at end of term, or any form of compensation payment at end of term or on termination of the franchise agreement. The FCA also opposes the application of consumer unfair contract laws to business contracts such as franchise agreements, as has been flagged by the Shadow Small Business Minister. A copy of the FCA’s submission and other relevant material is available to FCA members via the FCA’s website, www.franchise.org.au
Stephen Giles, Deputy Chairman, FCA
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franchise association of new zealand
Franchising New Zealand
2012 Survey
A
s the principle sponsor of the second biennial survey of New Zealand franchising, the FANZ is pleased to be able to bring you some of the key findings of the Franchising New Zealand 2012 survey, produced by Massey University, Auckland, in association with the Griffith Business School, Queensland.
Total number of franchisors in New Zealand It is estimated there are 491 business format franchise systems currently operating. Of these, 88 per cent are home grown NZ franchise systems. The net growth between 2010 and 2012 of 23 franchisors is accounted for by the emergence of new franchise systems and the exit of others. Amongst the latter group were identified around 27 systems no longer in business.
Total number of units in New Zealand franchise systems There are an estimated 19,300 business format franchised businesses and 3100 company owned units, or in total 22,400 units operating in business format franchises in New Zealand. Most would be classified as small or medium sized businesses (SMEs), thus representing around five per cent of all SMEs in NZ (total 457,374, a drop of 1.7 per cent on previously reported figures).
Growth of franchised units in New Zealand The Franchising New Zealand 2010 survey estimated 23,600 franchise units in total. In 2012 the estimate of 22,400 units shows a decline
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over the past two years. The number of systems in the sector has therefore contracted, possibly owing to the continuing effect of the economic environment.
Turnover of the New Zealand franchising sector Turnover of the franchise sector delivers an important measure of the contribution of franchising to the New Zealand economy. The total sales turnover of business format franchise units was estimated at $6.9 billion in 2003. In 2012 we can estimate annual turnover of the New Zealand franchise sector between $19.4 and $21 billion based on the following: • Turnover from respondent sample $6.03 billion • Publically available turnover of New Zealand’s franchised supermarket duopoly $13.4 billion.
Franchisor activity levels Over 50 per cent of the respondent franchisors reported an increase in revenues from sales over the two years. However, in a progressively competitive environment, overall profit margins declined for more than 25 per cent of them. Franchisors still actively sourced new franchisees despite a lack of suitable funding for new franchisees. For just under 50 per cent of franchisors, an increase in existing staff training and education provided a useful strategic response to challenges faced. Continued difficulties in the business environment impacted franchisees by decreasing profitability, although 80 per cent of franchisors in the sample reported that their franchisees were operating profitably. Amidst fierce competition, franchisees are making
every effort to reduce costs by being operationally efficient and decreasing staff numbers.
Employment in the New Zealand franchising sector The total number employed in New Zealand business format systems is estimated to be 101,800, of whom 54.4 per cent were permanent full time, 38.3 per cent permanent part time and just 7.3 per cent casual employees. In 2010 it was estimated that 80,400 people were employed in the franchise sector, the majority in permanent full time positions; fewer than a quarter in part time employment and the small number in casual positions. There has been a shift in the employment profile in 2012. It is estimated that there are now more than 100,000 employed in the sector, but only just over half in permanent full-time, with a significant increase in part-time and casual positions.
Franchising disputes Substantial disputes (those referred to an external advisor for action) were experienced by 19 per cent of franchisors, but only four per cent of franchisees were involved. The main cause, as in 2010, was noncompliance. Other areas of dispute involved franchisee profitability, site suitability, and support issues. Consistent with the findings of the last survey, more franchisors than franchisees initiate dispute proceedings. The full Franchising New Zealand 2012 survey can be downloaded from the franchise Association of New Zealand web site www. franchiseassociation.org.nz
Ian Krawitz
Customer Satisfaction
the great multiplier to your company’s growth
R
emember how our parents and teachers drilled us with the 12 times tables when we were kids? A great exercise in rote learning, but what it didn’t teach us was the concept of the word of mouth multiplier effect. Satisfied customers multiply. If one satisfied customer can tell 12 people what a great experience they had with your organisation, imagine the growth when you get 12 people telling 12 people about your organisation. What started out as one customer can grow organically to 144.
Consider for a moment, the connected world we live in, where conversations that used to take place around a BBQ with a few mates now take place with hundreds through facebook. The speed at which trends form and ideas get exchanged has grown rapidly. From a researcher’s perspective, in the old world, research showed that an unhappy customer would tell 10 other people about their negative experience. In the new world, one unhappy customer can tell 12 million! Take the example of Dave Carroll, a humble musician who penned
“United Breaks guitars” http://www.youtube. com/watch?v=5YGc4zOqozo Carroll flew with United Airlines in the USA and they broke his guitar through rough handling, he even witnessed baggage handlers throwing his guitar case. After eight months of back and forth trying to get compensation through the normal channels, Carroll wrote a song about the incident, put it on youtube and saw the multiplier effect take place as the video went viral. Yes, this is an extreme example of a customer
BUSINESSFRANCHISOR 19
Ian Krawitz messages from their Senior Executive team about what they need to do in various parts of their job. Just as you would with a marketing message to customers, you need to reinforce key messages regularly to ensure team members have the key touch points in the customer experience at the top of their mind.
complaint video going viral, but it goes to show how everyday conversations have moved from intimate backyard BBQs to the masses of social media. Whilst it is important to monitor your social media presence for customer complaints, if you only respond quickly when it goes viral, that doesn’t reflect particularly well on you as an organisation. The key is having a system to have satisfied customers in the first place. I want to share with you a great customer experience I had recently at a Malaysian restaurant in downtown Sydney called Mamak that has a great system in place. Over the last four years, every time I have gone past on a Saturday night Mamak has had queues 20 to 100 deep around the corner. I thought I would check out what all the fuss was about. The queue moved and they kept communicating with us to let us know how much longer it would be. The experience was entertaining watching them cook through the window while we waited. For such a popular restaurant I expected to be hurried out, but they were polite, let us take our time and were friendly. All the key ingredients were there; theatre, atmosphere, service, value and importantly quality food. If one of those key elements was missing there might have been a disappointed customer, who would never return. Instead they have a customer who is happy, told five friends about it the next day and has now just told another few thousand through a magazine!
Plan each phase of your customers’ experience So how do you create a great customer experience that you can have confidence will be replicated across each and every location?
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From the moment a potential customer thinks about buying in your category to the instant they click the submit button on your website or walk out the door with their receipt in hand you can understand what they want at each point and deliver what they are looking for. Start by mapping out the customer experience, brainstorm and workshop the experience of a customer. The next step is to research the journey real customers and potential customers take in deciding to buy from you and what is important in the purchase and post purchase phase. Take the time to ask the right questions through quantifiable surveys, focus groups, from accompanied shops and website walk throughs. If you can understand what your customers’ expectations are and how your competitors are matching up, then you can design a customer experience that matches and selectively exceeds their expectations. Once you know the leading indicators to success, the chances are 80 per cent of the potential variation in customer experience will be down to what your people do in either preparing the customer experience or delivering the experience directly. Get your Human Resources team involved in writing key items of the customer experience into job descriptions, key performance indicators and guidelines. Then it is a case of continually training your team to excel in these areas, and importantly let your people know how important they are in the process and what rewards are available personally for achieving success in the key leading indicators. Remember the delivery of a great customer experience is not about setting and forgetting. In a typical day, week or month a team member will perform multiple tasks and will be told multiple
An interesting example of putting customer experience into the human resources fabric of your organisation comes from the USA, where the Salon John Robert’s Spa used white capes for new customers and black capes for existing customers so that every hair stylist would have a visual cue to know to give new customers a great first experience and existing customers a warm welcome back. Think ahead with your Human Resources and Operations team on the pressure points in your operational capacity. One of the biggest keys is ensuring you can deliver on a great customer experience whilst experiencing a greater demand. That may involve having casual staff who are well trained that you can call on for busier times, controlling as best you can your marketing funnel and having a plan for when you get large queues or wait lists for your service. For example a classic mistake many food based franchisors have made is having a massive launch event with ongoing launch activities for the first month attracting thousands of customers. At the same time new franchisees and new staff members who are not fully efficient haven’t been able to cope with the large volume of demand. As a result the customer experience can suffer. Sales start really strongly before dropping off immediately after a month, as customers who came a first time don’t return and then sales can take 18 months to recover, fighting through the wave of negative customer satisfaction and negative word of mouth. Work with your Public Relations team to determine how to manage a crisis in delivery. A great example in executing this was from the team at DealsDirect.com.au. One afternoon when I was shopping for some furniture the site crashed. DealsDirect made the best of a bad situation. They explained that their techies were on to the issue and that customers should check back on the hour as they would be giving a five per cent discount off the purchase if the site went back live before 5pm, if it was between 5 and 6pm six per cent and so on. They kept updating the site, so at 7:30pm with an eight per
cent discount on offer they had a message saying their techies were working hard and that they had ordered red bulls and pizza to keep them going. When the site came back on they were able to capture the traffic they had not been able to service, showcase their friendly brand personality and keep customers happy with a discount as a way of saying sorry.
Measure and Manage Once you have the key performance indicators in place and with staff trained on customer experience it is time to measure their delivery and reward excellence. The best way to realistically measure customer experience and get staff to buy in to the results is customer satisfaction surveying. By getting a large sample of real customers giving feedback on a location by location basis or staff member by staff member basis you can reward success and coach improved performance in areas that are critical to customer experience. By encouraging feedback from customers you can also get word for word feedback from disgruntled customers and then act on the feedback on a case to case basis to keep those customers happy and spreading positive messages about your organisation. If the Malaysian restaurant Mamak, was an example of a customer experience system executed well, a recent trip to a major supermarket chain shows even the best can get it wrong. I was travelling through regional NSW and stopped into the supermarket and made my way to the deli counter. After asking the service attendant for 100grams of turkey I was informed that the service attendant didn’t have the skills to slice the Turkey and he would get his manager. The manager arrived and rather than talking to me, talked to the attendant and she said we have just cleaned the slicer and it would take 20 minutes to clean again, and given there was only 30 minutes till closing she didn’t want to do it. This conversation took place in front of me, but not involving me and the end result was no Turkey, a shrug from the attendant and an unhappy customer who accepted the situation. I don’t have a problem with closing the deli counter early, but maybe a sign informing customers of this would have been wise, or even just a simple explanation directed to me by the manager, apologising for the inconvenience and suggesting something that was already sliced. I have been a customer of this supermarket chain for years and it has enough cache with good service to
hold me as a customer, but I recently had another poor experience at one of their stores and my advocacy is slipping fast. Now if the supermarket was able to give me the opportunity to give feedback they could contact me, apologise and offer me a voucher to use the deli and they would then have me singing their praises. Instead I have just told a couple of thousand people through this magazine about a bad experience at the supermarket. Consider this, I may be in a position to comment in a magazine which has an audience in the thousands, but it is not just the few writers for magazines who can access an audience of this size, with the advent of social media every day customers now can also have influence on this scale and greater. Whilst it would be unprofessional of me to mention the name of the supermarket chain, everyday customers will not hold back.
Celebrate success When team members excel, awards and rewards are a great way to encourage great customer experience. It can be as simple as certificates and cash rewards or can involve awards nights, team member of the month or year and a whole gift shop of rewards to choose from. One of the other great ways to celebrate success is with league tables which creates healthy competition among team members wanting to be at the top.
Mouth leads came from customers of existing franchisees. If customers have an amazing experience they will want to be a part of it and become a franchisee. Best of luck in making customer experience a key part of your organisations growth plans! If you have any questions or would like assistance with a customer experience program feel free to get in touch. Ian Krawitz is the founder and Head of Intelligence at market research house 10 THOUSAND FEET and the franchise satisfaction rankings website topfranchise. com.au. For the last ten years, 10 THOUSAND FEET have been assisting organisations across Australia to connect and influence their stakeholders through in-depth research. Their services include Industry studies, customer and franchisee satisfaction, ad hoc in-depth motivational research, segmentation and pricing analysis, brand tracking and message development. The 10 THOUSAND FEET client base includes organisations involved in retail, food, finance, FMCG, sports, media, services and channel management. Ian can be contacted at: Email:
iank@10thousandfeet.com.
Don’t rest on your laurels Competitors eyes are often drawn to the bright shining success and what was cutting edge a year or two ago can become ho-hum as it becomes the norm. In addition with a rapidly changing world sparked by the speed of advances in fields such as the internet and mobile technology what was a great customer experience 10 years ago has changed. Continually ask your customers what is important to them, pilot new innovative ideas to wow your customers and test the results.
