Business Franchise January/February 18 Feature: Retail Franchising

VOL 12 ISSUE 02 jan/feb 2018

retail franchising ! t u O t i k c e h C why retailers must embrace

customer feedback don’t buy a

build a business

job

The balance of power

Business Franchise Australia and New Zealand 33

Be the

LEADER OF YOUR OWN SUCCESS Welcome to a world of opportunity, brought to you by 7-Eleven, the brand that’s world famous.

A 7-Eleven franchise is a partnership in success.

When you buy a 7-Eleven franchise, you buy two things. Firstly, a brand name that’s recognised around the world, and secondly a business system that works, one that provides more support than most other franchise networks.

BENEFITS OF BEING A 7-ELEVEN FRANCHISEE Our stores are open 24/7, so we’re with you 24 hours a day, supporting you in every part of your operation.

From setup, to training, to marketing, and even to book-keeping, we’ll help you turn your new business into a solid investment.

We set up shop for you and give you

full training

We take payroll admin off your hands

and help with the book-keeping

We deal with suppliers to get you the

best products

We manage the fuel

Financials

Contact Details

An initial investment of between $400,000 and $1,000,000 + is what is required to become a 7-Eleven Franchisee, so it’s certainly a big decision to make.

Franchise Development Managers

The 7-Eleven franchised business model is one with a difference, because we tie our financial success to the success of our Franchisees.

7-Eleven shares in the profits, so it’s in our interest to ensure that we continually work with you to meet the needs of your customers to grow sales, and to grow profits.

Our gross profit split is determined progressively, and there are other shared income stream profits, such as commissions.

We have brands you won’t find anywhere

Brett Reading Queensland

E-Mail: bzr@7eleven.com.au Mobile: 0407 877 674 Peter O’Hara Victoria / Western Australia

E-Mail: pwo@7eleven.com.au Mobile: 0408 175 534 Shayne Boogaard New South Wales

E-Mail: szh@7eleven.com.au Mobile: 0418 136 156

else

We provide advertising and promotional

support

START YOUR SUCCESS STORY TODAY www.7elevenfranchise.com.au

34 Business Franchise Australia and New Zealand

FRANCHISING

40

Contents On the Cover 40 Feature Editorial: Retail Franchising

Check It Out!

44 Expert Advice: Why Retailers must embrace Customer Feedback

46

Vicky Katsabaris, Qualtrics

48 Profile: LuxaflexÂŽ Window Fashions 50 Expert Advice: The Balance of Power

Steve Wright, FTI Consulting

34 7-Eleven

48

36 What’s New! Feature news 43 Hairhouse Warehouse 46 Expert Advice: Protecting and Promoting an Unrivalled

Business Model Bruce Billson, Franchise Council of Australia

53 Clark Rubber

50

54 Have Your Say: Rowan Hodge, Battery World

A regular of Business Franchise Magazine, our special supplement in franchising showcases a different industry each issue To share your specific expert industry advice or to feature your franchise in the next issue, please contact: Kathleen Lennox, Sales & Marketing Manager Phone: 03 9787 8077 Email: kathleen@cgbpublishing.com.au

Business Franchise Australia and New Zealand 35

what’snew!

A TAXING TIME FOR RETAILERS The recent launch of e-commerce giant Amazon has brought the spotlight back on GST. Consumers shopping with global online retailers currently don’t have to pay GST on goods under $1,000, but from 1 July 2018, low value goods that cost $1,000 and under, supplied by overseas retailers to Australian consumers, will become taxable supplies.

The changes to GST are in response to Amazon and other global e-commerce giants including eBay and Alibaba coming to Australia and part of a trend of taxes in response to the disruptive influence of online goods and services. It follows the ‘Netflix Tax’ which was passed in March 2017 and applies to all intangible goods such as software, as well as professional services and consulting.

Sellers of low value goods into Australia should consider the impact of these rules on their businesses and current arrangements and Australian retailers should take appropriate steps to prepare including identifying supplies of low value goods to consumers.

BDO Australia have recently published a Tax

www.bdo.com.au/en-au/insights/tax/tax-

Industry Insight for the Retail Sector which

industry/green-light-for-gst-changes-levels-

can be downloaded at:

playing-field-for-retailers

An Inconvenient Truth How do shopping centre owners press for increases in rents of 4 or 5 per cent per annum when the increase in the $/sqm. sold through the Centres has been increasing in the range of only 0.5% – 1.65% per annum over the last few years?

Using data provided by The Property Council, and originally sourced from the Shopping Centre owners, the logic for these increases is not substantiated says Peter Buckingham from Spectrum Analysis.

Recently Luke Baylis of SumoSalad took an unusual negotiating position with the major shopping centre owners to place two of his property leasing companies into Administration, to change his negotiating position and highlight some facts about shopping centres.

Luke’s position was to show how rentals kept rising at well above CPI rates and yet the shopping centres are not increasing sales and turnover accordingly, and in many cases he was talking of added competition in his direct field coming in, thereby reducing the potential sales.

Over a 10-year period the CPI for Australia has moved from 87.7 (June 2007) to 110.7 (June 2017). This could be seen as a 10 year increase of 26.23% or 2.63% pa.

This definitely forms a strong argument against high rental increases, and having them locked in by the policies of the Shopping Centre owners!

36 Business Franchise Australia and New Zealand

Spectrum Analysis have facts and data relating to most shopping centres in Australia - if you have to negotiate a new lease or a lease renewal, it would be prudent to check the details relating to the shopping centre concerned.

For more information see www.spectrumanalysis.com.au.

SMALL BUSINESSES RUN BIG RISK offer unique, personalised customer service.

If they don’t act now, there is some real risk small businesses will be left behind.”

When there is such fierce competition continually entering the market, it is some concern small business owners aren’t prioritising investment in technology to meet customer demand.

Only 52 per cent of small businesses have some form of website, with 24 per cent saying they have no intention of ever getting one. On a positive note, almost half of small businesses use social media marketing and a further 24 per cent plan to do so. 24 per cent are targeting increased online sales.

Small businesses are failing to embrace technology and many seem oblivious to larger and online businesses who threaten to take them out of business, according to American Express’ Economy of Shopping Small: Keeping it in the Community report.

Only 38 per cent of small businesses feel under threat from large online businesses and

a similar number (37 per cent) are concerned about larger bricks and mortar rivals. This begs the question: are small businesses complacent to the potential impact that techsavvy large and online businesses pose?

