Franchise Focus Magazine by Franchise Focus

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Issue 9 2011

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In this issue:

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Franchise advice you can really trust Does your franchise agreement comply? Franchising is the Middle East Business Focus Mobile marketing on the move Franchise News • Franchise Advice Global Market Trends • Business Advice

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Telephone: 020 718 33657 www.franchise-seminars.biz FREE INFO NO: 4784

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CONTENTS & CONTRIBUTORS

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Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

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R. Holden, Lloyds TSB

N. Broadhurst, Franchise Law

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Publishers Franchiseek Limited 129A High Street Lymington Hampshire United Kingdom SO41 9AQ news@franchiseek.com

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Editorial Trevor Hart news@franchiseek.com

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Production Talk Media Ltd Tel: 01590 688593 Disclaimer

N. Kingaby, Franchise Law

M. Betts, Franchise PR

4-6 Pros and cons of franchising 8-11 In the news...

Advertisers' news and franchisee success

12-13 Does your franchise agreement comply with EC regulations? L. Daichendt, Online Marketing

P. Monaghan, Franchise Training

14-16 Franchise advice you can trust 18-19 Trading up 20-21 Franchising... more than simply buying a job!

F. Alnassar, Consultancy

P. Sharma, Retail

22-24 The manual as a benchmark for quality 26-27 A franchising panorama of the Middle East Business Focus 32-34 Marketing on the move

A, Cutler, Franchisor

P. Hopkinson, Consultancy

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Lifestyle Focus 46-47 To buy or not to buy!

The inclusion of any article or advert does not constitute any form of endorsement or approval by Franchiseek. All submitted articles will be considered. We reserve the right to refuse any advertisement or article which we consider unsuitable. Whilst we make every effort to ensure all advertisements and articles are correct, Franchiseek, will not be held responsible for errors or omissions. © Franchiseek Ltd 2010 All rights reserved. No part of this magazine may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or using any information storage and retrieval system, without permission in writing from Franchiseek, except that brief passages may be quoted by a reviewer in a magazine, newspaper or broadcast review. This publication is designed to provide its readers with accurate and authoritative information with regards to the subject matter covered. If legal advice or other expert assistance is required, the services of a competent person should be sought. ISSN: 1747-9479

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FRANCHISE ADVICE

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

Pros & Cons of Franchising By Nicola Broadhurst

here is still much misinformed prejudice about franchising but a well run ethical franchise can be of great benefit to all concerned. In order to decide whether to go down the franchising route the advantages and disadvantages of franchising must be understood. Advantages to a Franchisor (i) Cost effective growth The most obvious benefit is the ability to expand a business utilising the manpower and capital of others thereby reducing the inherent risks and costs of expansion. A market can be exploited more effectively and rapidly than could otherwise be done and the franchisees contribute the bulk of the necessary capital required through initial and ongoing franchise fees and their own working capital. 4 franchise focus

(ii) Commitment A franchisee is the owner of his franchised business bringing a more personal commitment and motivation to the job than a mere employee without the same self interest. (iii) Reduced involvement Once a franchisor is satisfied it has found suitable franchisees to develop and expand its business it should have more freedom to focus on improving the franchise concept or other areas of its business. Whilst regular periodic checks are required to ensure that the network is succeeding this is not as time consuming as managing company owned outlets. (iv) Co-operative Advertising Franchisees can be required to contribute usually between 2% to 4% of their gross sales towards an advertising fund. This offers a formidable capital www.franchisee k . c o m

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FRANCHISE ADVICE

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

Not everyone is cut out to be a franchisor, it requires patience, team work and management skills