Act on what you know If as a franchisor the “United Breaks Guitars” video wasn’t enough to swing you into action and convince you of the importance of your customers’ experience, I’ll leave you with one concluding thought. In recent research we conducted for our 10 THOUSAND FEET Intelligence Club Members we saw that Word of Mouth was the second biggest source of new franchisees, and that one in four Word of
BUSINESSFRANCHISOR 21
Jason Gehrke
Lifting the
franchisee performance ceiling I
n private, franchisors often express feelings
In the main, franchisor founders are
of frustration toward franchisees who they
entrepreneurial types who see an opportunity to
believe could run much better businesses, if
build a business in an underdeveloped niche. A
only they would follow the system. “Just follow the system” is perhaps the most common advice any franchisor could give their franchisees, but it begs two main questions;
typical characteristic of entrepreneurs is that their long-distance focus on realising potential is often matched by a lack of attention to detail in the short term.
firstly, how thorough is the system, and secondly,
This short term lack of attention, if not addressed
how thoroughly do franchisees execute the
by other members of the entrepreneur’s team,
system?
can compromise the effectiveness of systems to train and support franchisees. In their rush to capitalise on a business opportunity ahead of competitors, new franchisors often fail to invest sufficient resources in the organisational details necessary to create outstanding business performers from the uninitiated. Not surprisingly, many new franchisors find they have much greater support demands placed on them by new franchisees, than by experienced franchisors who have learned the hard way that extra resources invested into training reduces the reactive consumption of support resources later. Consequently, advice to “just follow the system” rings hollow in the ears of franchisees who perceive the system to be lacking, and whose growing knowledge of “the system” increases
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their concerns that it was underdeveloped from the outset. While “the system” - that special blend of training, know how and marketing nous that creates a successful franchise - is intended to help launch a franchisee to hitherto unobtainable heights, “the system” could equally create a performance ceiling that limits the very heights to which a franchisee can soar. Let’s consider the example of a system where a franchisee is required to manually complete complex and time-consuming reports about business activities. Such work is laborious, and reduces the amount of customer-facing or business development time available to a franchisee. On the other hand, “the system” could be developed so that such reports are automated by linking to the business’ point of sale technology and require no additional effort on behalf of the franchisee to produce. Such an innovation will be self-apparent to franchisees often before it is self-apparent to a franchisor (or at least, before a franchisor acknowledges that it requires a further investment in the development of their system). Where franchisors can create improvements in their system which save franchisees time and resources, it follows that the time and resources
saved can be reinvested by the franchisee to lift the performance of their business. To raise the overall performance level of franchisees, franchisors need first to examine their system to see if it has inefficiencies or other barriers that create a structurally-embedded performance ceiling. Of course not every franchisee will be equally affected by a structural performance ceiling due to each franchisee’s individual combination of skills, attributes and experience, but nonetheless, any kind of systemic performance ceiling will limit the overall performance of franchisees across a network. Then there is the performance ceiling that franchisees impose on themselves (rather than imposed on them by an inefficient system). The self-imposed performance ceiling is the result of the 3C’s: Confidence, Capacity and Complacency. A lack of confidence in their ability to run a business, or lack of confidence in specific aspects of the business’ operation can limit a franchisee’s potential. This may stem from concerns over their own competency to operate a business which should have been identified by the franchisor during the selection and induction process (and again highlights the importance of a highly-evolved franchise system). A lack of capacity where the franchisee cannot devote sufficient time to the proper conduct of their business, or at the other end of the scale, the franchisee has dedicated every available moment to the business and has worn themselves out in the process. While a lack of confidence and a lack of capacity are two of the reasons for a self-imposed performance ceiling, the third reason is the most confronting: complacency. Franchisees and independent small business owners who are comfortable with their current income and lifestyle become complacent and operate in cruise control, and no longer feel compelled to operate the business more aggressively.
Franchisors can instigate strategies and tactics to help franchisees overcome confidence and capacity issues, but are more challenged to overcome franchisee complacency. Complacent franchisees are generally undemanding of their franchisors when things are going well, but if times get tough they are soon shaken from their complacency and often look to blame their franchisor for their declining fortunes. Complacent franchisees often don’t appreciate how far off course their business might have drifted until it’s about to crash into an iceberg. Complacent franchisees are accustomed to a financial or lifestyle outcome from their business, but don’t fully understand the range of variable inputs that are required to produce these outputs. Complacent franchisees are quick to blame their franchisor if something goes awry in their business, and slow to respond to advice. Complacent franchisees don’t understand the dangers of complacency, or appreciate its contagiousness. Complacent franchisees often need a close
encounter with an iceberg to shake them from their complacency, and sometimes by then it may be too late. There is no silver bullet to raising the franchisee performance ceiling. By ensuring the system is constantly improved, and that franchisee confidence and capacity can be addressed makes it easier for franchisors to identify limits in franchisee performance caused by complacency. And then the real challenge begins. Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for 20 years at franchisee, franchisor and advisor level. He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia, and publishes Franchise News & Events, a fortnightly email news bulletin on franchising issues and trends. For more information contact Jason at: Phone: Web:
07 3716 0400 www.franchiseadvice.com.au
BUSINESSFRANCHISOR 23
Jennifer Seo
Don’t walk away from your
Intellectual Property can be divided into two categories: Industrial Property, which includes inventions (patents), trade marks, industrial designs; and Copyright which includes literary and artistic works such as novels, poems, films, photographs, paintings and architectural designs.
What is a trade mark? A trade mark is a sign which differentiates one trader’s goods or services from those of competitors in the marketplace. Almost any kind of sign can be a trade mark – words, letters, numerals, logos, sounds, colours, shapes, and scents can all be trade marks.
I
t is astonishing to note that more than 83 per cent of small businesses and over 64 per cent of large businesses in Australia have
zero Intellectual Property protection (ABS, 2011). Intellectual Property protection and enforcement is crucial to any successful business. Many
Some prominent trade marks include the golden arches for McDonald’s, the tick in the Nike symbol, the “Oh what a feeling” Toyota jingle and the colour purple for Cadbury chocolates. Trade marks are protected by law to prevent competitors in the marketplace from making use of another trader’s brand, and consequently taking advantage of that trader’s goodwill and reputation in the marketplace.
business owners wrongly believe that if they
Businesses, Build your Brand!
register a company name or a business name,
Every business has intellectual property worth protecting. Under Australian IP law, exclusive rights are granted to owners of these intangible assets. Brand means identity. And in the world of business and consumers, identity means trade marks. Trade marks enable consumers to identify what they are purchasing and consuming.
that they are automatically granted intellectual property rights to that name.
What is IP? Intellectual Property (IP) refers to creations of the mind that are used in commerce. These creations
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If you want to know how strong a brand is, then all you need to do is look at their trade marks. According to research conducted by BrandZ, the most valuable global brands in 2011 were Apple, followed by Google, IBM, McDonalds and Microsoft respectively. Think about the logos associated with each of these big brands. Each of these logos is protected by their respective owners through trade mark registration and enforced rigorously by their trade mark lawyers. Other benefits of trade mark registration 1. Protection against unauthorised third party use of the trade mark. 2. Having a trade mark registration means that third parties are put on notice of the existence of that registration. 3. The trade mark owner is able to place the ® next to their registered trade mark. 4. Having a registered trade mark enables a more effective and efficient transfer of ownership or authorisation of use of the mark, such as by means of licensing or assignment. 5. Trade mark owners can place a Watch Notice at Customs for the goods in respect of which the registered mark is used (which will assist a business in protecting its goodwill and reputation from counterfeits and other infringing imports).
Tips and things to remember 1. Upon lodgement with IP Australia, a trade
Trade Mark
Year lodged
1910
mark normally takes 9-12 months to proceed through to registration but when registered, the rights of registration apply from the date of lodgement. 2. Descriptive words or a generic name for a product or service are generally not registrable unless there is already a sufficient reputation. For example, it is not possible for the owner of a clothing store to trade mark the business name “The Best Clothing Store” as a trade mark, unless the owner can show that their reputation in respect of this name is such that Australian consumers identify this descriptive name with their brand alone. However, there are many brands that have accumulated such use of their descriptive and generic marks such that registration of a generic and descriptive trade mark has been granted. For example, McDonald’s slogan “I’m lovin’ it”. 3. If a registered trade mark becomes generic or descriptive, although it originally was not such as “aspirin”, introduced to the market in 1897, and “heroin”, introduced in 1898 (both were originally trademarks of Bayer AG), the mark no longer indicates the source of the product and may be removed from the register. To prevent this happening to your brand, the trade mark owner has a responsibility to make sure the registered trade mark is always used as a trade mark, and not as a descriptor of the goods/services it covers. Also, a trade mark owner must enforce their rights on any unauthorised user of their trade mark so that their registered trade mark does not become generic and removed from the register. 4. If you are an owner of a registered trade mark, you should conduct monthly searches to make sure that no one is “freeriding” on your reputation by using a mark similar to your own registered trade mark. The trade mark should
1934
1959
also be used continuously; otherwise it can become vulnerable to being removed from the register for non-use. 5. If you are an established business owner, and are continually reviewing and updating your brand, you should make sure that the updated versions of your logo are registered every step of the way. Shell Corporation has done this well and is a very powerful brand today. 6. It is also a good idea to continually add to your trade mark portfolio by obtaining trade mark registration for new products and brands as/ before these are developed and released into the market. Shell Corporation has successfully captured and capitalised on their intellectual property in this by obtaining trade mark registration for the following goods/services associated with their Shell business: “Helix”, “V-Power”, “Shell Express”, “Shell Direct” and “Go Shell”. 7. If you are planning to grow your business overseas, make sure you get your trade mark registered in that jurisdiction before you sign any licence, distribution or franchise agreement. You cannot grant someone a licence to use your name, brand and trade mark in a jurisdiction when you are not sure that you are entitled to exclusive use of that name, brand or mark. This is why “BURGER KING” rebranded to “HUNGRY JACKS” in Australia – it was not possible to use the “BURGER KING” name, brand and trade mark in Australia due to similar trade mark which had already been registered in Australia by another business owner.
1968
2007
The associated goodwill in a brand and trade mark is often a businesses’ most valuable asset. Brand power cannot be underestimated, especially in a day and age where most consumers are hyper brand conscience. There is a reason why trade in counterfeit consumer goods is a multi-billion dollar industry. Brands attract. Brands sell. In short, well-known trade marks mean well-known brands. So if you want to build your brand: make sure you have your trade marks registered! Brand growth doesn’t happen overnight so don’t snooze, because you’ll lose. Get ahead of your competitors and talk to a trade mark lawyer today. Jennifer Seo is a lawyer specialising in Intellectual Property at DC Stategy’s Legal Division. She has extensive experience in global trade mark portfolio management; trade mark right enforcement; and brand, trade mark, copyright & domain name protection. Call her directly on 02 8220 8709 or email jennifer.seo@dcstrategy.com DC Stategy’s lawyers specialise in the practise of commercial law related to franchising including franchise agreements & disclosure documents, trade mark & intellectual property protection, licencing & distribution agreements, franchise code compliance & mediation, dispute resolution, franchisee reviews & business sale agreements, largely on a fixed fee basis. Contact them for legal assistance with your franchise business needs on: Phone:
02 8220 8700
Email:
info@dcstrategy.com
BUSINESSFRANCHISOR 25
Julia Camm Evans
Could this mean death to the franchise salesman? The franchise recruitment process refers to how franchisors attract, assess and appoint franchisees. The term ‘recruitment’ is useful and at the same time a problem with peacocking, the halo affect and the Top Gun Factor, says Julia Camm Evans Think of the last time you were travelling overseas.
time slightly problematic in regards to promoting and delivering informed decision making.
The excitement of choosing where to go, packing your bag making sure you have everything, arriving at the airport, getting your paperwork done and going through a series of checks – checking in, customs and security – before you are on that plane, heading towards your new adventure.
In my world, informed decision making is all about making a confident, well-assessed choice where a person willingly accepts the role, obligations and risk of the opportunity. An informed decision is where a reasoned choice is made by a reasonable person, using relevant information about the advantages and disadvantages of all the possible courses of action, in accordance with their beliefs and goals.
Well, the franchise recruitment process is a lot like that. The process is a series of steps that evaluates the suitability of a prospective franchisee, assesses their current abilities and make judgements about their future and making sure all the paperwork is in order – checking in, customers and security. The term recruitment is useful in describing the process as current practices mirror, in many ways, the process used to recruit employees. There is rapport to build, interviews to conduct, checks to make, tests to complete and research to be done before a decision is made. Yep, it’s similar to recruiting employees. The term recruitment is useful in guiding structure and the sequence of activities for appointing franchisees. It is also useful in setting an expectation of what is going to occur through the process, as most prospective franchisees have probably been employees at some point and have been through the recruitment process. It’s familiar. The term recruitment is useful, and at the same
26 BUSINESSFRANCHISOR
Informed decision making relies on learning, and for prospective franchisees this means acquiring new knowledge, skills and forming attitudes on franchising and on the specific franchise opportunity. Knowledge, skills and attitudes combine to form ‘competency’ – a term that indicates someone can do something under certain conditions to a particular standard. Following this line of thought, the franchise recruitment process itself is a learning process, providing prospective franchisees with more knowledge and skills. Government review, after review, after review continually point to the role and importance of learning and education, with the mantra of “do due diligence, do your homework, do pre-entry education”. It’s clear. Prospective franchisee competency development is a key contributor to informed decision making. As a result, the franchise recruitment process has the greatest of obligations in franchising –
assessing prospective franchisee competency and what they have learned through due diligence and pre-entry education. The franchise sector appears to embrace the sentiment, the ideal, of pre-entry education and due diligence so everyone involved can make an informed decision... but do we truly embrace it in practice? I want to tackle this from a franchisor perspective, as I believe this is where we can get some quick wins in meeting the call from Government reviews about ramping up the impact of due diligence and pre-entry education on informed decision making. Here’s problem number one: assessing a prospect’s knowledge and skills achieved from pre-entry education and due diligence. Of course we encourage prospective franchisees to “do due diligence, do your homework, do pre-entry education”... it’s the right thing to do. But do we really gather worthwhile evidence of learning and understanding? How do we know that they know? What are we doing about filling the knowledge gaps... and are we filling the gaps with useful knowledge, or sales spin? Simply attending a pre-entry education program doesn’t guarantee competency. Simply having an accountant or lawyer sign off on a certificate does not guarantee competency. Placing the onus on prospective franchisees to gain knowledge and skills through self-directed learning doesn’t always deliver consistent results.