Katrina Konstas, American Express’ Vice President for Small Merchants, said: “Small businesses need to focus on what’s important for their customers in this new digital age, and

Konstas added, “Ensuring small businesses have a good website and social media profile means they not only protect their customers, but gain further reach and opportunities for referrals, so they thrive for generations to come.”

The research also revealed that rising energy prices (55 per cent), and managing costs and overheads (53 per cent) are what’s weighing most heavily on the minds of small business owners this year. This differs from 2016 where attracting and retaining customers was the number one concern.

behind the headlines:

retail

Telstra Franchisee Buys Cosmetic Clinic Chain A listed operator of more than 100 Telstra stores has bought a chain of six cosmetic clinics as part of a bold diversification strategy to offset declining Telstra commissions, according to a media report.

Shares in Vita, Telstra’s only master licensed dealer and operator of 107 mobile phone stores, have dropped 75 per cent during the last year, after the company revealed its commission payments from Telstra could be reduced due to increased competition and the rollout of the National Broadband Network.

The company has bought beauty chain Clear Complexions, which provides botox injections and facial peels, among other services. Vita founder and chairwoman Maxine Horne said she mystery shopped several outlets before agreeing to the acquisition, and claims that the business is highly aligned to its mobile phone operations.

“Everyone thinks that we’re a telco. We’re not, we’re a consultative retailer,” she said.

Vacuum retailer’s shares sink to 14 per cent of listing price Shares in vacuum retailer Godfrey’s have crashed to 39 cents, just 14% of their 2014 listing price of $2.75, as the company announces a profit downgrade, and the departure of managing director John Hardy, who has been the face of the business for decades.

According to a media report, Godfreys has warned the market that its F2018 earnings will be up to $4 million lower than forecast, which it is blaming on the slower rate of converting company owned stores to franchises. In F2017, it converted 22 stores, but in F2018 it expects to convert only two or three stores. About half of the chain’s 220 stores are now franchised.

Business Franchise Australia and New Zealand 37

what’snew!

What does the launch of Amazon mean to Australian retailers?

Brian Walker, Principal and CEO of Retail Doctor Group says, “A great deal of debate, conjecture and for some, abject fantascism and equally many opinions are somewhat isolated from the opinion that ultimately matters most: That being the customer opinion.

“Our insights division at Retail Doctor Group, supported by our partners at Lightspeed, asked these questions to Australian consumers on their perceptions of Amazon: What do our customers think about the launch? What is their reaction?

“We found that awareness of the Amazon brand was high however, the results also uncovered the lack of knowledge around what the Amazon proposition really is. Thirty-eight per cent of Australians reported not to be aware of the launch of Amazon, surprisingly millennials were even less aware.

“Dig a little further into the fuller Amazon model and we see even less Australian consumer awareness. Knowledge of Amazon Prime was equally unclear for consumers when asked to define it, with 24 per cent thinking TV streaming, 15 per cent thinking Delivery subscription and a whopping 47 per cent admitting they weren’t sure.

“Only 22 per cent of consumers think Amazon will change their shopping behaviour. For those unlikely to shop at Amazon, the barriers were around a physical element – 33 per cent like to see, touch and feel the product before buying and 28 per cent prefer the shopping experience in a store.

“This confirms what we already firmly believe, that building a one channel retail ecosystem is key to customer loyalty, as we like to say -

“Interaction before transaction”. Retailers should be dialling up their instore experience and emotionalising their brand attributes to build their customer connection and loyalty.

“Ninety-three per cent of the retail professionals said Amazon was a brand consumers trust, whereas consumers themselves rated this at 58 per cent. Building your customers trust is key to customer loyalty, ensure you know everything about your customer. Knowing how to connect to them on an emotional level will strengthen their loyalty to your offering and brand.”

Pop-up parcel store at Westfield Bondi Junction Leading parcel delivery service CouriersPlease (CP) opened a PopUp Stand in Westfield Bondi Junction during the Christmas rush to enable customers to conveniently courier recently purchased presents to loved ones around Australia and overseas to 220 countries.

CP is one of Australia’s largest parcel delivery services, and last year delivered more than 1 million parcels across Australia in December alone. The PopUp Stand operated for two weeks between 4-17 December, helping shoppers save time by buying and sending gifts all at once.

CEO of CP Mark McGinley, said: “Our PopUp Stand operates like a mini postal store, which allowed customers who purchased

Christmas gifts from Westfield Bondi Junction stores to bring their presents straight to the CP stand, place them in a CP satchel or small box and ship them anywhere domestically or to 220 countries around the world. Christmas is the busiest time of the year, and we wanted to offer customers competitive pricing and a convenient, hassle-free alternative to sending their presents.”

The partnership with Scentre Group, owner and operator of Westfield in Australia and New Zealand, comes after a recent announcement by CP that customers could now redirect parcels to a parcel locker (POPStation) in their area if they will not be home to receive them. This service is available at 22 Westfield shopping centres across New

38 Business Franchise Australia and New Zealand

South Wales, Victoria and Queensland.

Mark McGinley said: “Our PopUp Stand is a great opportunity to grow our relationship with Westfield, as we look to evolve the bricks-and-mortar shopping experience.

Although eCommerce is increasing, Aussies are still predominately shopping in-store, and we are trying to enhance this experience, so customers can purchase and post all in one location. By implementing hassle-free delivery and returns solutions, we are offering more flexibility and convenience to Australian shoppers.”

has taken the step of rolling out the change to customers nationally, as well as to their New Zealand operations.

The business has also backdated the change to the date the bill was passed through NSW Parliament, meaning any voucher purchased on or after 18 October 2017 will carry the full three-year expiry; a tripling of the current 12month industry standard.

RedBalloon founder and small business advocate Naomi Simson is delighted about the change as it means incredible value for both customers and their 2000-plus small business partners.

“We’re making this change because we think it offers great value to our customers. We’re doing it now because we didn’t want to serve hundreds of thousands of customers between now and the enactment, given we understand the inevitability of the law change.

RedBalloon leads the way with three-year expiry With new legislation on the horizon, the online experience retailer implemented tripled expiry on all vouchers across Australia and New Zealand before Christmas.

Australia’s leading online experience retailer RedBalloon made a bold move in the countdown to Christmas, opting to implement

early sweeping changes to its expiry policy for all customers.