resource for a franchisor to raise the public’s perception of its business. (v) Collective bargaining The development of a franchise network can provide a powerful bargaining tool with suppliers allowing franchisors to negotiate extremely favourable rates. Disadvantages to a Franchisor (i) Loss of ownership The most obvious downside to franchising is that a franchisor has to share ownership of its concept or product. For some this “letting go” is impossible. Company owned outlets can be more profitable to a franchisor than franchised outlets where the franchisor’s return is limited to a continuing franchise fee calculated as a percentage of the franchisee’s gross turnover. These fees tend to range from between 715%. The franchise model must be right before the business is franchised. (ii) Exclusivity Many franchisees expect an exclusive area within which to run the business. This locks a Franchisor out of the franchisee’s territory which can be an issue where the area is not exploited to its full potential by the franchisee. (iii) Management and personnel skills Not everyone is cut out to be a franchisor, it requires patience, team work and management skills. Financial and manpower resources need to be committed towards managing a franchised network. Whilst a franchise agreement should grant the franchisor the right to terminate the franchise where a franchisee fails to follow instructions this should be seen as a last resort as it usually involves significant costs and a perceived failure of the franchise. (iv) Loss of flexibility Franchised outlets can be slower to react to changes in the market as it can take longer to introduce a new range of products or services within a franchised network than a chain of company owned stores. (v) Confidentiality A franchisor will have to divulge its confidential information and know-how concerning its business and systems. Although a prospective franchisee is usually obliged to sign a confidentiality agreement and w w w. f r a n c h i s e e k . com

the franchise agreement also contains confidentiality obligations these can be difficult to monitor and enforce. The Franchisor Advantages •

Cost effective growth

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Commitment

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Reduced involvement

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Co-operative advertising

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collective bargaining

Nicola Broadhurst

Disadvantages •

Loss of ownership

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Exclusivity

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Management + Personnel skills

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Loss of flexibility

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Confidentiality

Advantages to the Franchisee (i) Reduced risk The greatest benefit to a franchisee is the reduction in his risk of business failure. As an ethical franchisor will have tried and proved the business concept in the market place prior to franchising most of the obvious problems should be resolved. (ii) Economies of scale Franchising enables a small businessman to compete effectively in the market place and take advantage of the economies of scale. This can offer a significant advantage over smaller independent competitors. (iii) Skilled management The franchisee has access to quality training and assistance from day one thereby avoiding many of the pitfalls and mistakes of independent businessmen setting up from scratch. The ongoing support provides a valuable resource for franchisees often allowing them to do much better in a recession than other businesses. (v) Financing A franchisee can take advantage of the name and reputation built up by the franchisor and as a result franchise focus 5

franchise Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

FRANCHISE ADVICE

The more successful a franchisee the more likely he is to find such instructions and controls frustrating.

finance is usually more readily available. Usually franchisors will have negotiated favourable rates of borrowing and a ratio of loan to capital with the major lenders in the franchising industry. (vi) Exclusivity Where exclusive territorial rights are given a franchisee can have an effective monopoly. Disadvantages to the Franchisee (i) Control Although an independent owner of his franchised businesses a franchisee is still subject to control and regulation by the franchisor by way of the franchise agreement and operations manual. The more successful a franchisee the more likely he is to find such instructions and controls frustrating. (ii) Reputation The franchisees’ reliance upon the power of the franchisor’s trade name can be a major disadvantage where through mismanagement or neglect the franchisor allows the brand to be tarnished. There is also a risk that a franchisor will sell to a third party with a different vision. The franchise agreement usually provides that a franchisee has no say in whether a franchisor sells out to a third party. This is a commercial risk that a franchisee takes from the outset. (iii) Products Often a franchisee is tied exclusively to the supplier of the product and is restricted from selling any similar or other products in the business. In such cases the franchisee is often required to stock a specific range of products and introduce new or additional products regardless of how well they sell. A franchisee’s desire to expand can often be frustrated by the narrow mindedness of the franchisor. (iv) Right to sell One of the most important considerations for a franchisee is the value that can be realised from his business in the future. Invariably a franchisee can only sell the franchised business with the franchisor’s consent and usually subject to certain pre-conditions being fulfilled. This consent can never be taken for granted. In addition a franchisor may impose a transfer fee on such sale and an introducer’s fee where it has 6 franchise focus

introduced the prospective purchaser. These can be significant and obviously reduce the realisable value of the business. (v) Exit Route In many cases the expectations of success are linked to minimum performance criteria which can be set unrealistically so that a franchisee consistently fails or the concept is simply not proven. This can be a real issue as usually franchisees do not have the ability to terminate the franchise agreement and are locked in for the initial term. The only obvious exit route is to sell. For many franchisees this comes as a shock especially where the franchisee has not performed as expected. A franchisee has a common law right to terminate where the Franchisor is in fundamental breach of the agreement but this is often difficult to prove particularly as many franchise agreement contain very brief obligations on the part of the Franchisor. A franchisor on the other hand invariably has a long list of events upon which he may end the relationship. This one sided approach can put a franchisee into constant fear of termination and shifts the bargaining power quite substantially. The Franchisee Advantages •