Problem number two: franchisee competency profile. Franchisors appear to select prospective franchisees against profile of ideal and identified knowledge, skills and attitudes that are needed for successful business performance. It is not just current competencies we are aiming to determine, but we make judgements about their potential. So, how do you do this? Is it an intuitive guess, or is it grounded in structure and science? Problem number three: your contribution to, and measuring, informed decision making. If your franchisee recruitment processes favours a more sales approach, rather than a competency-based assessment one, ‘peacocking’ occurs. Here we see both franchisors and prospective franchisee strut around, positioning themselves as ideal selections. They are selling themselves to each other and they enter into a cycle of mutual excitement about the other without really cutting through the spin to ascertain if they do what they say they can do, and have what they say they have. Similar to peacocking, yet slightly different, is the ‘halo’ affect [this happens in employee recruitment too]. The halo affect is where franchisors select prospects based on how they are similar to current franchisees, and assume a skill set or particular capability without actually assessing for it. The halo affect is evident with justification statements like “They’ll be great. They are exactly like Viv and Alex from Newcastle”... or, “Not likely. You know what happened last time we recruited someone from [insert country name].” Also, assessing for prospective franchisee competency is often minimised due to the ‘Top Gun’ Factor... the need for speed - speed to expand, pressure to meet site construction timelines, quotas and individual performance measures. Peacocking, the halo affect and the Top Gun Factor gloss over the critical practices of helping prospective franchisees learn more about franchising and assessing what they have learned. Remember, the franchise recruitment process has the greatest obligation in assessing competencies required for informed decision making. Maybe franchisors don’t place value in
competency assessments or don’t know how to do it. Maybe. But know this: prospective franchisees may seize the opportunity to sell themselves as rock star candidates knowing that their competencies won’t be tested or questioned. So, does this mean death of the franchise salesman? No, not really. Highlighting the goodness of franchising and the features and benefits of your franchise is accepted and expected. What I suggest is are enhancements to what franchisors currently do, so everyone can declare with hand on heart, hope to die, stick a needle in my eye, that informed decision making was reached. Perhaps a complete overhaul is required, but a slight lean towards learning practices to complement all the other recruitment activities you do will keep me happy. Two very quick and simple enhancements that you can do today include: 1. Develop a Franchisee Competency Profile so you can assess your prospects against. Start by asking yourself: what core knowledge, skills and attitudes do we need evidence of before prospects can move through to the next stage of the franchise recruitment process? Your competencies will be based on a delicate combination of experience, history and an ideal, knowing that your training and in field support can fill the gaps. A psychometric assessment can form part of this profile, but it’s not all of it.
a series of learning-based activities, such as: — Case studies, asking the prospect to prioritise, solve, analyse or interpret information. — Role plays or live interaction centred around customer service. — Language, literacy and numeracy testing. — Successful completion of online training modules. — On site experience... and the list can go on, and does. Promoters and critics of franchising support increased due diligence and pre-entry education, indicating a learning-lead revolution for informed decision making. If it is to be a learning-lead revolution, then let’s add learning practices into the mix and do our bit for informed decision making. So, when was the last time you changed, updated or refreshed your franchise recruitment process? Since 1995, Julia Camm Evans has been working with franchisors achieve more from their education and training efforts. She is the founder of research firm Corven, who have produced a series of practical reports on franchisee learning and training. She can be contacted via email and you can access research reports and articles from the Corven website. Email: Web:
julia@corven.com.au www.corven.com.au
You may want to consider categorising your competencies into four categories: what do franchisees need to know and do in regards to the concept of franchising, business management, financial management and operations. Because, as we all know, these four categories of competencies are what maketh the franchisee. 2. To assess for these four categories of competencies, you need to determine how you will gather evidence. This encourages a move beyond peacocking, the halo affect and the Top Gun Factor and backs up your decision as to why a particular prospect was selected. Evidence is the hard-core combination of written, verbal and observed competency-in-action and can be achieved through franchisees completing
BUSINESSFRANCHISOR 27
IP Solutions
Do you value your customers and the importance of your brand?
T
rust is possibly the single most important element of successful selling. A breach of trust will cost you clients, cash flow and brand integrity. If your franchisees transmit information such as credit card payments and commercially sensitive data, then the need for trust has just escalated, and so has the risk of a data breach. As Australian companies embrace new technologies, businesses need to focus on processes, policies and technologies that improve their ability to protect their business networks and sensitive customer information. The business costs associated with data breaches, fraud and malware can be significant; often resulting in direct costs such as lost customers, lost revenue, fines and the indirect costs associated with service interruption and brand damage. As always prevention is better than cure.
What can franchisors do to protect their franchise community? IP Solutions provide MerchantSecure to help you safeguard your most important assets while reducing the costs associated with security compliance (PCI DSS). As a result, you can tell your franchisees how robustly their businesses are protected, ensuring they are protected at all times. MerchantSecure is a fully-managed network security and compliance service, allowing franchisees to focus their attention on their dayto-day business operations. Essential services provided by MerchantSecure include a Cloud based Central Management System (CMS),
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Guardian Content Filtering, Automatic Software Updates, Detailed Usage Reporting, Fraud/ skimming alerts, Status Alerts, Wireless Internet, Level 1 PCI DSS Certification, Easy VPNs and 3G Failover should a franchisees fixed line network go down. “The VPNs are valuable on their own – they’re easy to set up with just a few clicks. Head office now has total visibility of transaction volume and sales. The system was plug and play. With all devices preconfigured, we just had to plug them in on-site, and they were all set.” IT Manager, Star Metro
Easily deployed enterprise level security at cost effective rates The service won the 2012 UK Security Innovation of the Year Award and was the first networking service in the world to achieve Level 1 Payment Card Industry Data Security Standard (PCI DSS) compliance. The solution is unique as it offers enterprise grade security at a commercially attractive price for small to medium sized businesses. MerchantSecure is able to secure, protect, and enhance productivity within franchisee operations while reducing franchisor operating costs. “Using a secure connection over the internet rather than fixed links has reduced network costs to small sites by approximately 75 per cent.” IT Service Owner, Fonterra It is a cloud based management service with an onsite security appliance that locks down the point of sale (POS) and segregates payment traffic from all other corporate IT data. It incorporates a firewall service that detects and
blocks internal and external network intrusions or rogue devices being plugged into the network, thereby reducing exposure to skimming and fraudulent attacks. The MerchantSecure service is particularly well-suited to the demands of working across multiple geographies and ISP locations, as all its network appliances are managed and configured using a Central Management System (CMS) accessed through a browser interface. For franchisors this provides complete visibility and control of their network connections and activity from anywhere through a secure website. With anytime, anywhere access, the service offers real-time management, reporting and proactive security in one solution. It is designed to secure a franchisors network and their sensitive data while reducing operating costs and risks. Despite a growing awareness of the significant rise in and financial impact of data breaches, Australian businesses continue to focus their efforts on mitigating the damage once a breach has occurred, rather than prevention. MerchantSecure is the ideal preventative measure to ensure data security and PCI compliance while reducing operating costs at the same time. IP Solutions expertise in payments processing and customer data protection in the telecommunications, franchise and retail sectors means we understand the costs and complexities associated with securing a merchants business. For an obligation-free consultation contact: Phone: Email: Web:
02 8231 6644 merchantsecure@ipsi.com.au www.ipsi.com.au/pci-dss-network- security
P
MerchantSecure is able to secure, protect, and enhance productivity within franchisee operations while reducing franchisor operating costs. The service won the 2012 UK Security Innovation of the year Award and was the first networking service in the world to achieve Level 1 Payment Card Industry Data Security Standard (PCI DSS) compliance.
Protect your franchisees future and contact IP Solutions today on (02) 8231 6644 or email merchantsecure@ipsi.com.au BUSINESSFRANCHISOR 29
Bianca Keys
Effective Communication: Getting Support Rather Than Resistance From Your Franchisees For many people, change, however positive, is something that is feared or at best viewed with caution. To be truly effective in gaining support for your ideas and implementation strategies, you need to work on two important areas, 1. Preparation 2. Communication
Preparation
T
he New Year is a perfect time for setting intentions and creating the building blocks for a successful year ahead.
As a franchisor, prosperity is a wonderful vision to have. But what does it mean if you are the only person on the journey? Effective communication and supportive relationships with your franchisees are the keys to unlocking this positive vision. To bring a system safely to destination success you need to include your colleagues and engage them in collaborative practices. In theory this sounds wonderful, although it is not always easy to put into practice, particularly if ‘the journey’ is fundamentally seen by your franchisees as change.
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It is great to have enthusiasm for your ideas, but if enthusiasm is all that you burst into the room with, you are likely to be met with fear, doubt and scepticism. However, if you are well prepared you stand a much better chance of gaining support. Firstly, think about what might be important to your franchisees. What are the needs and goals that might be important to them? What intentions might they have in mind for 2013? Secondly, give some thought as to whether your own intentions are in line with these, or whether you need to spend time considering ways in which to meet both sets of objectives. Thirdly, put yourself into the shoes of the other person for a moment. If you were in their position, how would you like to receive the information that you (as yourself) wish to convey? Then spend some time considering the positive attributes that your franchisees bring to your business. How might you acknowledge these and include them in the implementation process?
Finally, how can you best prepare your franchisees for an upcoming discussion so that they feel part of the process, rather than a mute audience being told what to do? Perhaps you could send an outline of your idea and ask for written feedback, develop and circulate a draft agenda for comment, or meet with individuals or small groups to get a sense of what is important to them this year? By doing this, you avoid a situation in which anyone feels surprised or excluded. In addition, you role model a collaborative and inclusive approach to have people join the journey (rather than be taken for a ride).
Communication Even the best preparation can fall apart if the execution is not done properly. You might have done all of the above but then burst into the room with the previously mentioned enthusiasm, only to throw your ideas around the room at lightening speed. Instead, try the following, 1. Welcome and thank everyone for making themselves available, and for any comments or feedback that were previously provided. 2. If you are comfortable, acknowledge the positive attributes that you have thought of in preparing for this meeting and highlight the importance of those involved in making the year ahead a successful one. 3. Outline the items that you would like to discuss
and any process for asking questions or having discussion. People like to know what to expect, even at a process level. 4. Be clear in communicating your ideas – slow down and realise that for many this will be the first time they will be hearing your ideas in full. They have not been privy to your late night internal dialogue, post-it notes and other thought processes. 5. Ask open questions of your audience. Invite them to give their thoughts, ideas and feedback. 6. LISTEN to what is being said. It may or may not be what you expected and you might need to tweak your ideas to meet the needs and goals of those you want to work with. 7. Be flexible and be prepared to brainstorm other ways to achieve your goals or to incorporate the goals of others. 8. Work with others to agree to times for progress meetings and leave the door open to comments and questions following the meeting.
9. Perhaps design a process for collaboration beyond the meeting, like a suggestion board or Facebook page. Something that everyone can be involved in if they so choose. The key is collaboration. If you prepare well, set the stage for inclusive dialogue AND be prepared to change if need be, then you are more likely to gain support for your vision and some company for the journey. Without this, success might not mean very much when there is only one glass of champagne to toast with. Finally, a note on the resources available to you if you find that resistance to new ideas escalates into conflict of some sort. The Office of the Franchising Mediation Adviser (OFMA) is an independent office, appointed by the Federal Minister for Small Business to provide mediation and other supportive services for disputes arising under the Franchising Code of Conduct. Where parties to a franchise agreement are in dispute, either one may contact OFMA and request information and assistance. The OFMA offers access to a panel of specialist franchise mediators so that you can have an effective conversation with your franchisee/s with a view
to resolving issues in ways that meet the needs of both parties. The OFMA also offer a free Early Intervention Service for matters where there is only one or two straightforward issues that perhaps do not warrant the time or cost of a mediation process. It has been the experience of the OFMA that some franchise systems choose to use their service regularly – not because they have extensive or numerous issues, but because they choose to resolve issues at an early stage and in a collaborative “problem-solving” manner. If you are seeking information as to how you might effectively communicate and resolve a problem with your franchisee/s you can contact OFMA and they will go through the problem and possible services with you. All calls are confidential. Bianca Keys, Assistant Franchising Mediation Advisor. For further information contact: Phone: 1800 150 667 Web: www.franchisingmediationadviser. com.au
BUSINESSFRANCHISOR 31
Philip Colman
Updating Disclosure Documents
More than an Annual Event Firstly, in 2001 clause 6A was inserted. After an amendment in 2010, it now reads:
W
(“the Code”) came into operation in 1998 and it was clear that a franchisor
had to create a disclosure document and update it annually, it was thought that once the annual disclosure document was created, multiple copies could be printed and put on the shelf to be handed out to prospective franchisees when required, with the only variant being disclosure under item 11.2 relating to whether the site or territory to be franchised had been subject to a previous franchise. How things have changed since 1998!