“We are protecting our suppliers by managing the financial burden of carrying customer credit for an additional 24 months, so that our customers have a longer time frame in which to use their vouchers.”

New NSW legislation - which is yet to specify a compliance date - will require businesses to honour a three-year expiry period on all gift vouchers (and similar) sold in the state.

The legislation limits the expiry extension to NSW customers only, however RedBalloon

The extended expiry will also apply to RedBalloon retail gift cards (found in major retailers like Woolworths, Coles, Myer and Target), where any customer who can show proof of purchase on or after October 18 2017 is able to access the full three years to redeem that value.

Australian Businesses Set to Save on Summer Power Bills An Australian invention is set to save businesses hundreds of thousands of dollars in energy bills with the touch of one button.

Australian-owned Zen Ecosystems has announced the Australian launch of its Zen HQ energy management platform, a year after its successful roll out in the US, an early adopter of cutting-edge smart-energy technology.

Multi-site businesses and franchisors struggling to contain energy consumption and costs will be the biggest beneficiaries, with the innovative Zen HQ system able to control heating, cooling and lighting usage across stores nationally through a central online portal.

Zen HQ uses smart Zen thermostats installed across multiple store locations that can be controlled remotely through a central portal,

providing the ideal energy solution for retailers, franchisors, hoteliers and commercial property developers.

Zen Ecosystems general manager Michael Joffe said the Zen HQ system, which recently received the backing of the Australian Government, provided a solution to one of businesses’ biggest expenses.

“Our system puts an end to thermostat wars between individual store managers and staff jockeying with the thermostat setting throughout the day. Our centrally-controlled system allows for all stores to be heated or cooled at a nominated temperature, and regulated or switched off outside of business hours,” Mr Joffe said.

“We know from our experiences in the US that this has the potential to save businesses hundreds of thousands of dollars. After just one month of using our thermostat system,

businesses were saving 25 to 35 per cent off their store power bill.”

Mr Joffe said the thermostats could be easily retrofitted and were cheap to install.

The Zen HQ was one of the handful of projects to be awarded a multi-milliondollar Australian Renewable Energy Agency (ARENA) grant by the Australian Government last month. Businesses signed up to the system have the option to receive incentives to reduce power usage in peak demand times, easing the strain on the national power grid.

Business Franchise Australia and New Zealand 39

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Retail Franchising:

! t u O t i k c Che Retail is defined as the sale of goods for use and consumption by the purchaser. The retail transaction is therefore at the end of the supply chain.

Manufacturers sell large quantities of products to retailers, and retailers sell small quantities of those products to consumers.

Your product With this in mind, as a retailer, or potential retailer, your product is the most important component in your business. Your product is vital. It should be top quality and something you believe in. However, it cannot stand on its own. If you don’t have a sound business plan, a strong marketing strategy and a firm grasp on your financial status – the quality of your product becomes second tier. To succeed in retail, you must be a shrewd business person who considers all facets of the business.

40 Business Franchise Australia and New Zealand

FE ATUR E : r e ta i l

“Retailers are competing in a highly competitive arena, as they fight to win the dollars that are being spent.”

An industry on the up According to recent Retail Trade figures by the Australian Bureau of Statistics, Australian retail turnover rose 0.5 per cent in October 2017, which followed a 0.1 per cent rise in September 2017. This follows similar rises from last year, and shows that retail is still a growth industry year-on-year, albeit it small and despite a continuing squeeze on the economy.

Specific sectors experiencing small and consistent growth include food retailing (0.1 per cent), and cafes, restaurants and takeaway food services (0.1 per cent).

Dreaming big Do you have visions of owning your own quaint little dress shop in the local village, or a big name coffee house in the flash shopping centre in the city? Want to get your hands on some of this money being handed over by eager consumers?

These are tempting ideas, but tread carefully.

Over the years, global economies have affected nearly every industry. Australians are much more selective now with their money. Consumers are more conservative, more willing to seek out a ‘good deal’ and more willing to wait for the items they want.

This means retailers are competing in a highly competitive arena, as they fight to win the dollars that are being spent.

On top of this, commercial rental rates have skyrocketed, with large shopping conglomerates pushing for leasing rates based not on what the market can bear, but what they can scrape out of their tenants.

So, if the cost of doing business has gone up, is it still worth the risk of entering the retail market? Of course it is, as long as you do your due diligence.

Prof. Lorelle Frazer, Director at Griffith University’s Asia-Pacific Centre for Franchising Excellence has 10 tips for completing your Due Diligence.

Tip #1:

Get advice from advisors experienced in franchising.

Tip #3: Speak to current and former franchisees.

Tip #4: Talk with current or potential

customers.

Tip #5: Verify the information you have

Engage the moral and emotional upport of your partner/spouse, family and friends.

Tip #8: Assess your own living costs.

Tip #9: Do a business plan.

Tip #10: Take your time.

Tip #2: Read everything.

Tip #7:

received.

Tip #6: Undertake web searches.

Security in franchising This is where the benefits of entering the franchise industry come into play. If you know you want to own a corner bakery, why not purchase a bakery franchise? Although it is romantic to envision the sign over your bakery having your own name on it, this would also be symbolic of the situation to follow: you would be on your own. You would have to develop your own business plan, secure funding, choose a site, negotiate

Business Franchise Australia and New Zealand 41

FE ATUR E : r e ta i l your lease, supervise your fitout, formulate a marketing strategy, source your products, and then actually run the business. Are you tired yet?

Imagine if all of this work had been done for you already? This is the beauty of franchising; a great majority of the work is already sorted. Retail is romantic, in a sense, but it is also risky. As opposed to the service sector, or the work-from-home business options, in retail you have bigger costs and bigger risks. Franchising is a way to minimise these risks for you.

A support network Despite the drop in consumer confidence, people are still spending. Perhaps not as quickly or as easily as before – but they are still spending. Being part of a franchise system that has weathered previous economic storms, and knowing that you are an integral part of a larger network, can give you the strength and knowledge to not only survive retail lulls, but continue to prosper.

Online spending Along with the physical site you eventually choose, hopefully with the help of your

“According to the NAB Online Retail Sales Index, online retail spending in Australia currently stands at $23.28 billion to August 2017, which accounts for around 7.5 per cent of traditional retail spending.” franchisor’s site selection strategy, you also now have an online storefront to consider.