Reduced risk

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Economies of scale

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Skilled management

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Enhanced advertising

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Better financing

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Exclusivity

Disadvantages •

Control

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Reliance on reputation

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Restrictions on products

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Restricted right to sell

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Dependence

www.franchisee k . c o m

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FRANCHISE EXPOS

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

GUE

20 - 23 MARCH 2011

Paris Porte de Versailles Meet your ideal partner: 450 exciting business opportunities T

HONO

Dominique MUNIER Monceau Fleurs Group General Manager Philippe GAROT Guy Degrenne Network Manager

Dominique LERY Adhap Services Co-Fonder & Chairman

Michel BOUREL Cavavin CEO

Guy HOQUET Guy Hoquet l’Immobilier Founding Chairman

.../en Personne Crédit Photos : Jean Luc Droux.

WANTED: MOTIVATED ENTREPRENEURS TO SHARE OUR GLOBAL SUCCESS ORDER YOUR FREE VIP BADGE FRANCHISE EXPO PARIS,THE INTERNATIONAL FRANCHISE MARKETPLACE

An event owned by :

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2011 22 January 2011 MK M1 Franchise Exhibition The 35+ exhibitors of the MK M1 Franchise Show would like to invite all those interested in franchise & business investment opportunities to Stadium MK, Milton Keynes on Saturday 22nd January 2011 Tel: 0116 242 415 http://www.mkfranchiseshow.co.uk/

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2011 26-28 May 2011 IFE South Africa South Africa is at the centre of change and innovation in Africa. With all eyes on South Africa, now is the time to climb onto the franchise bandwagon and get in ahead of the next economic boom. IFE 2010 will showcase the very best franchise opportunities that South Africa has to offer. Tel: +27116150359

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FRANCHISE IN THE NEWS - http://www.franchiseek.com/Franchise_News_International.asp

Advertiser's news published online and in Franchise Focus Magazine

Kitchen facelift franchise increases network sales by 18% for second year running In the last quarter, Dream Doors posted two consecutive record months, and announced yearto-date figures up 18.6 percent. This follows an 18 percent increase in sales last year, and set against the backdrop of the worst economic downturn in generations, demonstrates the strong market position of the UK’s largest kitchen facelift franchise. In August, Dream Doors’ network of 30 showrooms achieved sales of £920,000, and in September it went further still, managing to sell £950,000 of kitchen makeovers. October’s figures are clear of the £900,000 mark for the third month in succession. Says Dream Doors founder and Managing Director, Troy Tappenden: “We almost hit the magic million, and it won’t be long until we do! A couple of our Franchise Owners have put in stellar individual performances, with our Oxford branch selling more than £100,000 in September alone. “People ask me why Dream Doors continues to grow, and why our Franchise Owners are selling more and more kitchen facelifts,” he continues. “While there are a number of factors to take into account, the main one is the average age of our customer base. Most Dream Doors customers are in their 60s, and have been much less affected by the downturn than other sections of the population. They aren’t moving, but they do want to improve their homes. And that is exactly what Dream Doors does - we improve homes. But not only that, we improve them quickly and economically, and we use the very best materials. Secondly, our customers have usually retired, so they aren’t worried about redundancies or job cuts. And most importantly, the savings they do have are earning next to nothing in interest.” Since its inception 12 years ago, Dream Doors has always attracted a more mature customer base. Not just for the consumer benefits of its products and services, but because senior citizens place a greater value on dealing with local business owners. And in this economic climate, when even household names 8 franchise focus