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signed.
“The purposes of a disclosure document are:
Now, a recent decision of the Federal Court of
(a) to give to a prospective franchisee, or a franchisee proposing to enter into, renew, extend or extend the scope of a franchise agreement, information from the franchisor to help the franchisee to make a reasonably informed decision about the franchise; and
Australia highlights the need for franchisors
(b) to give a franchisee current information from the franchisor that is material to the running of the franchised business.”
hen the Franchising Code of Conduct
14 days before that franchise agreement was
Secondly, in 2010 the Code was amended to require franchisors to attach to their disclosure document the franchise agreement in the form in which it is to be executed by the franchisee. This amendment: • outlawed the previous practice of franchisors attaching their standard pro forma franchise agreement (with no schedule items completed); and • essentially meant that if the terms of the franchise agreement were amended by negotiation after the disclosure document was given to the prospective franchisee, another disclosure document attaching the amended franchise agreement had to be given at least
to consider whether the entire contents of their disclosure document are up to date and not misleading or deceptive, the disclosure document is issued to a franchisee or prospective franchisee.
Spar Licensing Case On 15 October 2012, Justice Griffiths of the Federal Court delivered judgment in SPAR Licensing Pty Ltd & Anor v MIS Qld Pty Ltd & Ors [2012] FCA 116. Although this case also involved issues pertaining to anti-competitive exclusionary provisions, the focus of this article is limited to those aspects of the case which dealt with the Code and misleading and deceptive conduct issues. This case arose out of a desire by a franchisee (“MIS”) to exit a franchise agreement with a franchisor (“SPAR”) before the end of the term to join a rival of SPAR, Metcash/IGA (“IGA”). SPAR sought to hold MIS to the franchise agreement on the basis that its terms did not give MIS a right to terminate the franchise agreement.
well as on the need to give effect to the stated purposes underlying the disclosure document regime. In this case there was a delay of more than six months between provision of the disclosure document and execution of the Franchise Agreement. The relevant financial statements were finalised in about the middle of that period. They were available to the franchisor for about four months prior to the Franchise Agreement being executed by the parties, but those financial statements were not disclosed to MIS, nor was MIS provided with any solvency statement signed by at least one of the franchisor’s directors in respect of the financial year ended 30 June 2010, nor any supporting independent auditor’s report.
MIS resisted the claim on a number of grounds. It firstly argued that there was an implied term that it could terminate the franchise agreement or that some right existed at common law. The Court rejected these arguments. MIS also resisted the claim on two further bases: 1. SPAR’s disclosure document was deficient; and 2. It was induced to enter into the franchise agreement by misleading and deceptive conduct of SPAR, and that these breaches of the Code and the Australian Consumer Law were of such significance and character that the Court should either set aside the franchise agreement or vary it so as to give MIS a right of termination. Facts relevant to disclosure document In this case: • MIS received SPAR’s disclosure document on 21 July 2010 which contained: - A statement of solvency as at 31 August 2009 (Item 20.1); and - An auditor’s statement in support of the statement of solvency (Item 20.3); • MIS did not enter into the franchise agreement until 1 February 2011, more than six months
after the disclosure document was provided; • No updated disclosure document was given between 21 July 2010 and 1 February 2011; and • The financial position of SPAR had significantly deteriorated after 31 August 2009.
Ruling on disclosure document issue Justice Griffiths held that SPAR had breached its Code obligation to give MIS a current disclosure document. He said: “ …In my view, no assumption should be made that a single disclosure document created within the stipulated four month period after a financial year end (and where there is an existing franchisee) necessarily satisfies the obligation to provide a current disclosure document to a prospective franchisee. In particular, I do not accept the implication of SPAR’s argument that a disclosure document created within the stipulated four month period where a franchise agreement already exists, is also necessarily “a current disclosure document” in the circumstances of a case such as the present. In my view, this question must turn on the particular circumstances of any case, as
As noted above, the purposes of the disclosure document (as declared in clause 6A) are to help a franchisee (including a prospective franchisee) to make a reasonably informed decision about a franchise and to give the franchisee (including a prospective franchisee) “current information” regarding the franchisor which is material to the running of the franchised business. There is a clear risk that those purposes may not be achieved if a prospective franchisee is provided with a disclosure document which does not contain current and prescribed information concerning such a centrally important matter as the solvency and financial position of the franchisor to enable the prospective franchisee to make an informed decision whether or not to enter into a franchise agreement… In circumstances where the Franchise Agreement between SPAR Licensing and MIS was not executed until 1 February 2011, I consider that SPAR Licensing was obliged to create and provide MIS with a disclosure document which contained the required financial information pertaining to SPAR Licensing (either independently or, where appropriate, as part of a consolidated group) which was current at the time MIS’s directors were determining whether or not to sign the Franchise Agreement... If MIS had entered into the Franchise Agreement shortly after being provided with the Disclosure Document around 21 July 2010 (noting of course that some allowance would need to be given to the minimum 14 day period which has to be provided to a prospective franchisee to enable
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Philip Colman
it to absorb the material it receives from the franchisor and to enable it to obtain relevant advice), it may well be that the Disclosure Document would have been compliant.” Justice Griffiths also held that this breach was serious enough to justify him varying the franchise agreement to permit MIS to terminate the franchise agreement upon payment of certain fees.
Misleading and deceptive conduct claim The alleged misleading and deceptive conduct comprised representations to the effect that if MIS became a SPAR franchisee and then later wanted to convert to IGA, it could terminate the franchise agreement with SPAR upon payment of certain fees. It was alleged that these representations were misleading and deceptive because of SPAR seeking to hold MIS to the franchise agreement and preventing it from converting to IGA.
Ruling on misleading and deceptive conduct claim Justice Griffiths held that: • These representations were in fact made; • They were misleading and deceptive (as evidenced by SPAR seeking to hold MIS to the franchise agreement and preventing it from converting to IGA); and • MIS relied upon those representations in signing the franchise agreement. SPAR has lodged an appeal in respect of this decision which will be heard by the Full Federal Court in late February 2013 with a decision expected later in the year.
Commentary It could be suggested that this is a unique case, one where there was a long period of time between the provision of the disclosure document and the signing of the franchise agreement, with a deterioration of the franchisor’s financial position in the interim. But I believe this decision has broader application. It emphasises the point that franchisors cannot give franchisees or prospective franchisees disclosure documents that fly in the face of
34 BUSINESSFRANCHISOR
reality. For example a disclosure document created on 31 October 2012 might say there have been no franchise terminations in the past 3 completed financial years, but in the period from 31 October 2012 there may have been a high percentage of franchisees exiting the network. Although it might be factually correct that there have been no franchise terminations in the past 3 completed financial years, the failure to disclose the high percentage of franchisees exiting the network after 31 October 2012, would give a prospective franchisee the wrong impression and does not fulfil the stated purpose of a disclosure document as set out in clause 6A of the Code. It is also potentially misleading and deceptive. Another example arises where, in the period between the annual update and the handing out of a disclosure document to a prospective franchisee, the franchisor’s territory selection policy has significantly changed such that the prospective franchisee might be misled as to the level of territorial protection it might receive. Many more examples of changes that might have occurred post the annual update but before the handing out of a disclosure document to a prospective franchisee can be envisaged. You only need to look at each item of the disclosure document and realise that if it is not up to date at the time it is handed out to a prospective franchisee, there is a real risk the disclosure document will give the prospective franchisee the
wrong impression and not fulfil the stated purpose of a disclosure document as set out in clause 6A of the Code and/or be misleading or deceptive. Therefore, the formal requirement that franchisors update their disclosure document annually not later than 4 months after the end of the financial year, must be seen as an absolute minimum requirement. The Code has now been operating for 14 years. It is incumbent on franchisors to know every aspect of disclosure as second nature. Franchisors should be able to recite each item of disclosure without need to refer to the Code and be alert to anything that may occur in their business that might cause the disclosure document to convey the wrong impression. They should amend, or instruct their solicitors to amend, their disclosure document accordingly. It is important that franchisors seek legal advice in relation to their disclosure document obligations in the light of this decision. Philip Colman is a Principal at Mason Sier Turnbull, a law firm renowned for its franchising expertise. Located in Melbourne’s industry heartland, Mason Sier Turnbull has strong commercial law skills and provides clients with sensible solutions. Contact Philip Colman: Phone: Email:
03 8540 0240 philip.colman@mst.com.au
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www.franchisingexpo.com.auBUSINESSFRANCHISOR 35
Michael Sheedy
RECRUITMENT TRENDS IN FRANCHISING S
uccessful franchisors understand that to grow their business they need to employ the right people to support their franchisees at ground level to help the system succeed. Franchise-centric positions that have evolved within the industry include field support managers, franchise operations managers and franchise general managers. The roadmap to a successful career in franchising is not as straightforward as other industries. In general business, managers measure their success by moving onwards and upwards, gathering larger teams and having more people reporting to them. In franchising, many candidates are happy to criss-cross their career pathways by taking on similar or lesser roles but in different systems. For example a successful field manager from an established system may see moving to a smaller, emerging system and helping that system to grow, as a stimulating career challenge. Or an operations manager in a small, young system may be ideally placed to take on the role of field support manager in a larger, more established system. We’ve seen a lot of movement over the past four or five months – not necessarily for monetary reasons but purely because the candidates have
36 BUSINESSFRANCHISOR
outgrown the system they are in and rather than becoming complacent in their job, they are seeking new opportunities within the franchise sector. A recent example is that I recently interviewed a candidate, who was a successful general manager in a fast-food franchise with more than 300 outlets, for the position of general manager in a retail consumer household goods franchise with just 30 outlets. This candidate saw the move as a massive career leap as he had worked in fastfood all his life, and was now looking to embark on an exciting new challenge which will involve resourcing products and working with overseas suppliers etc. Franchisors are also becoming more open to this. They know that a candidate will have a much higher level of understanding about the position than someone from a non-franchising background. These candidates bring the intelligence from another system’s processes, and this can then be ‘cross-pollinated’ into the next system, which leads to growth, development and best-practice throughout the industry.
Finding the ‘right’ person It’s an ‘employer’s marketplace’ out there at the moment and I’m finding that clients are saying to me: ‘I want you to find me the right person’ not ‘find me the right person who’s available’. They
simply want ‘the best’ – and are prepared to pay for it. Current salary packages for field support managers are around $90,000 and that is pretty consistent across the board, regardless of the size of the system. With incentives and bonuses, operations managers or franchise managers can earn around $120k, and general managers of franchising could go as high as $200,000 plus in the bigger systems. I think it’s fair to say that ‘everyone is a candidate’ whether they are working or not. The marketplace is robust and healthy and regardless of the industry, these days, three years in a job is a long time. There’s a lot of chop and change. People have a love affair with ‘what may be’ and many people responding to employment ads are already employed.
Competitive space This creates healthy competition in the franchise industry for systems to strive to position themselves as employers of choice. To do this they must ensure they continue to provide professional development opportunities, and financial incentives to retain the best staff. One of the trends I have noticed over the past 12 months, due to co-ordinating and attending various in-house networking groups is people’s
willingness to connect within the industry and share and learn from each other. It used to be more of a closed book. It’s also interesting to note that there seems to be an increase in younger people, including managers and entrepreneurs, attending these events as they are seeing franchising as a viable career pathway. There has also been major growth in educational offerings such as the Diploma of Management (Franchising) which may assist young people to get a ‘foot in the door’ however I believe that real life experience must complement that education. Through Linked-In and other internet-based recruitment tools we can immediately touch so many potential candidates. People are making connections through these mediums, and we use these tools to call people up and organise to get them in front of us as quickly as possible for a face to face interview. This is vital. Our clients know how active we are in the marketplace with networking and that we have an enormous amount of personal connections. We will only recruit people who match the culture of the business and who will make a real and positive difference, and you can only do that by developing a relationship with that candidate. This is what franchisors are focussing on when they ask us to canvas for the ‘right’ person. Without question, the economic uncertainty has played a significant role in franchisors’ confidence to employ new people. As a business, we have also had to adapt to economic uncertainty, and have accordingly developed a non-percentage based payment structure for providing executive recruitment services. With our strong focus on relationships and results, we are able to field and place candidates within the quoted time-frame which generally results in a fee of 30-40 per cent less than traditional percentage-based fees. This is proving an attractive incentive for franchisors that are keen to employ the right people to ensure they continue to provide the best support possible to their franchisees.
Changing focus Demand in the marketplace continues to grow for experienced field support managers (FSMs). The key difference in the past six months in terms of FSM recruitment has been that franchisors are seeking FSMs with a local area marketing focus as well as a strong financial acumen. Basically franchisors are looking for FSMs who can take a holistic approach when working on franchisee’s business plans. Administration support has been another strong growth area in franchise recruitment. As well as the processing work that is required in an administration role, franchisors are seeking people who are prepared to take on leadership responsibilities within the business in their dealings with customers, franchisee relationships and suppliers.