According to the NAB Online Retail Sales Index, online retail spending in Australia currently stands at $23.28 billion to August 2017, which accounts for around 7.5 per cent of traditional retail spending. This figure is up 10.3 per cent from last year, and is surely poised to keep growing. Social Media is a powerful tool, and one that can not be ignored. The benefits of utilising the social media platform include reaching a large audience to develop and instill brand awareness, increasing the effectiveness of marketing plans and creating an interactive experience for your current and potential customers.

You as the driver In the end, the choice will be yours.

Whether you decide to go forth into the world of retail and whether you choose to do this as part of a franchise, it is ultimately up to you to define your success. You must be passionate about your product, committed to offering the best service to your customers, and willing to work hard to make your business successful.

42 Business Franchise Australia and New Zealand

KICK SOME GOALS FOR YOURSELF Contact our development team about FRANCHISING OPPORTUNITIES AVAILABLE in your area.

Ongoing support & training provided.

ENQUIRE TODAY (03) 9234 2200 franchising@hairhousewarehouse.com.au www.hairhousefranchising.com.au

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e x pert adv i c e

Why retailers must embrace customer feedback to deliver

a superior customer experience “A significant proportion of shoppers in Australia and New Zealand believe their feedback never reaches someone who can make a difference.”

Vicky Katsabaris | CX Subject Matter Expert & Principal Consultant Qualtrics

In this highly connected age, customers are quick to share their experiences with a broad network of people.

There have been numerous recent examples where negative experiences gain a wide reach through social media platforms.

People value the opinions of their peers and if they hear a brand has failed to provide a positive customer experience, they’re more likely to vote with their feet, taking their business elsewhere.

While this can be a worry for businesses, the benefits of social media fall both ways.

Customers can share their experiences, good and bad, but retailers can also listen to what their customers are saying. In theory, this should make it simple to deliver an experience that delights customers and has them lining up not only to buy from the company again but also to recommend it to their friends.

Customer experience (CX) is therefore a key differentiator for brands in today’s competitive and globally connected marketplace. To deliver superior CX, offline retailers must collect, analyse, and act on real-time feedback from customers about their experiences and expectations, as well

“The benefits of social media fall both ways.

Customers can share their experiences, good and bad, but retailers can also listen to what their customers are saying.”

44 Business Franchise Australia and New Zealand

FE ATUR E : r e ta i l

as their future intentions to recommend or purchase. However, according to new Qualtrics research, a significant proportion of shoppers in Australia and New Zealand believe their feedback never reaches someone who can make a difference.

Qualtrics conducted a multinational survey of 1,700 in-store shoppers, including respondents from Australia and New Zealand, to understand customer services concerns across the retail industry. The insights from the research showed that customers believe their feedback is ignored 45 per cent of the time regardless of whether complaints are made via social media, surveys, or directly to staff. Despite this, shoppers still have high expectations for how quickly retailers should respond to questions and complaints, with 42 per cent of shoppers expecting a response to their social media post on the day of posting. The majority of customers expect a response within a few days (82 per cent).

The research showed the impact of negative experiences on new customer acquisition, finding that for 59 per cent of customers their expectations about retailers are set through social media or referrals from family and friends. Further, 58 per cent of shoppers blame a retailer if one of their employees provides unfriendly or unhelpful service.

That heavy reliance on previous experiences demonstrates that it’s critical for retailers to deliver a consistent, seamless experience every time and more importantly, act on the feedback they receive. Those that fail to do so are missing out on a huge opportunity to grow their business. Worse, they can contribute to a narrative in which their business is portrayed as the villain, perpetuating a perception that could snowball into further negativity for the retailer, affecting its ability to attract new customers.

Most companies offer a platform for feedback, whether it’s a simple Facebook page or more formal feedback mechanisms.

However, too many companies gather this feedback then fail to act on it. Retailers who do this may as well stop asking for feedback altogether. The damage that can be done by failing to act on feedback can be significant, and can be worse than never asking for feedback at all. They risk their customers developing a more intensely negative opinion of the brand.

This is because people want to be heard.

When a company says it’s listening and they act on customer feedback, they demonstrate that they care. Their customers are more likely to engage with that company if they believe their voice has been heard and

their suggestions considered. Even if the customer’s initial experience was negative, by demonstrating that the business is eager to rectify the situation, retailers can turn unhappy customers into loyal ones. In this instance, responding in the moment is extremely valuable.

Retailers also need to know which feedback to respond to. Retailers who have sophisticated CX management platforms are able to understand what truly matters for customers, and what doesn’t. To be successful, retailers must gain an insight into overall customer behaviour, not just the opinions of individuals. They also need to learn how to identify and attract key demographics to their store. By implementing feedback channels, retailers can begin to build a more comprehensive picture of what customers like and dislike, and what drives certain behaviours.

Responding to customer feedback at scale is also important because not every customer takes the time to provide feedback.

By aggregating customer feedback and understanding what matters, especially for high value customers, you’re able to make changes crucial for business growth. By focusing on customer needs, retailers can identify the right areas for improvement as well as potential areas for business growth and further success.

Doing this successfully means installing listening posts at the right moments to learn

about customer needs in real-time – not annually or in an ad-hoc way. Retailers need to constantly review the customer experience they’re delivering. Working with feedback in real time is an absolute requirement for retailers that want to close the customer experience gap. Doing this across all the key customer touchpoints and moments that matter and then providing their people with timely access to this feedback will deliver the greatest benefits.

Vicky Katsabaris is a principal consultant and customer experience subject matter expert at Qualtrics. She provides expert guidance to organisations implementing customer experience programs. Prior to joining Qualtrics, Vicky spent 3 years as the General Manager of Customer Advocacy strategy at Telstra, leading the team responsible for developing Telstra’s corporate strategy for improving customer advocacy.

Qualtrics has released its Customer Experience Management: 5 Competencies for CX Success recommended for any organisation that is looking to build or start a CX program. The competencies outlined in this e-book detail how organisations large and small can focus on customer needs, inject that view into the company, and use those customer insights to drive business results. www.qualtrics.com

Business Franchise Australia and New Zealand 45

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fran c h ise c o un c il o f australia

Protecting and promoting an unrivalled business model One of the many fantastic aspects of franchising is that it represents a diverse range of industries, from quick service restaurants to health and fitness businesses, petrol and convenience stores to administration and support services and everything in between.