have gone out of business, they want the added reassurance of dealing with an established, credible organisation. “Customers want to know their money is safe,” says Tappenden. “And at Dream Doors, we have introduced a number of unique selling points to ensure customers feel confident spending money with us. The showroom is probably the biggest and most important factor, as this means our Franchise Owners are much more than just a number in the paper, a van, or a fancy website. They have something tangible; a place that customers can visit, and where they can touch and feel the products. And importantly, with a retail base, customers are reassured in knowing that they can come to see the business owner if anything were to go wrong.” Dream Doors offers its customers a kitchen solution that saves them money, but also time, stress and upheaval. A facelift - which includes doors, drawers, worktops and a sink - can be installed in as little as two days, and a simple door swap in just a few hours. This means customers suffer little downtime in the kitchen, and don’t have to endure workmen coming in and out of the house for days, or weeks, on end. “The feedback from customers has been the same since I started this business,” says Tappenden. “They choose Dream Doors because we offer a cost-effective and time-saving alternative to a complete kitchen. We take just a 50 percent deposit from the customer on order, and they only pay the balance when the job is completed. So they know we have to do a good job. They definitely prefer dealing with a business owner rather than salary-driven employees, and they love giving money back to the local community.” He adds: “We believe we have got our routes to market perfected. We know who our customers are, we know what makes them buy. And through consistent advertising in the right places, we know exactly where to find them.” www.franchisee k . c o m

FRANCHISE IN THE NEWS - http://www.franchiseek.com/Franchise_News_International.asp

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Celebrating the very best in UK business Auditel sponsored the 2010 IoD Director of the Year Award in company with Michael Portillo and Lord Sugar Advertiser's news published online and in Franchise Focus Magazine

On 1st October, the IOD’s Director of the Year UK Final Awards Ceremony took place at London’s Lancaster Hotel hosted by Michael Portillo with guest visitor, Lord Sugar. Lord Sugar spoke about his early childhood, his determination to succeed in business and his new role as the government’s ‘enterprise champion.’ Founded in 1994, Auditel – http://www.auditel.co.uk - is the UK’s premier cost and purchase management specialist. Audite l manages the full range of business expenditures for more than 3,000 clients ranging in size from multi-nationals to museums and from national charities to local manufacturers. They were delighted to be sponsoring the IoD Director of the Year (large company) Award and welcomed the involvement in raising awareness and celebrating the very best of business leaders in the UK.

Sponsors for the other awards included Conqueror, Inenco, Visa, Custom House - a Western Union company, Clydesdale Bank and Yorkshire Bank. Sir Terry Leahy, chosen as someone worthy of special recognition, was the winner of the inaugural ‘Lifetime Achievement Award’. To mark the occasion, Auditel is offering the opportunity to win an iPad to those who book a free Business Health Check on their overheads between 1st October and 30th November – http://www. auditel.co.uk/fbh . Utilising their own unique approach to cost and purchase management, this will provide an invaluable in-depth analysis of all business expenditures.

The award was open to all Directors from FTSE and other large listed companies who have shown excellence in their own region. It was won by Ciaran Sheehan, Managing Director of the Care Circle Group, who specialise in operating and developing high quality nursing homes in Northern Ireland. The award was presented by Laurence Knott, Auditel’s Head of Marketing.

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FRANCHISE IN THE NEWS - http://www.franchiseek.com/Franchise_News_International.asp

North West businessman scoops Cash Generator’s Franchisee of the Year Award

Advertiser's news published online and in Franchise Focus Magazine

After just three years of trading, Stephen Hayhurst from Rochdale, has been presented with Cash Generator’s prestigious Franchisee of the Year award for 2010. Stephen, who opened his first store in Chorley in September 2008 and has since opened a further two outlets in Cheetham Hill and Halifax, is a worthy recipient of this much coveted award. Achieving excellent results in all three stores and with three of the best run stores in the country, Stephen was a natural choice for this sought-after accolade. Robin Page, franchise director at Cash Generator, presented the award at the company’s annual summer conference. He commented: “At Cash Generator,

Razzamataz featured on BBC documentary Ever wondered what happens to the successful entrepreneurs once they leave the Dragons’ Den? In 2007 when Denise Hutton-Gosney appeared on the BBC show, little did she realise the impact it would have on her part-time theatre schools business. “I was incredibly nervous when I appeared on the show and had no idea if the Dragons would think my business was viable,” says Hutton-Gosney. “It was an amazing experience and I was pretty stunned when Duncan Bannantyne offered me the full investment.” Bannatyne was quick to see the potential of Razzamataz Theatre Schools and it is now a healthy franchise business with almost 40 schools up and down the country. With such a success story, the BBC is returning to the Carlisle based business to film its third documentary called Dragons’ Den What Happened Next. Aired on Friday 24th September on BBC2, the documentary followed Duncan Bannatyne at a Razzamataz shareholders’ meeting. He also got to meet some Razzamataz students and watch them during class. Another part of the business is supplying teachers to Thomson and First Choice Family Holidays. As part of the documentary, Bannatyne met the new teachers and watched them train. “It was great to catch up with Duncan and we are thrilled that he is still so 10 franchise focus