Michael applies his knowledge and skills gained from key managerial roles in the sports marketing, wholesale, and manufacturing industries to help other businesses achieve their goals by placing the right people in the right jobs. Michael, a keen cricketer and footballer, and former captain of the Richmond Cricket Club, is currently combining his recruitment management duties with studies for VU’s Bachelor of Marketing (International Trade & Marketing). Contact Michael on Phone: Email: Web:
0423 057 566 or 03 9533 0028 Michael@fcbusinesssolutions.com.au www.fcbusinesssolutions.com.au
Another shift has been in network development roles. Franchise network development is an area that over the previous 12 months was quieter, but the past six months has seen a real spike in internal franchise development specialists. With new territories to uncover and existing businesses looking to change over to franchise systems, these roles have been super exciting to recruit for. Systems are recruiting there is no doubt. With budgets being finalised and resources being thin in some departments the need to recruit is still buoyant. Expectation on candidates to come in and make an impact is most certainly evident. The word is that those franchisors that are proactive in the space of support and network developments are reaping the rewards. Michael Sheedy is an experienced and dedicated recruitment specialist who firmly believes that the role of each individual employee is vital in the development of a successful business.
BUSINESSFRANCHISOR 37
Waivestar
MAKING BUSINESS EASY
customer plan The Waivestar Customer Plan is to ensure that every client has an Account Management team dedicated to looking after their business, understanding their requirements in micro detail and providing cost efficient solutions and systems to increase productivity and deliver on cost savings. “Our team of people have the expertise and knowledge in supply chain processes and will at
Waivestar makes business easy for franchise clients and their customers
all times provide our client with alternate options
C
relationship, but on an alliance partnership,
hairperson and Managing Director, Michelle Powell explains why; “Our focus is to thoroughly understand our clients’ issues and challenges along their supply chain of delivering to their end user, the customer. “We deliver systems and solutions, streamline their workflow, provide a value proposition and increase efficiencies throughout their entire supply chain. WaiveStar Group achieve these outcomes for our clients by providing sound managerial control over a suite of services and products that are delivered by exceptional customer service around a platform of leading edge technology and competitive market value. “Our clients focus on their core business and trust us to manage the rest.”
BRAND STRENGTH WaiveStar Group specialises in brand consistency, uniformity and monitoring their clients’ brand, ensuring that their brand is at all times adhering to their brand manual and guidelines. The critical importance of brand is: • Awareness The ability of a potential buyer to recognise or recall your brand as a brand of excellence and first class service within your market place • Brand Attribute & Strength The relevant functional and emotional attributes associated with your brand
beneficial for the customer as well as the brand
BACKGROUND
and implement the most appropriate solutions,” says Michelle. “Our approach is not on a supplier/client bringing to our clients a supply chain of non-core activities to enhance their core activities.”
WaiveStar Group was established as a supply
LOCAL AREA MARKETING
chain management company in 2000 by
Bring local and loyal customers to your business
Chairperson and Managing Director, Michelle
and increase sales and value by enjoying the
Powell. With a strong background in technology, Michelle decided to base the services of design, procurement, print and point of sale, promotional merchandise, warehouse management, fulfilment and distribution on a strong e-business platform now called WaiveNet.
SERVICE OFFERING INCORPORATES: • Creative - Design and Marketing
benefits of national promotions by overlaying them with your own local area promotions. “The long term benefits are brand protection and consistency along with local flexibility with your target market,” says Michelle. “Our local area marketing strategy incorporates a range of tactics and must be implemented from the ground level upwards.”
• Print Management
WaiveNet - YOUR ON-LINE GATEWAY TO MAKING BUSINESS EASY
• Point of Sale Management
Migrating to newer and smarter technologies
• Local Store Marketing
allows your business to make better use of your
• Mail Management
time and investments by increasing productivity,
• Promotional Merchandise and Creative
implementing efficient workflow processes and
• Sourcing and Procurement
Concepts • Uniforms, Hi-Vis Gear and Corporate Apparel • Warehouse Management • Inventory Management • Pick and Pack Services
introducing new and innovative ways of doing business – making business easy. Waivestar has its own IT Division who scope out, develop, code, program and customise e-business solution to suit your business requirements and your business rules. Fully customisable on line
• Campaign (POS) Pick and Pack
modules provides a seamless solution to support
• Credibility
• Outwards Goods Management
your core business activities.
A belief that your brand will fulfil its brand promise over that of your competitors
• Logistics Services
For more information about Waivestar Group
• Fully Customised on-line Ordering, Despatch
contact:
• Fairness A belief that there is something ‘in it’ or
and Reporting Solutions
Phone:
03 9487 2100
• Integrated B2B Solutions
Web:
www.waivestar.com.au
38 BUSINESSFRANCHISOR
WSG
MAKING BUSINESS EASY
OUTSOURCING
DESIGN
MARKETING
PROCUREMENT
PROMOTIONAL MERCHANDISE
UNIFORMS & CORPORATE WEAR
INVENTORY MANAGEMENT
FULFILMENT PICK ‘N‘ PACK
DISTRIBUTION
LOCAL AREA MARKETING
WAIVENET 3.0 ONLINE RESOURCES
ONLINE SOLUTIONS
REPORTING
Call us to find out how we can make business easy for you. T 03 9487 2100 www.waivestar.com.au
BUSINESSFRANCHISOR 39 WSG Franchise Ad.indd 1
28/02/13 2:29 PM
Darren Wallis
Building your franchise D a r r e n Wa l l i s ’ t i p s for going global
I
n 2005, after working for more than a decade at one of Australia and New Zealand’s most successful home building companies – G.J.
Gardner Homes – I packed my suitcase and left the southern hemisphere with a plan to grow the company in the United States. With limited contacts, network or map, I arrived solo in America to meet the one master franchisee we had organised from Australia to help grow our business. This experience was one of the most challenging and rewarding times of my career. Since that day, the business has seen unprecedented growth in franchises and franchise areas in the United States, despite the nation-wide decline in the United States homebuilding industry and the 2008 global financial crisis. You might not know it from G.J.
40 BUSINESSFRANCHISOR
Gardner Homes’ strong position in the United States today, but the GFC was just one of many challenges I faced in growing my company on an international scale – it was much tougher than I first expected. Today, my company’s profits in the United States alone exceeded $6 million in FY2011—a 25 per cent increase to gross revenue. The franchise’s rapid growth means we now have 16 franchise locations in California, eight in Colorado and two in Texas, proving that the unique franchise model that has been so successful in Australia and New Zealand is just as successful in the United States. My plans for continued expansion of the G.J. Gardner Homes franchise are firm, with projections of between 300 and 400 active G.J. Gardner Homes stores over the next 10 years. But that’s not to say it has always been smooth sailing. While my business growth plans for the
United States have been successful, my first attempts at expanding internationally did not go as planned and I have learnt many lessons along the way. In 2006 and 2007, we attempted to expand in Germany and South Africa with dismal results. Naivety of the language barriers and different business ethics were the biggest issues we encountered. Eventually the challenges that we as a company faced were too large and unfortunately, as CEO of the company, I did not have the critical experience or knowledge of international expansion to overcome these challenges. Alas, the lessons learnt from these business ventures are part of what makes our franchise as strong as it is today. Through trial and error, I was able to resurrect a resilient methodology before expanding to America. And although it was still a risk, following simple rules meant I could confidently take my business to the United States without fear of failure. International franchising opportunities exist across many markets and industries and franchising is almost universally accepted as a sound way of doing business. If executed correctly, international expansion can be great for your brand, domestically as well as globally. That said, before expanding a franchise overseas, there is a lot business owners need to consider. The best advice I can offer is to make sure your franchise and company is ready to expand internationally. Do your research and familiarise yourself with your target areas, be on the ground to set it up so it’s done right from the start, and employ the right people who will ultimately be responsible for the success of your franchise.
Are you ready? Asking yourself whether your business is ready and capable to expand internationally is the first thing you should do before taking the plunge into the global market. If you are experiencing difficulties with your business domestically, then expanding internationally is not a good idea. You must ensure you have a solid franchise network with the tools, support, training and processes in place that can be transferred overseas. International expansion is a lot of work and can be expensive. It’s important that you are 100 per cent confident that you and your company are ready to take this big step in franchising.
Do you have a strong franchise model? Having a strong franchise model is crucial to successfully expanding your franchise overseas. Although the product or service you deliver are also important, an unbreakable business model, a clear strategy and a growth plan are the backbone of the business that will help your franchise become successful on a global scale.
Research, research, research! Once you have decided on the country or countries that you want to expand to, you need to do your research and consider the many different factors that could have an impact on your business. It is important to have a thorough understanding of the political climate, economic state, competitive environment, industry-leaders, potential suppliers, relevant legislation and any cultural issues or language barriers. All of these aspects could have enormous impacts on your franchise and must be considered in the decisionmaking process. Understanding the areas, state, town or city that you are looking to expand into is a very good move because your understanding of local issues will go a long way.
Be there to set it up Being on the ground to set up your franchise in a foreign country is invaluable. By developing relationships with stakeholders and talking to the right people, you get a first-hand look at the environment in which your franchisees will be operating. Taking the time to set up meetings and personally recruit the staff who will be leading your franchise from abroad will help build a strong structure that is supported by your existing business model. To be successful in a new country, learning the local and colloquial language can be critical to communicate effectively with potential business partners. Even if you speak the same language, there is a risk that people will still not understand you. Talk the way the locals do so that you can present business propositions in a way that is clear and concise.
Hire the right people Having the right franchisees and master franchisees brings local knowledge and a strong
understanding of who your customers are. This intelligence is priceless and can help deliver tangible results fast. Local knowledge and a familiar face could be key to your franchise and your franchisee’s growth. The right person will know your particular market, the industry and your competitors, as well as being in tune with the local community’s and stakeholder needs. Following these simple steps and being informed before taking the plunge and expanding internationally could mean the difference between success and failure. And if you do decide to expand, and you do it well, my experience shows it can be the best move you’ll ever make. American builders have warmly welcomed the franchise opportunities with G.J. Gardner Homes, recognising the benefits of being a part of a stable, supported and secure business that has a safety net of other experienced builders within reach. Whether I’m in Australia, New Zealand or the United States, I am always grateful for the strong team of franchisees who operate the G.J. Gardner Homes business, making it the successful and growing home building company it is today. G.J. Gardner Homes CEO, Darren Wallis, has spent the past year taking his company from good to great, expanding in the United States, raising significantly increased revenue, implementing an improved business model and winning several awards – not to mention the birth of his first daughter to add to his family of four boys. At the age of 40, Wallis is one of Australia’s leading young entrepreneurs with an impressive track record for innovation, global success and an eye for the next big thing in franchising. Wallis has worked at G.J. Gardner Homes for the past 18 years, 11 of which as the CEO. Since taking on the top job, the group has grown from 20 offices in Australia to more than 110 in Australia, New Zealand and the United States. For more information contact: Angela Jessup, Account Executive icon.pr Phone: 03 9642 4107 Email: angela.jessup@iconpr.com.au
BUSINESSFRANCHISOR 41
tania allen
OPTIMISING FRANCHISEE PERFORMANCE franchisees, which ultimately can undermine efforts to attract new franchisees into the system. It goes without saying under-performing franchisees can become a significant problem. This article presents a brief insight and introduction to some ways you can optimise franchisee performance.
Your Franchise Recruitment Process We all know the importance of franchisee selection. Select a bad apple and you will pay the price for a long time; select a good one and your life becomes slightly easier. So why do we see franchisors still falling short in this area?
A
s a franchisor, you’ve seen in your own vision, drive for success and in your company owned operations that success is possible simply by doing the right things in the right order and at the right time. In other words by following the ‘system’ that has enabled you to create the success you have achieved thus far, there should be no reason why others cannot achieve the same level of success or more. After all, that’s the reason why you franchised your business in the first place, so others could enjoy in your success.
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If you can do it, then why do some franchisees fall short from time to time and some more often than not? It’s rare for a franchisor to be completely satisfied with the performance of most franchisees. Too often, franchisees implement only portions of the franchisors system, take significantly longer to develop and grow their business and consistently fall short when it comes to financial expectations. In extreme cases, under-performing franchisees are catalysts to dissatisfaction among other
Having a solid recruitment process in place is generally a good place to start. Knowing who your ideal franchisee is, what their character traits are, what their goals are for the future and how they have operated in the past in their career and/or another business is a crucial element. By developing a solid seven to ten step recruitment process, it becomes a reliable system that will enhance the foundations right from the start. It will help you attract your ideal candidates, allow you to take them through the selection process and lead them into moving forward and you making a decision to grant a franchise to the ones who are a match to your defined selection criteria. Your aim is to get the candidates jumping out of the process and walking away so
you are left with the good apples, the ones who see your system as a match for them and the ones who you see are a match for you. Take some time over the next week to review your current recruitment process. Where are the gaps? Where could you improve and what could be removed altogether as it just isn’t supporting you. Oh and if you don’t have a solid well defined and documented recruitment process, then take some time to develop one.