The largest proportion of franchise brands belong to the retail (non-food) industry, with more than a quarter of franchises operating in this space, and a further 19 per cent of franchise brands falling into the food services and accommodation category.

46 Business Franchise Australia and New Zealand

For the Franchise Council of Australia (FCA), that means an active involvement in consultations and discussions on issues that affect retailers as lessees (particularly in shopping centres) and as employers.

Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 The issue of franchisees as employers has been a major legislative focus over the past couple of years, with the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 coming into force late in 2017.

Speaking at the FCA’s National Franchise Convention 2017, Fair Work Ombudsman (FWO) Natalie James told more than 400 delegates that under the new laws franchisees

FE ATUR E : r e ta i l “Franchising drives economic and entrepreneurial success in a way that no other model has, and no other model can.”

Bruce Billson | Executive Chair Franchise Council of Australia

retain the primary responsibility for complying with their workplace obligations, but franchisors have a clear role to play in ensuring compliance and preventing deliberate exploitation of workers within their networks.

Resources are available on the FWO website at www.fairwork.gov.au to help both franchisees and franchisors understand their obligations and responsibilities under these new laws, and the FCA is continuing to work with the FWO to ensure the franchise sector has access to further compliance resources.

Retail leasing and the Casual Mall Licensing Code of Practice (the Code) With such a large representation of franchise brands in the retail space, the Franchise Council of Australia is actively engaged in consultations and discussions on retail leasing, often in conjunction with other peak bodies that represent retailers in their membership.

Any franchisee with a bricks and mortar store invests heavily in their retail space.

It is therefore imperative that franchisees’ businesses are protected, particularly in shopping centres where there is a marked power imbalance between landlords and their retail tenants.

In recent times, the FCA has worked in conjunction with our industry partners, the Australian Retailers Association (ARA) and the Pharmacy Guild of Australia (PGA), to engage with State Ministers responsible for Small Business, and the State Small Business Commissions around the issue of retail leasing regarding the review of state-based Retail Leasing legislation.

These bodies have also been involved in a review of the voluntary Casual Mall Licensing Code of Practice (the Code) applies to shopping centre owners and managers who agree to become signatories.

It regulates the terms on which participating shopping centres will grant casual licences to temporary retailers such as ‘pop-up’ shops.

Excellence in Franchising Awards.

The Code was reviewed by the Australian Competition and Consumer Commission (ACCC) during 2017. In a joint submission as part of the review, the Australian Retailers Association (ARA), the FCA and the Pharmacy Guild of Australia (PGA) did not support re-authorisation of the Code (without amendment). Primarily these bodies held the view that the Code is currently not administered and governed well, particularly with casual mall leases increasing to drive additional tenancy income.

“Winning these Awards means a lot for both me and my team, but also our brand. It will definitely help us win business. People will trust us more and it will give us a lot of credibility,” Ryan said of his Awards success.

At the time of writing the ACCC was seeking submissions from the public in response to the draft determination before making a final determination on the reauthorisation of the Code until 31 December 2020.

2018 FCA Regional Excellence in Franchising Awards are now open Franchising drives economic and entrepreneurial success in a way that no other model has, and no other model can.

And none of this would be possible without the endeavour and commitment of more than tens of thousands of franchisees across the nation.

In 2017, the FCA recognised outstanding franchisees across a diverse range of sectors as our national winners of the MYOB FCA

Ryan Willsher of Finn Franchise Brokers, North Perth and Regional WA, came out on top in two categories, being named the 2017 Multi-Unit Franchisee of the Year and winner of the 2017 Franchisee Community Responsibility and Contribution Award.

In 2018, we are looking to unearth more franchisee success stories and provide these franchisees with the recognition and promotional opportunities that Ryan and his fellow Award winners had in 2017.

We know that as small business owners, franchisees are focussed on their day-to-day operations and on how they can continue to reach sales goals. The opportunity to sit back and reflect on their achievements is all too rare.

The FCA’s Regional Excellence in Franchising Awards provide the chance to better understand your company through an up-to-date business health check and judges’ feedback, and can provide direct marketing exposure you cannot afford to miss.

If you’re a successful franchisee looking to take your business to even greater heights, success at the Regional Excellence in Franchising Awards could be just the catalyst you need. To find out more and to enter the Awards, visit www.franchise.org.au/awards2018 www.franchise.org.au

Business Franchise Australia and New Zealand 47

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pr o file : lu x afle x

Don’t buy a job, build a business!

Hunter Douglas’ flagship brand Luxaflex® Window Fashions has been established in Australia for over 60 years and is currently the market leader when it comes to innovative, technologically superior window coverings.

Offering the most comprehensive collection for Australian homeowners with a vast choice of styles, colours, and patented operating systems, the brand offers a selection of indoor and outdoor products including Blinds, Shutters and Awnings. Numerous patented products such as Luxaflex® Duette® Architella® Shades set the brand apart while exclusive operating systems provide market-leading differentiation.

The Luxaflex customer experience is personalised to the client offering solutions to their design, heat, light and privacy requirements in state of the art showrooms and in-home consultations. The window coverings are then manufactured to order and sent to the Luxaflex Alliance dealer licensee to provide the installation service.

This service, as well as the quality and breadth of product range available, is what sets the brand apart from competitors.

On the High Street The Luxaflex Window Fashions brand has partnered with independent, local businesses across the country for over 60 years, driving the continued success of the brand. We do not just offer a range of products, we truly become your partner with ongoing training, networking opportunities and comprehensive marketing support. Initial investment is affordable with no inventory holding required. Key areas are now available nationwide and no previous window covering or interior decorating experience is required.

The Alliance programs offered are not a franchise, the licence provides you access to

the brands, trademarks, marketing programs and a retail program designed for small to medium business to distribute the products in Australia.

There are two options in the Luxaflex Alliance program. The Luxaflex Gallery program is the premium full-line retailer, with access to the entire range of products and business programs offered by Hunter Douglas while Luxaflex Showcase is a smaller program that still provides retailers with access to a comprehensive range of products within a smaller retail environment that suits generally smaller interior design stores.

Your Luxaflex Gallery Business The Luxaflex Gallery is specially designed to display full-size products in the latest fabrics and colours, allowing consumers to envision the product in their homes. The entire Gallery is set up for a superior customer experience, designed to inspire consumers to consider products that they may not have been aware of, leading to a satisfied customer and a higher sale value.