we are dedicated to recognising and rewarding achievement and Stephen is an exemplary franchisee. “With two successful stores, and despite difficult personal circumstances, Stephen opened his third store this year making it three stores in two years – an impressive accomplishment. His hard work and passion for the business makes him a worthy winner of Franchisee of the Year award for 2010.” Stephen commented: “I am honoured to receive the Franchisee of the Year award. It is a great recognition for the hard work that I have put in over the last two years. I have a great team supporting me in each store and I’d like to thank each of them for their continued commitment.” Stephen is now looking to expand his portfolio further and has begun looking for a new location in which to base his fourth store.

involved in our business,” says Hutton-Gosney. Since the Den, Razzamataz has become one of the top five part-time theatre schools in the UK, according to The Stage newspaper. The classes consist of an hour of dance, drama and singing and the curriculum covers the whole of the performing arts, from classic West End musical theatre to commercial street dance and hip hop. As well as classes run by a team of experienced teachers, Razzamataz also prides itself on being able to bring in top professionals in their field to work with their students to inspire them to be the very best they can be. Over the last few months, Razzamataz children up and down the country have enjoyed workshops led by Tim Noble, choreographer to Kylie Minogue as well as having regular opportunities to perform. This includes the incredible opportunity to perform at Her Majesty’s, the West End theatre of the phenomenally successful musical, Phantom of the Opera, where Razzamataz students will come together to perform a special one-off performance to celebrate the 10th anniversary of the founding of Razzamataz. “This will be an amazing experience for our students,” says Hutton-Gosney. “There are not many people who can say that they have performed on a West End stage and we are delighted to be able to offer this extraordinary opportunity.” As for the future, Duncan Bannatyne remains very much involved with Razzamataz. In fact the latest project is Razz Express, a new family fitness service offered in Bannatynes Health Clubs. Currently available in Bannatynes in Ayr, Scotland, the service will be rolled out to further clubs over time. www.franchisee k . c o m

FRANCHISE IN THE NEWS - http://www.franchiseek.com/Franchise_News_International.asp

UK Business Centres turnover average £1.1 million If you are looking for a change of direction, an AlphaGraphics franchise is an exciting opportunity to join the £1 billion print and publishing industry. Part of the UK based Pindar Group, AlphaGraphics is a global network of over 300 independently owned Business Centres providing a full range of marketing communications solutions including; design, copy, print and campaign management. AlphaGraphics lead the market as the first and only visual communications franchise in the World to have attained both ISO 9001 and ISO 14001 certification. UK Business Centres achieved an average annual turnover of over £1.1million (units operating at least 12 months*). Alphagraphics ensure franchisees continue leading in their local market place by utilising the strength of the global network. For example there is a dedicated ‘Technology Assessment Group’ with the sole role of keeping AlphaGraphics Business Centres ahead of any local competitors. The team identify and integrate new technology and form strategic partnerships with the industry’s key suppliers to ensure that Alphagraphics Business Centres are always offering the latest products at the most competitive prices. A local independent simply cannot compete with Alphagraphics market leading business, no matter what the economy is doing! AlphaGraphics take pride in their franchisee’s success, which is underpinned by excellent training. Before launching their Business Centre new franchisees attend a three week intensive training course. Continuous ongoing support is then provided in the form of year round seminars, video, web and computer based instruction and one-to-one on site visits from our experienced field consultants. The comprehensive nature of the training and support means franchisees do not need any previous experience of the industry. There is currently a great opportunity here in the UK. Whilst there are over 300 Business Centres operating globally, currently only 7 territories have been taken in the UK. The major banks back AlphaGraphics franchise model, and finance is available to help you cover some of your costs (subject to status). You will need at least £50,000 and the ability to borrow to setup your own market leading AlphaGraphics Business Centre.