The Franchise System - Does Your System Need an Update? The core of any franchisor-franchisee relationship is the franchisor’s system for developing and operating a franchise. Effective franchisors have a consistent, repeatable system for operating a franchise. It is designed to produce franchisee success even if the franchisee knows little about running a business in general or that type of business in particular. This system usually consists of a comprehensive set of specific guidelines for everything operating the business effectively. Your system should comprehensively cover all key areas of the business including but not limited to administration, key operations, sales and marketing, HR, IT etc. Don’t forget to look at support and training. The system allows the franchisor to grow by both attracting new franchisees and by enabling each new franchisee to be consistently successful. Thus, the system is the essential foundation of the franchisor-franchisee relationship. Franchisee success is dependent on the quality of the franchisor’s system, among other things, so it is critical that the system is complete, easily understood and effective. While all franchisors have a system, as discussed above, its sophistication and comprehensiveness often lags at least a little behind their growth and, in some cases, may be substantially out-of-date. Anything less than a comprehensive, realistic and effective system undermines both the value of the training and the system’s discipline. The best way to develop a great, widely accepted system is to combine the broad knowledge of the
franchisor and the top franchisor team members with the knowledge and expertise of the high performing franchisees. Generally the high performing franchisees know how to make the system work. By combining the best of both the franchisor and franchisee perspectives the system will encompass the ‘real’ story of what it takes to develop and manage a successful franchise. To a new franchisee coming into the ‘franchise network’ or an under-performing franchisee, the ‘system’ is a vital element in their success. Any gaps will result in the franchisee instantly blaming the franchisor’s system for their lack of results. I see this time and time again and yes, although all franchisees should be 100 per cent responsible for their success, what can you do to enhance the ‘system’ that enables them to create a certain level of success?
Training & Support Providing initial training to new franchisees should be just the beginning of the ongoing training and development you provide your franchisees throughout the term of their franchise agreement. Training and ongoing development and support should be a significant element in your franchise
system. There are modern-day ways to deliver ongoing training and support. Be creative and think outside the square so that your delivery methods allow your franchisees to learn in an environment that supports them and their overall effectiveness, and the delivery methods support you also as a franchisor. Ongoing training and support can include both offline and online programs and delivery methods. Perhaps now’s the time to review your ‘system’ and see if there are any ways you could make improvements that could optimize your franchisees performance. Have a look at where your franchisees are possibly falling short, what are their challenges, and how can you support them? Consider system enhancement. Perhaps the creation of more online training videos or the development of an online group coaching and support program showing how to run the business consistently and more effectively may be beneficial to your franchisees. Whatever it may be it’s always a great idea to carry out a system review every 12 months to ensure your franchisees have every opportunity to maximize their potential.
BUSINESSFRANCHISOR 43
tania allen
Increasing Effectiveness As human beings not one is the same as the other. Franchisors can often fall into the trap of expecting every franchisee will run the business as efficiently and as effectively as you would. Unfortunately it’s far from reality so the best thing you can do as a franchisor is to support your franchisees in becoming more efficient and effective in what they do. We all know many franchisees are wasting time by focusing on the wrong activities. To increase overall effectiveness, it’s important for your franchisees to know and understand how to accurately identify where they spend their time. Once they know where their time is being spent it’s easier to identify what areas and activities they can focus on and what areas and activities that really should be delegated to staff.
How To Get Started 1. Do a Brain Dump. Simply write down all tasks, business and personal activities that are done during working hours. This can be done manually or using online software such as Time Doctor or Yast. 2. Separate the tasks under headings daily, weekly, monthly, quarterly. 3. Circle the tasks that are repetitive, tasks that you don’t love or enjoy or is not worth your hourly rate. 4. The items that are circled should be the activities that can now be delegated to staff members. 5. If the process or procedure to carry out the task is not documented then create a system for this so team members can complete the tasks / activities efficiently. 6. Consistent Daily Action is the key to success.
Mindset is Key Mindset can either make or break your franchisees. It has been proven that a mindset shift will pave the way for more consistent results. Based on this understanding, if we want franchisees to produce better results, we have
44 BUSINESSFRANCHISOR
to go to the foundations and make a change within the mindset of each and every one of our franchisees. We have to change what they are thinking. This will then influence a change in their root beliefs, which will bring about a new sense of confidence and clarity and ultimately better results. Now I know what you are thinking, “I can’t possibly help every franchisee change their mindset.” That’s almost impossible. Here’s a mindset shift right now. Everything is possible if you put your mind to it. Using some simple belief altering techniques, you have the opportunity to help shift your franchisees mindsets quite quickly and effectively. Of course, they are responsible for their success, so ultimately it’s up to them. 1. Have your franchisees define what success means to them.
contradict themselves by not being willing to do what it takes to reach their goals. 4. Hold them accountable to being 100 per cent responsible for their success. Put a plan in place for this to ensure it’s achieved. 5. Encourage them to say positive affirmations on a daily basis such as, “I am a confident and successful business person,” or “Each day in every way I am better and better,” or “Increasing my business comes easily to me,” or “I live each day with passion and purpose.” 6. Empower your franchisees to adopt an attitude for gratitude. You simply cannot get more of what you want, until you are grateful for what you have. Tania Allen is the founder of Vision Alliance and
2. Encourage your franchisees to set goals regularly. Be sure they are written down and, more importantly, be sure there is an action plan in place so that they can take the necessary actions to achieve these goals. Ninety day cycle action plans are best for building momentum fast.
author of Franchise Profits. Vision Alliance is
Phone:
1300 76 49 20 or 0419 481 203
3. Have your franchisees commit to their success. Most people think they are committed and then
Email:
tania@vision-alliance.com
Web:
www.vision-alliance.com
a business growth and franchise consulting firm that helps franchisors and franchisees get more out of business and more out of life. For more information about how Tania and her team can support you contact Tania Allen at:
book review
THE SECRETS OF MY SUCCESS
and the story of BOOST Juice, juicy bits and all
Janine Allis, mother of four starts a new retail concept, it explodes and she rides the perfect wave. It was easy. Or was it? In The Secrets of My Success Janine Allis tells the story of the creation of Boost Juice, a $250 million global business, and reveals her 30 secret recipes for business success. Janine shares her journey from a woman with no formal business training, to become leader of a business that has 280 stores in 12 countries (and growing). With humour, warmth and down-to-earth wisdom, this must-read reveals how a self-confessed ‘girl from the burbs’ built one of Australia’s most recognised brands, while capturing the hearts of millions of devoted customers around the world with her unique love-life philosophy. Janine gives the reader tips on business and life she wished she had known when she started her journey with Boost Juice 13 years ago. The Secrets of My Success has something for everyone. Budding entrepreneurs, Boost customers who are curious about the business started, managers and business owners hang onto your seat as Janine divulges 30 secret recipes for success that will enable you to shape your own successful business strategies. In practical terms, Janine also explains how to hang on to your core values while building the right team, a unique approach to listening to your customers and how you can market like the biggest names in business. For today’s entrepreneur looking for non-traditional paths to success this book offers practical business and leadership wisdom combined with Janine’s personal story. You’ll also get the inside scoop into Janine’s early years, from working as head stewardess on David Bowie’s personal yacht in the south of France to becoming a single working mother at 25, and discover how Janine’s heart for adventure and her determined approach led her to become Australia’s most successful female entrepreneur. “Writing the book was a fantastic walk down memory lane for me. I seriously had no idea what I was doing or what I was in for when we started Boost Juice, but with hard work, lots of luck and great people around me, my dreams really came true. The book is in many ways a how-to-find-happiness journal, it is written about a journey in business, but really it is a story about living your dreams, believing in yourself and what can happen when you find true love. It is also a book about the evolution of a young, inexperienced yet determined girl growing into a wife, mother and businesswoman,” Allis says.
By Janine Allis Published by Wrightbooks, May 2013 ISBN: 978-1-118-64817-9, Paperback: AUD $24.95, NZD$28.99
BUSINESSFRANCHISOR 45
Shape Shopfitters
One stop shop fitting solution kiosk at Fountain Gate shopping centre in Victoria.
“We look forward to working on exciting projects
Seed and Stone is a family grown business originating in the Macedon Ranges which offers authentic Australian-baked good as well as light meals and coffee.
with clients such as Seed and Stone, as well as
For Edward Barbar, Managing Director of Seed and Stone, it was important that Shape Shopfitters took the time to consider the look and feel that they were hoping to achieve.
Shape Shopfitters provides a service to help
“Right from the outset the whole process has been great,” said Edward. “Wayne and the Shape Shopfitters team really take the time to think through the design from the client’s perspective.
S
hape Shopfitter’s Director Wayne Billings says that the key to his success is in building and maintaining strong
relationships with his clients. “We are in the business of building relationships,” says Wayne. “Our goal is to understand the vision and goals of our client and then work together to not only build or refit their stores, but to build a long lasting partnership. “We’ve recently developed a new working relationship with Seed and Stone and look forward to working with them in the long term,” Wayne said. Shape Shopfitters has recently completed the fit out of a brand new 80m2 Seed and Stone café
46 BUSINESSFRANCHISOR
continuing to uphold strong relationships with our existing clients.” For franchisors looking to build, refit or refurbish, every step of the way, and pride themselves on providing outstanding building expertise, attention to detail and commitment to brand consistency. With more than 13 years’ experience in shop fitting throughout Australia, specialising in retail food spaces, Shape Shopfitters provides excellent
“The whole team has been great. They are proactive, responsive to our needs and take initiative when required,” said Edward.
products and service and are reliable partners in
Edward says that Shape Shopfitters’ experience with retail food spaces was of great benefit to the project.
one-stop shop fitting solution. With their own
“We worked together with the team to establish the materials and finishes we wanted and they offered advice as to the best location for equipment and the practicality of the work space, and we are very happy with the end result. “We’re thrilled with the work that Shape Shopfitter have done with our fit out at Fountain Gate, and we look forward to continuing the relationship,” says Edward. “We’re now working on another fit out in Epping Plaza, and have more projects lined up over the coming year.” Wayne Billings is excited about the new association.
the process of fulfilling a client fit out. They pride themselves on being a genuine workshop, Shape Shopfitters can see a fit out through from concept to completion. The workshop produces signage, joinery and cabinetry, with qualified tradesmen dedicated to delivering quality shop fit outs against critical deadlines. With 100 per cent control over the entire shop fitting process, it is guaranteed that projects will be delivered on time and within budget, ensuring opening day goes ahead as planned. For more information contact Wayne Billings: Phone:
03 9432 1044
Email:
wayne@shapeshopfitters.com.au
Web:
www.shapeshopfitters.com.au
Building Retail Experiences
Shape ShopďŹ tters understand the customer experience and work with you to bring your brand’s vision to life on the shop oor. We build inspired customer experiences through our customised offering, in-house joinery and our highly technical expertise, particularly in the food space. Shape ShopďŹ tters work across every state and territory of Australia. For more information call our Head Office on (03) 9432 1044 or go to our website for more examples of what we do at www.shapeshopďŹ tters.com.au
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BUSINESSFRANCHISOR 47
LORELLE FRAZER
The next generation of
franchise field support Times have changed, and franchisees need franchisor support more now than ever and based on the Franchise Performance Metrics research conducted by Griffith University’s AsiaPacific Centre for Franchising Excellence, many franchisors rate their field support staff as lacking skills in this area too.
Greater focus on franchisee profitability required
T
has also changed. Franchisees are no longer requesting support only with
merchandising. Tighter margins, greater competition and pricesensitivity among consumers are creating everincreasing pressure on franchisees’ bottom lines and as a result franchisees are seeking greater financial management assistance. Most franchisees have little training or experience in the area of financial management,
48 BUSINESSFRANCHISOR
If you can’t access franchisee sales data in real time you should strongly consider investing in technology which enables this - preferably cloudbased technology to maximise accessibility for field support staff.
These new economic conditions require franchisors to place a greater focus on franchisee profitability.
This data can also help identify the early warning signs a franchisee is heading into trouble while there’s still time to turn the franchise unit around.
Here are some tips on how to adjust your field support strategy to better service your franchisees in this new environment.
Likewise the same data can also help identify where a franchisee may by skimming royalties, while also taking the emotion out of the skimming debate.
The first step is to start tracking financial benchmarks across your franchise group if you don’t already. he type of support franchisees require
performing franchisee into a top performer, when used in the right way.
By tracking performance across a range of financial benchmarks franchisors and franchisees can assess, monitor and improve performance. To do this effectively though, franchisees, together with their field support professionals, need to be able to accurately assess the health of their franchise and identify areas requiring greater attention, and do so at a glance. Using franchisee data, some of it which is likely to be readily available in your franchise, such as balance sheets and profit and loss statements, can provide the tools required to turn an average
By having the right financial tools and monitoring in place you can make any discussions needed based on scientific facts, rather than hearsay or accusations. With the right processes in place it’s even possible to identify the amount by which they are skimming. However, without the right processes in place, and without field support professionals trained to interpret financial data, many franchises are having the value of their franchise model eroded. Skimming and poor franchisee financial management can affect the perceived return on investment of buying into a franchise by a
prospective franchisee, and although it’s an issue that can be easily addressed, many franchises haven’t yet done so. The Franchise Performance Metrics research identified a shortfall of 24 per cent between the revenue that franchisors stated their model returned and the actual royalty revenue received from franchisees. This evidence indicates either some franchisors are unaware of the revenue in royalties their franchise model returns, or there is a significant amount of royalty skimming happening across franchise systems. Either way, tracking financial performance and up-skilling franchise field support professionals to focus on financial management in field visits can address this issue. And the benefits go beyond identifying any instances of skimming to improving franchisee engagement and franchisee return on investment.