Marketing support and communication tools that work on both a national and local level are provided and used to promote your business to existing customers and

48 Business Franchise Australia and New Zealand

personalise communications to potential customers across multiple platforms.

The marketing focus is lead-generation with individualised websites available for all Galleries which contain comprehensive product information and inspirational information for consumers. You will benefit from leads received via the website’s Dealer Locator pages alongside the use of Google Adwords, Social Media marketing, eBrochures, sponsorships and much more.

A dedicated training team offers in-person and online video training to support your product and installation knowledge and training is ongoing with support always close at hand. A national annual conference offers networking opportunities with likeminded business owners while a Gala Awards and Travel Incentive Program are designed to reward you for your business success.

Luxaflex Window Fashion license opportunities are available now in selected parts of Australia. To find out more about joining this innovative and world leading brand contact Damon Gardner at: 02 9638 8000 damon.gardner@hunterdouglas.com.au www.luxaflex.com.au

Design and Innovation Leaders

Integrated Marketing

Patented Products

Build Yourself a Business With the market leaders by your your side, side, establishing establishing and and managing managing your your own ownWindow Window Coverings business is a highly rewarding experience. Having partnered with with small small business in Australia Australia for for over over60 60years, years,we weunderstand understandthe thesupport supportbehind behindthe theproducts products are are just just as as vital vital for for business businesssuccess. success. The The Luxaflex Luxaflex Window Window Fashions Fashionsalliance allianceprograms programs provide comprehensive marketing, marketing, training, training, development, development,networking, networking,incentives, incentives,events provide comprehensive events and showroom to support our innovative high yield range product range. and showroom fitouts tofitouts support our innovative high yield product With opportunities opportunities available available in in numerous numerous prime prime positions, positions,the thetime timetotojoin joinour our highly successful network of Luxaflex Window Fashions showrooms is now.

Mark highly successful network of Luxaflex Window Fashions showrooms is Contact now.

Futeran 02 9638 8000on or 02 mark.futeran@hunterdouglas.com.au to discover the Contact on Damon Gardner 9638 8000 or damon.gardner@hunterdouglas.com.au possibilities of the Luxaflex of Window Fashions alliance programs. to discover the possibilities the Luxaflex Window Fashions alliance programs.

Business Training & Support

Š Copyright 2017 Hunter Douglas Limited [ABN 98 009 675 709]. Ž Registered Trade Marks of Hunter Douglas Limited. C15052_08.2017

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e x pert adv i c e

THE BALANCE OF POWER The Royal Commission into the banking sector is about to get underway – and its twists and turns may provide some pointers for small businesses, particularly those in franchised and licensed businesses.

It may at first seem a conceptual stretch to make this link, but there are some interesting analogies in key themes likely to be explored in the Royal Commission this year and those which may unfold in franchising/licensing, especially those in the retail sector.

An article in the Australian Financial

Review in December highlighted one of the key themes: the reversal of the onus of proof; and the cost of remedying what may well be someone else’s mistakes - or deliberate misdeeds.

The article, by respected former Commonwealth Bank CEO David Murray, described the potentially very negative consequences of the bank Royal Commission, giving rise to proposals which prompted a move away from ‘caveat emptor’ to ‘caveat vendor’.

Those who have watched the progress of the Fair Work Act amendments relating to employee payment obligations will no doubt be aware that this ‘drift from caveat emptor to caveat vendor’ is exactly what has happened in the franchising/licensing sector.

Among other hair-raising aspects of the FWA amendments, entitled ‘Protecting Vulnerable Workers’, the onus of proof has

50 Business Franchise Australia and New Zealand

been reversed to mean that brand owners may be held responsible for misdeeds by their franchisees/licensees.

In other words, if a franchisor knows that a franchisee has failed to pay an employee properly and fails to address the situation, then the franchisor may be held liable as well as the franchisee.

In the banking context, the analogy is that if a bank knowingly sells a product or advice which turns out to work against the interest of the customer, who for instance goes broke, then the bank may be held accountable under law.

It is not hard to see how this could frighten bank managers and shareholders. It is a big move to shift the onus of proof fall on to the bank to prove that it did all it could to sell the right product/service and that the ultimate financial failure was indeed the fault of the customer.

FE ATUR E : r e ta i l “The Code’s provisions covering initial and ongoing information disclosure and ‘good faith’ negotiation are aimed at ensuring parties enter agreements with their eyes wide open.”

Steve Wright | Advisor | FTI Consulting

However, there is not a lot of love for banks in the community – including small business.

disclaimers, franchise agreement disclosure documents can be long and impenetrable for a potential franchisee.

As business commentator Jennifer Hewett said: “Given the perceived imbalance of power between a borrower and a bank, there’s certainly a community expectation that individuals will be treated fairly and their own interests treated as paramount.”

A constructive way the Code has been amended over the years has been a requirement for a franchisor to include a ‘plain English’ summary of the main risks associated with entering a franchise agreement.

This is a very good point – and has been a key theme underpinning franchise-specific regulation, since it emerged through the Franchising Code of Conduct 20 years ago.

A good franchise will have an easy-to-read informative document of this type, which actually gives sound advice on what to do before signing an agreement.

The Code’s provisions covering initial and ongoing information disclosure and ‘good faith’ negotiation are aimed at ensuring parties enter agreements with their eyes wide open and that there is no attempt to exploit the “perceived imbalance of power”.

Another very positive aspect of the way the Code works in practice is found in its unique and highly effective provisions mandating complaint handling including timely dispute resolution able to be completed at a fraction of the cost of a legal argument.

Unfortunately, as with bank contract

These are all positive measures which are

simply not available for business agreements in the non-franchised world. They have been introduced to provide protection to potential franchisees, just as the FWO amendments aim to provide protection of vulnerable workers.

The question is at what cost, and who is to pay?

This was the precise theme of my article in this magazine a little over a year ago: ‘Raising the bar for franchisor responsibility – but at what cost?”

In the banking Royal Commission context, the question is posed as to what affect would the onus of proof reversal have on bank advice and lending practices. Would it cause them to withdraw from risk, resulting in a sharp cutback in lending? Perhaps there may be a jump in the price of lending, through higher fees and/or interest rates?