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LATEST NEWS Tis the season to “Warm Your Toes™” Flip Flop Shops unveils footwear to keep toes toastin’ just in time for the holidays

NMFI selects Molly Maid as one of top 50 franchises for minorities

Advertiser's news published online and in Franchise Focus Magazine

The National Minority Franchising Initiative (NMFI) has compiled its annual list of the “50 Top Franchises for Minorities” and Molly Maid has once again ranked high on the list.

FASTSIGNS® to promote conversion program at USSC Sign World International Show Recruiting franchisee conversion candidates to expand in over 350 markets

Energy Kitchen signs agreement for 10 new restaurants Energy Kitchen continues to offer New Yorkers fast food without the guilt

Milton Keynes M1 Franchise Show 2011 Stadium MK, Milton Keynes on Saturday 22nd January 2011.

Top Appointment at Kendlebell Kendlebell, the UK and Ireland’s leading telephone answering franchise, has appointed Kim Cook Sales Director

Auditel manages the full spectrum of business costs Following the deregulation of the utilities markets, there was a seemingly impenetrable jungle of tariffs.

Marco’s Pizza announces additional $9 million available in financing for new franchisees The Bancorp Bank approves funding program for nation’s fastest-growing pizza company http://www.franchiseek.com/Franchise_News_ International.asp

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franchise Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

FRANCHISE LEGAL

Franchise Agreements Does yours comply with the new EC regulations? Nicola Kingaby, a specialist competition lawyer at national law firm TLT

arlier this year, the law relating to franchise agreements and restrictive practices changed. We are now half way through the transitional period during which time franchisors and franchisees have the opportunity to review their existing franchise agreements to ensure they are not illegal. Infringing agreements will be void and unenforceable and the parties may face fines of up to 10% of group turnover. Nicola Kingaby

This article provides an overview of the relevant law and examines the changes. On 20 April 2010, the European Commission adopted a new Block Exemption Regulation in respect of vertical agreements (VABE). The new VABE came into force on 1 June 2010 and will expire on 31 May 2022. It replaces the current vertical agreements block exemption, which has been in force since 1 June 2000. UK competition law stipulates that Commission block exemptions apply in the UK and that UK competition law must be consistent with them. The new VABE, like its predecessor, sets out a number of requirements which if met, protect a franchise agreement from the application of the ‘prohibition against anti-competitive agreements’, set out in Chapter I of the Competition Act 1988. A clause that infringes Chapter I will be void and unenforceable and in certain circumstances, the whole franchising agreement can fall. Under a franchising agreement a franchisor permits a franchisee to exploit its trademarks or signs, as well as its know-how for the sale of goods or services. The agreement allows the franchisor significant control over the way in which the franchisee runs its business and makes it possible for it to provide ongoing support to its franchisee(s), such as advertising. In short, it is the element of control the franchisor has over the franchisee’s business that brings the franchising agreement within the scope of the competition law. For this reason, it is important that franchisors and franchisees satisfy themselves that their existing franchise agreements meet the requirements of the VABE. This is because once the transitional period has expired, private parties (before national courts) or the competition authorities may challenge their legality. A transitional period of one year has been allowed, during which time franchisors

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and franchisees have the opportunity to review their existing franchise agreements to ensure that these comply with the new VABE. The new VABE is accompanied by a Commission Notice, setting out guidelines on how vertical agreements that do not benefit from the safe harbour of the VABE are to be assessed and whether they might qualify for individual exemption. The notice, whilst similar to its predecessor, is updated to take into account developments in technology and business practices in general over the last ten years, for example in relation to on-line sales. The VABE When will a franchise agreement be block exempted? A franchise agreement is a type of vertical agreement. The term “vertical” emphasises the fact that the arrangements are concluded by parties that operate at different levels of the production or distribution chain, such as manufacturers, wholesalers and retailers. However, supply agreements between component producers and manufacturers, as well as straightforward distribution arrangements also qualify as a vertical agreement. For most restrictions found in franchising agreements, competition concerns only arise if there is insufficient competition at one or more levels of trade. That is, if there is some degree of market power at the level of the franchisor or the franchisee or at both levels, (usually a market share of over 30%). Vertical restraints are generally considered less harmful than horizontal restraints (between direct competitors) and may provide substantial scope for positive economic effects. See below for further details on assessing market share. A franchising agreement that infringes competition law may result in fines of up to 10% of worldwide group turnover, director disqualification (even where the director did not know about the infringement) and, in the most serious cases, unlimited fines and/or up to five years in custody. ‘Victims’ of restrictive agreements may also claim private damages. The franchising agreement (or parts of it) will be void and unenforceable. In the next section we take a more detailed look at the main changes affecting franchise agreements. www.franchisee k . c o m