Benefits of integrating financial management into field support By collecting franchisee data on at least a monthly basis, field support teams can then be trained to interpret the data to create practical action plans that engage franchisees. In order to successfully implement a financial benchmarking strategy franchise head office teams need to engage franchisees on financials first - and it doesn’t have to be as hard as it sounds when approached in the right way. This can be done by demonstrating the benefits of such a program, which includes linking financial targets and action plans to individual franchisee personal goals, and there are a few techniques you can use to do this.
by 10 per cent, again that figure needs to be
Franchisees with realistic expectations of what
translated into something franchisees feel can be
franchising will be like also tend to be more
achieved.
satisfied with the franchise.
For example if a 10 per cent boost in franchisor
All these elements lead to more positive
profit equates to an extra $20,000 in the pocket of
franchising experiences for both the franchisee
the franchisee (which means they can afford the boat they wanted) you now have their attention. If you then break down what the $20,000 profit is in extra sales per month and then per week, you will have a tangible target the franchisee will generally agree is possible. Further, the franchisee is also committed to achieving that target as they clearly understand what’s in it for them. The next step is to then get the franchisee to
profitability in a way which engages franchisees will also help make the field support role a much more enjoyable process and could lead to lower levels of staff turnover. There are also several other techniques than can be used to maximise franchisor return on investment of field support services. Professor Lorelle Frazer is Director of Griffith
sales.
University’s Asia-Pacific Centre for Franchising
Having weekly targets makes it easy to track performance on an on-going basis too. Tracking the financial performance of your franchisees, will also help you identify the
• Balance Sheet
average return on investment your franchise
• POS data
Focusing field support on driving franchisee
work out an action plan to help attract the extra
What franchisee data tools do you need?
• Profit and Loss Statements
and the franchisor.
model delivers, which can help with franchisee recruitment. Incoming franchisees will also be able to
You also need to have an understanding of a franchisee’s personal and lifestyle goals.
determine roughly how long it will take them to
If a franchisee wants to own a boat, and to afford that boat they need to bring in an extra $20,000 profit this year, then you need to break that figure down into achievable targets.
them determine how much capital they’ll require.
Similarly if a franchisor wants to boost profit
franchise relationship.
reach breakeven and turn a profit, which will help This will allow franchisees to have more realistic expectations, which research shows minimises the likelihood of conflict arising later in the
Excellence and one of the world’s leading franchise researchers and educators. Lorelle has been actively involved in franchising research and sectoral policy initiatives for more than 15 years. She also lectures in franchising and is a member of the Australian Competition and Consumer Commission Franchising Consultative Panel. In 2010 Lorelle was awarded the Franchise Council of Australia’s national Contribution to Franchising Award. The Asia-Pacific Centre for Franchising Excellence aims to drive franchise sector best practice through practical, independent research and education. Web: www.franchise.edu.au
BUSINESSFRANCHISOR 49
peter buckingham
Strategic Network Planning B
uilding a business is normally a long term affair. When we do a business plan, we envisage what will happen over the next few years, and use our best forecasts to make the long term decisions, and hope all goes to plan.
well as their local presence. It is at this time
Why is it then when many businesses look at their long term network planning, there is a huge variety of processes used, from being proactive, such as companies like McDonalds and Caltex, through to companies that are totally reactive – where they can be led like a bull with a ring through the nose?
ratios from city to city are concerned.
In many cases the location strategy for a business is driven by minimising expenses, and to that end, minimal staff (and in some cases the property department is the waiting room for retirement). When working in the oil industry, I must confess that was our assessment of many of the property managers of the time! However the decisions this group makes for your business are some of the most important long term decisions that can make or break a company over the next 10 or 20 years. Poor planning in new store development leads to the closures of the next 5 – 10 years, and the costs of those can be astronomical. Think of companies that rose like comets and sunk down just as quickly (some to try and re energise again). Names like Starbucks, Klein’s Jewellers, Allan’s Music and Clive Peeters come to mind.
Australia-wide presence Naturally, a business starts in a city or state, and effectively begins its expansion there. After a certain length of time, many successful business concepts decide to become a national business, and make decisions on heading interstate as
50 BUSINESSFRANCHISOR
that I believe a proper strategic network planning process needs to be considered. The first question is how many stores (or territories) should I have? In simple terms, this is probably proportional to population as far as the The table below gives an approximate breakdown of how that sits, based on Census 2011, the latest full dataset for Australia.
City
Sydney
Persons Households Pop. Ratio 5,141,783
1,802,104
34%
Melbourne 4,173,248 (Geelong)
1,497,125
27%
Brisbane (Gold Coast /
2,965,630
1,069,104
19%
1,728,743
627,090
11%
1,225,233
475,370
8%
(Newcastle / Central Coast / Wollongong)
Sunshine Coast)
Perth
(Rockingham / Mandurah)
Adelaide
Source: Housing and Population Census 2011 From this we can see that if we had 100 stores evenly distributed by population across the five main capitals (including the extended cities such as Geelong, Sunshine and Gold Coasts, Newcastle, Central Coast and Wollongong), we would have the ratios on the right hand side of the table. Normally if we have 100 sites in the main cities, we have about a further 20 – 40 in other cities and towns.
Proactive vs. Reactive network planning As businesses grow, it can be easy to not place the necessary resources into network development. I was with one client some years back who had appointed a new Network
Development Manager. I was speaking to him about the boss’s expectations, and he told me his job description was to find the franchisee, qualify and approve the franchisee, find the location and arrange the lease for the store, arrange the fit out and do everything up to opening. I commended him on what he could do, and asked how many he was planning to open in the next 12 months. He told me the boss had set his target at 25. I suggested he put his undies on the outside and get a cape with a big S for “Superman” on it! In talking with many experienced Network Development Managers, and I had this role for Caltex for three years myself, the current thinking is if a person had all those chores, AND had a good pipeline of leads, they would have had a great year if they achieved 8 – 10 stores. If they are going to achieve a number like 20, believe me they will be accepting everything put before them, and very little quality will be sought. You may have heard the 80 / 20 rule as 80 per cent of your problems come from your lowest 20 per cent of sites. This is a recipe to make that even worse! One solution to this is to be proactive and have a plan of where you are seeking sites and why, and not be reactive, just accepting what is thrown before you, with realistic targets.
The Plan We have undertaken these types of projects for many large companies, including a large US QSR chain coming into Australia. The first thing to try and establish is how many sites they want to have in 10 – 20 years i.e. what they feel is maturity. A classic way of expressing the long term targets
may be something like the table below: Total stores
2011 Pop
Approx. 200 stores
(‘mature’ market)
Sydney 4,133,890 Melbourne 3,887,600 Brisbane 1,951,446 Perth 1,477,097 Adelaide 1,154,115 Gold CoastTweed Heads 548,469 CanberraQueanbeyan 404,206 Newcastle 319,893 Central Coast 307,046 Wollongong 252,121 Sunshine Coast 224,485 Geelong 154,128 TownsvilleThuringowa 152,304 Hobart 136,696 Cairns 120,661 Toowoomba 108,274 Other Cities >
100,000 Persons
1,026,463
51 47 24 18 14
it has made it so much easier to communicate with potential franchisees, as they understand we have a plan and a logic on where we locate our new stores”. Their sweet spot is areas of high socio economics and along roads with high traffic – all fairly logical for a car wash. This gives a map as shown below:
around the chosen market, and not end up with all your stores in a specific area. With direction to your network development staff, you should be able to open stores in a preferred order, not just taking what the real estate agents are drip feeding you, or trying to shove down your throat.
7
What can you do to improve your system?
5 4 4 3 3 2
The first thing you need to do is to consider the network development area as a core part of the business and should be home to many of your leading, most experienced staff. In the oil industry, no one went into this area without a very solid background as a representative or a manager in their past.
2 2 2 1 11
From this, the discussion then moves to a more local level where you need to nominate specific areas or suburbs. We see the strategic network planning being like in a helicopter two kms off the ground and being able to look down and nominate areas, or sections of road to say where you believe a store should be considered long term and why.
On an individual basis, we then can put forward a local area map showing the exact opportunities, and if the client desires, even the traffic estimates along the main roads.
A Target Market Index then allows you to describe or work out statistically what makes your best potential customers and where they come from. The analysis comes from evaluating the major drivers of the business, in conjunction with the site availability and in many cases such as QSR’s and petrol stations, the traffic actually passing the store. Ideally, we then create a map to show each market, and then do individual maps to show specific areas, including right down to local areas with a two km radius, and even the traffic estimates along the main road. With the permission of Magic Hand Car Wash, a company on a strong growth move at present, we can look at the maps that have been made for Adelaide, and even a map for a specific area where they want to open a new franchise. Claude Roda, the Managing Director of Magic Hand Car Wash says, “Having done the planning,
Not all sites are equal! As part of a strategic network planning project, we need to have some form of prioritisation, as not all opportunities will appear equal. Our view is to create a three tier system, whereby Tier 1 is sites you would like to open immediately if they became available. Tier 2 are sites we can consider, but really would not want to be opening too many until at least 50 per cent of the Tier 1’s are opened, and Tier 3 is probably where we should start to look for sites in three to five years time, after 75 per cent of the Tier 1’s and 33 per cent of the Tier 2’s are already operating. This is partially to assist you in spreading evenly
Secondly I see some franchise systems where they outsource this area of their work and to an extent pay for performance. I know of many good companies who work well in finding sites, but who is steering the ship? My view is this is so critical; a very senior person needs to be driving. If outsourcing is to occur, the guidelines and targets must be realistically set, and it is little use in my view just paying a “spotters fee” or a success fee, as it incentivises the outsourced party to open as much as possible. I have assisted some consultants in this area, and have said to the client, the major franchisee, that they need to pay a retainer as a major part of the cost, and by all means some success fee, but keep the balance so the consultant has a reasonably long term contract to achieve good stores. Finally, whether you do it internally, or use an external consultant to work with you, make sure you have a strategic network plan to look at the short, medium and long term goals of our business in terms of site planning and site selection. Search well Grasshopper! Peter Buckingham is the Managing Director of Spectrum Analysis Australia Pty Ltd, a Melbourne based Geodemographic and statistical consultancy, and the Victorian Chapter President of the Institute of Management Consultants. Spectrum specialises in assisting clients with decisions relating to store and site location using various scientific and statistical techniques. To contact Peter: Email: peterb@spectrumanalysis.com.au Phone: 03 9882 6488.
BUSINESSFRANCHISOR 51
Greg Nathan
Lessons in Franchisor Excellence Relationships Institute (FRI) to promote a higher standard of franchising practice, based on research and evidence. Part of the program has included live interviews and case studies with guest mentors who lead respected franchise brands. Other elements have involved the sharing of models and best practice findings from FRI’s work with hundreds of franchise systems around the world. At the time of writing this article we are halfway through the program. Here are a few lessons in excellence that have emerged from the program so far.
Adjust your support to suit the development level of your franchisees
T
oward the end of last year, 105 senior franchisor executives commenced a six month online learning journey together to
explore what excellence in leadership means in practice. The program was developed by the learning design team at the Franchise
52 BUSINESSFRANCHISOR
Franchisees move through six stages of development - Investigation, Initiation, Perspiration, Consolidation, Maturation and Reformation. As their competence grows, the type of support they need will change. For instance, a franchisee struggling through the Perspiration stage needs reassurance and support
in establishing their operational systems. A franchisee at the Consolidation stage needs coaching in focusing on their metrics to achieve higher levels of productivity. The most challenging stage for a franchisor to manage is Maturation, where franchisees can become complacent and disengaged. Challenging them with new opportunities and harnessing their experience as mentors can help to maintain their engagement.
Convert your business strategy into a simplified model or map One of our guest mentors, Warren Willmott, CEO of 7-Eleven has converted the company’s entire business strategy into a colourful chart that explains how the pieces of the strategy fit together. This process has sharpened his own thinking and enabled him to share the strategy with people at all levels. For instance each department in the franchisor team can see how they contribute and what their priorities need to be, while franchisees can see what the company is focusing on and where they fit.
communicate with and support franchisees from diverse backgrounds.
Respect franchisees as leaders in their own right It goes without saying that franchisees are not employees. Yet a surprising number of franchisor executives fall into the trap of communicating with franchisees as though they were. This creates a tendency for franchisees to dig their heels in. FRI’s psychologists analysed the responses of 3,000 franchisees to the question, “What message would you like to give to top leadership?” Franchisees most want their franchisor to listen, consult and engage more with them. In other words, they want to belong to a culture where they are respected as business owners. Warren is also an advocate of the Balanced Scorecard system for measuring performance, having participated in an in-depth training program in the USA. He says it has given them a process to measure and monitor everything that matters in the business, including franchisee satisfaction.