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“A constructive way the Code has been amended over the years has been a requirement for a franchisor to include a ‘plain English’ summary of the main risks associated with entering a franchise agreement.”

Many entrepreneurs and potential small business owners already complain that it is often very difficult to convince a bank to take the risk and back a new business borrowing proposal. Many complain that interest rates are already marked up too much for small business risk compared to that applied to other segments of the economy.

Again, franchising has an edge over the broader small business market. A potential franchisee has a much better prospect of getting lending approval if he or she is applying to join a successful franchise network.

Some of the bigger, more established franchises have an ‘accreditation’ status with a lender or panel of lenders. This can help new franchisees get access to funds, usually with comfort they are doing so at competitive rates. But in the instance of a market wide credit crunch, everyone is affected.

So, in the banking context, is the reversal of onus of truth something which would hurt banks and business? If Mr Murray is right, and it would have “profound” implications, then it is safe to assume that small business would be the first to feel the repercussions.

In the franchising context, the ‘at what cost’ question is all too easily – and painfully -answered for 7-Eleven, the first network to be targeted by the Fair Work Ombudsman for franchisee employee underpayment.

To its significant credit, 7-Eleven has paid out more than $150 million in franchisee underpayments; and trusts that the integrity of its position, diligent franchisee communication, bearing all responsibility and paying out all claims will carry it through. To its chagrin though, what 7-Eleven has learned is that not even the money it has spent and the improvements it has made can guarantee that opportunists within a franchising network will not try to rort the system.

The brand has also spent millions to ensure it has the systems to properly execute a centrally-controlled franchisee employee payment system.

Most franchise networks can’t afford this kind of remedy, but for the bigger brands, a new standard of franchisee service delivery has been established – one which protects the brand owner.

This is a very serious issue not just for franchisors, but for franchisees as well. Not every franchise network is able to absorb the shock and the cost of a situation like this, there is an impact on all elements of the network.

Could the franchise community have dealt with things differently? There is a possible answer to that question.

Dominos, Pizza Hut and Caltex are three of the other biggest names to be targeted

by FWO Natalie James. Each has dealt with issues in different ways, but there is no missing the decisiveness of the Caltex headquarters.

Perhaps seeing the pain of 7-Eleven, and wishing to avoid as much of it as possible, Caltex acted swiftly to purge the system.

According to the most recent media report, it has axed as many as 49 franchisees (who owned more than 100 sites) following an audit of franchisee payment records.

The reason it has been able to do this so decisively is that the specific regulatory code set up for petrol retailing – the Oil Code – gives brand owners much greater opportunity to terminate franchisees who break the rules.

That is why 7-Eleven has conducted a campaign to have the Franchising Code changed. Imposing an accountability on franchisors and reversing the onus of proof is a serious double whammy. To then compound it by lack of availability of serious sanction is very hard to swallow

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for franchisors with long experience in the franchise sector.

To avoid expulsion from the network, an offending franchisee need only redress the fault, according to the requirements of the Franchising Code of Conduct. This process can be repeated over and again, without penalty.

A year ago, I flagged these issues - the willingness of some to feed the crocodile in the hope that it would leave eating them till last has meant that the political opportunity to have the issues debated publicly is probably past for the near future – certainly the term of this Parliament.

And given that Labor moved the Fair Work Act amendments which resulted in the onus of proof reversal, if there is a change of Government at the next election, there is very little prospect of change in the next Parliamentary term.

What will be the cost? It is hard to estimate, but it’s a good bet that it is going to continue to rise.

Steve Wright is known for his depth of experience in corporate and investor relations, industry representation and financial market activity. A former CEO and company director, he has represented small and large international companies including five years as Executive Director of the Franchise Council of Australia.

Steve Wright was Acting Chief Executive of the Retail Council, the voice of Australia’s top retailers until early 2017 and is now a Senior Director and Advisor at international firm FTI Consulting.

03 9448 2813 Steve.Wright@fticonsulting.com

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h av e yo ur say

Unique franchise agreement ices the cake for

20 years/100 store’s celebrations Long before the Australian Government passed its Fair Work Amendment in September 2017 requiring franchisors to examine their role in compliance activities, national niche battery retailer Battery World had already overhauled its 20-year-old agreement with surprising results.

In March, Battery World announced to franchisees at their annual national conference that the franchisor had taken a bold and unprecedented step in creating a new franchisee agreement with reduced royalties and lower fees to the franchisor.

The move was so unprecedented; it was met with scepticism by some franchisees.

In return for bonuses to the franchisees, Battery World sought to double down on the commitment to the 24- hour battery roadside assistance, unpopular with some franchisees.

Seven months down the track, the new agreement is now squared away and live as more and more franchisees sign the new agreement.

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It’s been a milestone year for the company: celebrating 20 years of operation and the opening of their 100th store last month.

The company expects to close the year out opening a further five new stores across the country as they continue their march towards a goal of 182 stores nationally.

For General Manager Rowan Hodge, the new contract is renewed commitment to the franchisees and acknowledgement of tougher retail landscape of the future.

“Any P&L has a third axis that people often overlook,” he said. “There is revenue, there are expenses, and there is time. One thing our long history of success has bred is an appreciation of this third axis. We want the franchise community to prosper – their

Rowan Hodge | General Manager | Battery World

success depends on it right now – but more than that, we want them to continue to succeed far into the future.

“This third axis is all the more important in times of flux and challenge. Retailers are facing material changes to their competitive landscape and supply chain with the disruptor, Amazon launching their first domestic operations in Melbourne.

Any reduction in cost pressure allows franchisees to better focus on fighting for the customer. Beyond just slashing fees, this new agreement specifically aligns around the customer, with dramatic discounts (from 6.7 per cent to 1 per cent royalty) on services that take the store to the customer.”

2016 Franchisee of the Year, and the company’s most successful store for 10 years in a row, Townsville’s Greg Leslie says signing the new franchise agreement was a no brainer. While happily operating under the existing agreement, Leslie says the winds of change of 20 years of operation, bringing with it increased store and franchisee numbers coupled with new operating and sales procedures meant the document needed updating.