Equip your franchise network for a multicultural revolution A growing number of people from non-Australian backgrounds are joining franchise brands as a way of establishing themselves as independent and productive members of their local communities. This trend is growing. However many franchisor executives admit to being challenged in how to best engage people from different cultural backgrounds. FRI’s research has also found that, despite having a high work ethic, franchisees from non-English speaking backgrounds may be falling behind in the delivery of the customer experience and participation in franchise network activities. The solution appears to sit more with franchisors than franchisees, in that franchisors need to do more to understand the best ways to train,
One of our mentors, Mike Tregurtha, who has worked in senior roles with McDonald’s, Gloria Jeans and Telstra, says a healthy franchise partnership is based on old fashioned virtues of open two-way communication where neither side dominates. “The franchisor and franchisees go up together and down divided,” he said. Mike also advocates a technique of having weekly informative 30 minute national webinars with franchisees to deliver live updates on current initiatives, priorities and results.
Create a learning culture and use multiple methods to mentor franchisees FRI’s definition of mentoring is “the sharing of motivation, information, tools and insights that improve franchisee performance.” One of a franchisor’s important functions is to ensure this type of mentoring is happening, though they do not need to deliver it all themselves. For instance, suppliers, consultants and franchisees can all deliver effective mentoring. At Pedders Suspension, mentoring of franchisees takes place in the form of regular national conferences, regional meetings, field visits and weekly webinars. General Manager, Bill
Orders, says while many of these sessions are led by external facilitators who understand how to engage people in the learning process, the content is mostly delivered by internal people and franchisees. Bill says Pedders have worked hard to create a learning culture where everyone is encouraged to develop their personal, leadership and business capabilities. He calls it their “have a go” philosophy.
Build a listening culture Culture, which can be defined as “how we do things around here”, is largely set by the attitudes and beliefs of those at the top of the organisation. FRI’s research has identified that high performing franchise networks inevitably have a culture of mutual respect. On the other hand, if franchisees are treated as cogs in a wheel to just comply with what the franchisor says and deliver royalty fees, there is a drop in trust, morale and results. One franchisee in FRI’s research expressed this eloquently. “When I started in this business my franchisor treated me like royalty. Now I am treated like royalties!” David Rivers, Managing Director of Harvey World Travel, has used franchisee surveys and professionally facilitated two-way communication sessions with franchisees, to get honest, constructive feedback on how they are feeling about the culture and the services delivered by his team. By listening to and acting on this feedback he has been able to continually improve the performance of his team and maintain high levels of franchisee satisfaction, even during tumultuous economic times.
Recruit quality franchisees by nurturing quality enquiries Joe Mathews, President of the USA based Franchise Performance Group, says to sell more franchises you don’t need more leads, you need more buyers. The point is franchisors need to focus on creating and attracting people who are ready, willing and able to join their system, rather than just attracting as many people as possible to fill out an enquiry form. This can be achieved
BUSINESSFRANCHISOR 53
Greg Nathan
by having high quality content on your web site, organised in a user friendly manner. Joe says, “Find out what quality prospective franchisees might want to know and give this to them.” Bert Cotte, Franchising Manager for McDonalds, emphasised the importance of finding out from prospective franchisees how they have gone about achieving their past successes. He also said it’s useful to get to know them by having them work in a store and watching how they behave under pressure. Bert says McDonald’s place a high priority on matching applicants with the most suitable opportunity. For instance, taking into account their capability to handle a high potential site, how much equity they have to develop additional stores in a territory and their fit with the local community and culture.
Educate everyone consistently on what your brand stands for A company’s brand is its reputation in the minds of existing and potential customers. This is different to the logo, which is a trigger to get people to think about the brand. FRI consultant,
systems and policies that support a healthy, fun,
Ree Anna Chatman, who led a session on
energetic culture.
Engaging Franchisees with the Brand, says most
For instance, CEO, Scott Meneilly, says he and his
franchisees confuse the brand with the logo. The
management team are committed to providing an
brand is also different from the culture. “Your
example of generosity and trying to make every
brand is what people outside the company think
encounter with others positive and constructive.
about you while your culture is how you really
He says this aligns with Boost’s core belief
operate as a business” she says. Of course brand
statement which is “We believe that everybody
and culture should ideally be aligned and, when
that leaves a Boost Juice Bar should feel just that
they are, a franchise network starts to achieve
little bit better.”
what we call at FRI, culture-driven performance. has placed a high priority on achieving this type
Excellence doesn’t just happen
of culture-driven performance. In particular they
Franchising is a serious affair because a franchisor
have devoted significant resources and thinking to
not only has the success of their own business
build a model of how their culture and brand work
to worry about, they are also responsible for
together. And they constantly educate people at
creating a safe and solid platform from which
all levels about what this means through events,
their franchisees can succeed. This requires good
Boost Juice is a case study of a franchisor that
54 BUSINESSFRANCHISOR
strategy, competent leadership, mutual trust and excellent execution. We developed The Franchisor’s Journey to Excellence because these things don’t just happen. Franchisors need to be educated, supported and challenged to continually perform at a higher level. When you think about it, it’s not dissimilar to what they do for their franchisees. Greg Nathan is Founder of The Franchise Relationships Institute, leading global providers of learning programs for franchisors and franchisees. For more information about the Franchisor’s Journey to Excellence and FRI’s publications and courses contact: Phone: Email: Web:
07 3510 9000 info@franchiserelationships.com www.franchiserelationships.com
Australian & New Zealand Business Franchisor is part of the global network of CBG Publishing
With 30 years experience in providing high quality business information, with a particularly strong focus on franchising, our global presence allows opportunity
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Visit www.businessfranchiseaustralia.com.au to find out more BUSINESSFRANCHISOR 55
Michael Sherlock
THE OUTLOOK FOR FRANCHISING Michael Sherlock, ex CEO of Brumby’s Bakeries, Consultant and Mentor to franchisors and co-author business growth strategy book Jumpshift! - a manual to put your business into Hyperdrive! gives his outlook on franchising in Australia in 2013. Which areas of franchising do you predict are on the up for 2013? There are six sectors that are well positioned for growth: • Education - I have noticed the amount and difficulty of my two youngest children’s home work. So tutoring, after school care, vacation care, music and other coaching will be in demand. • Aged Care – In-home care, with the ageing population and longer life expectancy, there will be insufficient low care beds, and the government is actively encouraging home based care. • Rental of household and commercial items – recently I was talking to the CEO of one of the largest furniture retail groups, who advised that sales are tough as lenders have really tightened up on lending. Even lending via in-store finance arrangements is difficult as very few customers now qualify. At the same time Radio Rentals, Mr Rental, Silverchef etc are doing well. • The Mining Sector – The number of projects in the pipeline is still very strong and it will last for decades. There are many openings for franchised goods and services to be supplied to these new “Gold Rush” towns. Labour is at a premium in these areas so any franchised system that can deliver ‘ready to go’ accommodation, food, entertainment and quality of life products are likely to experience growth.
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• IT – The IT industry has so many new resources and ways of doing business that the online sales threat to bricks and mortar retailing will continue to take market share. We will see the benefits of the new IT age. I am aware of an App about to be launched that will eliminate paper and plastic loyalty cards, enable customer communication and rewards marketing via Smart Phones and there are no high set up costs as it uses QR codes. • Low labour systems – The 24/7 gym sector has continued to expand, other systems with a similar low labour model where someone re-focuses on a tired sector and gives the customer what they want should perform well, for example new-age coinless Laundromats are booming in Brazil .
Conversely, which areas do you think might struggle during 2013? I’ve identified several sectors that will continue to struggle and new areas that will be challenged: • Old technology - Video stores are disappearing. Many of their sites are converting to 24/7 gyms. The secret is to adapt. Look at JB Hi-Fi who were originally in the photo processing business. They still sell cameras but have moved ahead of the technological changes to reflect consumers’ future needs. That is the challenge for the video industry. • Mature QSR brands who don’t adapt - Look at what has happened to the pizza sector. The market was price driven at the expense of quality. Now new brands offering gourmet pizza menus are booming – eg Crust, Capers. The same has happened to the Mexican, chicken and hamburger segments. There is also growth in the same mature markets, the new Subway type product Pitta Pit is an example of a new twist on a proven formula. Daryl Lee is a classic example of what happens if you do not keep up. • High rent and high labour based systems - With rents climbing the skill shortage, labour costs and competition from the mining boom, mature brands particularly those in food that rely on skilled labour will come under increasing pressure.
How has franchising fared in 2012? As usual different sectors have had different results. It’s a matter of adapt or perish to keep up with consumers’ needs. A great example is the old gym model compared to the new 24/7 model. The 24/7 gyms are the best franchised system I have seen in my time, characterised by consumer focus, no stock, one wage, half the membership cost, no locked-in contracts, always open, state of the art equipment that is IT connected so members have lots of interesting distractions while exercising. Most gym clubs only need 900 members and there is no cash - all direct deposit. The challenge is when will saturation point be reached? It is also one of the few sectors where the franchisee does not need to be hands-on. They still need the ‘owners eye’ to run the system (they are all externally monitored on Smart Phones) but do not have to spend 10 hours a day, seven days a week behind the counter.
How is franchising as a whole sector travelling? It is still the best system to get a product or service to market. I see the essence of franchising as the ‘owners eye’. The franchisee is far more motivated and rewarded than any employee on a profit share will ever be. The difference is when the going gets tough the last thing to be paid is the owner’s wage, so they roll up their sleeves, follow the system and brand provided and make it work. I am yet to meet an employee who will cut their wage when losses are incurred. The sector faces many challenges, franchisee recruitment, tough retail environment, skill shortage, rising costs of doing business and occupancy costs. Franchising however, is still the best model for labour and capital using all the benefits of a brand and system provided.
What are the biggest challenges to the sector for 2013? A healthy sector needs to be one of balance. A franchisee should be able to work hard, follow the system and get a reward for their effort, dedication and risk including wages, annual profit and capital gain. The franchisor should be able
to support their system, expect compliance and make an annual profit and capital growth. I see many systems where the franchisor is taking too much profit from the system while not supporting the franchisees with marketing, new products, mentoring, training and keeping the system ahead of their competitors and customer focused. The areas that need balancing include: • Rebates - I have seen many mature systems where the franchisee is not getting the purchasing power benefits - they can do better on their own. • Marketing Funds - Some franchisors take too much out of the levy and leave little for attracting new customers. One system I observed spent less than 10 per cent on actual external marketing activity. • Renewals and additional fees levied. • Buy back of stores at written down value when the deed has expired. • Sale of company owned stores well below the cost of a new store or worth of an existing store. • Image updates, internal costs levied to approve. • Compulsory purchase of equipment and annual support costs that are above what is available elsewhere. Contact Michael at: Phone: Email: Web:
0412 747 111 michael@michaelsherlock.com.au www.jumpshift.com.au
BUSINESSFRANCHISOR 57
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AUSTRALIAN & NEW ZEALAND
Franchisor B U S I N E S S
BUSINESSFRANCHISOR 59
A-z directory OrderMate POS
Our nationwide network enables us to rollout, service and support large scale projects.
OrderMate is the complete multisite franchise POS solution.
Find out more for your franchise contact: Clinton Capuzzi 1300 667 067 / 0409 191 617. www.ordermate.com.au sales@ordermate.com.au
OrderMate was established in 2001 to service the food and beverage pos market. Its success relies upon its uniqueness from the competition which is often generic and off the shelf. Easy to use front of house interface, whilst still giving you the powerful backend reporting to drive your business. OrderMate gives you the tools to track and manage the KPIs of your franchisees in real time. We have a proven track record of delivering a return on investment within 12 months.
shape shopfitters Formally known as Billings Long, Shape Shopfitters have more than 13 years experience in shopfitting, specialising in Retail food fitouts across every state in Australia. Shape believe that building expertise, attention to detail and an understanding of the complexities of retail food is the starting point. Their knowledge, combined with exceptional attention to detail and successful deliveries, has positioned Shape as a leader in the Shopfitting industry. Shape is a genuine one stop shopfitting solution. They have
SILVER CHEF B R A N D M A R K Silver S T YChef LEG I D E helping franchisors and franchisees to hasU been
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Franchisor
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For more information contact Wayne Billings at 03 9432 5445, email: wayne@shapeshopfitters.com.au or visit www.shapeshopfitters.com.au
And if you are part of an Accredited Franchise, you will enjoy even greater benefits such as reduced rental bonds, rental discounts and pre-approved funding for all franchisees. Silver Chef Limited is a public company listed on the Australian Stock Exchange. Contact James Scurr Phone: 1800 049 743 Fax: 1800 884 431 Email: jscurr@silverchef.com.au Website: www.silverchef.com.au
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in house manufacturing facilities that include the ability to produce customised pieces specific to your brand. In house graphics, signage, joinery and furniture capabilities, together with an experienced team of onsite tradespeople allow Shape to have 100% control over quality and timing, ensuring your grand opening happens on the day you planned and ready to give your customers a true brand experience.
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johnd@ww-wa.com.au or visit www.ww-wa.com.au
Australian & new zealand business franchisor
description of your business, plus your logo in full colour. It is also replicated on our website for the full 12 months.
A-Z Listings are a great way to promote your business! An A-Z listing provides consistent exposure over a 12 month period, is available in all our magazine format publications and includes a 150 word
For more information call 03 9787 8077 (or +61 3 9787 8077 from outside of Australia) and speak to one of our Sales Executives or go to www.businessfranchiseaustralia.com.au or www.businessfranchisenz.co.nz
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