“There was a lot of dead wood in the existing document: bylaws that were distracting and inhibiting but had never been acted on,” Leslie said. “This is a cleaner document addressing retailing changes and challenges over the last two decades as well as including incentives to drive the brand both through recruitment and retention. The term on the oldest agreements was an initial term of five years with a further five year option: or since 2015, six by six. This new document allows you a straight 12 years with voluntary renewals anytime. Add to that if a franchisee sells their business, the buyer also gets a full term, so as a seller you would always bank maximum value. This not only means better business planning but also increased security to your business.”

Council, agrees crucial to ongoing brand success, along with franchisee wealth, is the company’s commitment to 24-hour battery roadside assistance: even with the mixed feelings of some franchisees: some who have been unable to connect the inconvenience of going out at night to increased sales.

“It’s madness that we are seeking out national accounts, but we still have franchisees reluctant to do this part of the business: the new franchisee agreement addresses this. Without trivialising it: we are a franchise and just as you cannot have one McDonald’s store selling cheeseburgers and another not – we need to offer the same level of service across over 100 stores. Once you have rescued someone from the road late at night they are pretty much a customer for life.”

Leslie is quick to agree: early in his business leaving a mate’s buck’s party to help out a stranded truckie landed him a $6 million contract. Yet still there was reluctance and the biggest stumbling block in getting all franchisees on-board with the new agreement continued to be ‘roadside’.

With 20 years under her belt, working between the very successful Cairns and Darwin stores, Kerry Boyd says anyone joining the group has only to look at the top sales volume stores to see the secret really is roadside.

“It really is the icing on the cake and makes the big stores really big,” she said. “Even though it was part of the old agreement: – this new agreement makes it clear that a commitment to roadside is not optional if you want to be successful. That being said the deal has been sweetened with extra incentives like a reduction in royalties – so that should help with those franchisees who might find it confronting. Like anything new from a franchisor I have to admit I was a bit cynical about all the incentives being offered. People are naturally wary that a franchisor is in it to make money – but the exciting part of this new agreement is there is an understanding that if we make more money, they make more money.”

The company has also re-branded its logo and trademark, ‘Batteryologists’ as a tip of the hat to the obsession with product expertise that has fueled growth since 1997.

Hodge says it’s fitting that in looking to the future, with the uncertainties facing all modern retailers, Battery World’s ability to give customers what they want, where and when they want it will continue to stand them out from the crowd.

“That means Roadside services, delivery, advanced 12-volt circuit solutions, and of course battery expertise. Not surprisingly, these were the principles upon which we were founded so are essential the agreement,” he said.

“The other way the new franchise agreement aligns with the third axis is by recognising the value of tenure. A franchisee’s tenure defines a limit on their future cash flows.

This new agreement does away with that by locking in voluntary optional agreement renewals at any time during their 12-year

“A more profitable franchisee is better able to properly reward their biggest assets – their team.”

While Leslie has been with the brand 12 years: Cairns’ franchisee Rob Bonser, Darwin’s Kerry Boyd and Perth’s Tom Spence have been with the company for the long haul – the full 20 years.

Spence, President of the Franchise Advisory

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“The new contract is renewed commitment to the franchisees and acknowledgement of tougher retail landscape of the future.”

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h av e yo ur say

“Most of the reduction in fees will happen as a result of a major new incentive benefiting franchisees who carry out Battery World’s national 24-hour roadside service.”

franchisees who carry out Battery World’s national 24-hour roadside service. This is not negotiable: and it is a service that has been a common denominator among our most successful stores for 20 years.

“In the context of new headwinds for Aussie retailers, services outside the four walls of a bricks and mortar shop have never been so important. Our franchisees are already obliged to do roadside. This new franchise agreement is all about reinforcing that with a big fat financial incentive, so that it further rewards franchisees, and carries us as one of our key points of difference for our next 20 years.

“Another topic relevant to franchising is the protection of vulnerable workers. Increasing profits of franchisees will go a long way to addressing this issue.

“Lowering a franchisee’s operating costs, in fees and royalties, is just one small way to lessen the financial pressures they may experience from time to time. And a more profitable franchisee is better able to properly reward their biggest assets – their team.”

Battery World’s commitment to franchisee wealth along with the flow-on effect to protecting vulnerable workers has not gone unnoticed by the Australian Retailers Association.

franchise term, with an unchanged franchise territory guaranteed.

“There is no more fundamentally important document than the franchise agreement and though it might coexist with other contracts, it is the contractual connection between the parties for a very long time. Understandably any change to such a central document is a really big deal for both the franchisee and the franchisor – and that can be quite disruptive.

“We knew it had to be something special, something really ground-breaking, and so we’ve offered incentives the likes of which no other franchisor has done before. In doing so we knew it would be viewed with cynicism by some. But if you are promoting something that makes somebody more money and helps reinforce their business in the long run, the challenge is to get out there and educate them.

“There are huge legal repercussions with any contract this long, so in all communications our franchisees have been advised to seek independent advice before signing.

This document is governed by laws and regulations made by the government. The most fundamental is the Franchise Code of Conduct (the Code). The law, including the Code, takes precedence over anything a franchisor ever does or tries to do, and that includes this contract.

“This agreement includes lower fees to the franchisor and lower royalties to the franchisor which virtually guarantees every single franchisee would be financially better off as a net result of either or both of these new concessions.

“If we will wind up earning less: why would a franchisor possibly want to reduce its fees and revenue base? The answer lies in a very simple franchising philosophy: remember who it is you work for. In the Battery World franchise network, like many elite franchising systems, we choose to take the view that we work for the franchisee, and our pinnacle goal is to help franchisees grow their wealth.

“Most of the reduction in fees will happen as a result of a major new incentive benefiting

56 Business Franchise Australia and New Zealand

ARA Executive Director Russell Zimmerman said the changing retail landscape, including the imminent arrival of Amazon and other disruptors, heightened the need for retailers to stay focused on customers’ changing needs and wants like never before.

“Increasingly this means being available when and where the time-poor modern customer calls,” Zimmerman said. “A 100store retailer like Battery World getting serious about taking their products and services to the streets 24-7 is a great example of being where the modern customer wants them to be. It’s also admirable to see this franchisor has formalised a strategy to lessen the overall cost pressures for their retailers.”

Rowan Hodge is the General Manager of the 102 store Battery World franchise network. He is a council member of the Australian Retailers Association; cochair of the Industry Working Group for battery recycling for the Queensland Government; and a member of the Australian Battery Recycling Initiative (ABRI). He has undergraduate degrees in Accounting and Law. www.batteryworld.com.au

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