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FRANCHISE LEGAL

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

The Notice Of particular relevance to franchisors and franchisees will be those new parts of the notice dealing with know-how, on-line sales and resale price maintenance. Know-how In circumstances where a franchising agreement includes a post termination non-compete clause, that clause will only benefit from the safe harbour of the old block exemption to the extent that it is “indispensible to protect know-how”. The VABE has relaxed the definition of know-how so that the requirement for it to be “substantial” is less difficult to satisfy. Less welcome is the fact that whilst under the old regime if “elements of the know-how” were not generally known or easily accessible then it would be treated as “secret”. It seems that the new regime requires “each element of the know-how” to be “not generally known or accessible”. On-line sales The notice clarifies the application of the competition rules to on-line sales. A franchisor is not permitted to prevent the franchisee from having its own website to advertise and sell products. Nevertheless, the franchisor is allowed to require the franchisee to have one or more “bricks and mortar” outlets to allow customers to test products. The concept of ‘active’ and ‘passive’ sales is also clarified in the new VABE. The new VABE allows a franchisor to prohibit active selling by one franchisee into another franchisee’s exclusive territory or to exclusive customer groups. The notice confirms that an active sale means actively approaching individual customers by, for instance, direct mail (including unsolicited mail), or visits or actively approaching a specific customer group or customers in a specific territory through advertisements in the media, on the internet or other promotions specifically targeted at that customer group or targeted at customers in that territory. Moreover, advertisement or promotion that is only attractive for the franchisee if it (also) reaches a specific group of customers or customers in a specific territory, is considered active selling to that customer group or customers in that territory. An active sale includes instances in which a franchisee approaches an individual customer by sending an unsolicited email or targets a particular territory with on-line advertising. It is not permitted to forbid a franchisee from selling passively to customers that have contacted it as a result of their own initiative. Passive sales are sales in response to unsolicited requests from individual customers including delivery of goods or services to w w w. f r a n c h i s e e k . com

such customers. General advertising or promotion to reach customers in one’s own territory, but which also reaches customers in other franchisees (exclusive) territories or customer groups, is considered passive selling. General advertising or promotion is considered a reasonable way to reach such customers if it would be attractive for the franchisee to undertake these investments. Further examples of restrictions relating to online sales, which may not be permitted, include automatically re-routing e-customers or terminating transactions when it is detected from the credit card used that a customer is not located in a franchisee’s allocated territory. Of particular importance is confirmation in relation to on-line sales that franchisors are not permitted to charge higher prices for products that are to be sold on-line, except where such on-line sales lead to substantially higher costs for the franchisor. However, in certain circumstances, a franchisor may impose quality standards on internet sites on which its products are sold. Re-sale price restrictions Under the old block exemption regime re-sale price maintenance was prohibited in all circumstances. However, recent economic argument suggests that in some rare instances re-sale price restrictions may have a positive effect(s), for example, when introducing a new product or in order to maintain a short term (two to six week) low price campaign. In our view, the evidential threshold required to be met in order to convince the Commission that specific re-sale price restrictions can be expected to have positive economic effects will be difficult to meet. Franchisors should not, therefore, seek to impose a re-sale price on franchisees (whether directly or indirectly) without first taking specialist competition law advice. Market share test As mentioned above, so far as franchising agreements are concerned, competition concerns only arise if there is insufficient competition at one or more levels of trade, that is, if there is some degree of market power at the level of the franchisor or the franchisee or at both levels, (usually a market share of over 30%). It should be borne in mind that, for franchising agreements where the franchisor and/or the franchisee enjoy a market share of more than 30%, there is no exemption, but that there is also no presumption that the agreement is illegal. It is necessary instead to assess the agreement’s negative and positive effects on the market to determine whether the agreement qualifies for an individual exemption. The notice suggests how this task should be approached and provides specific examples.

For more information please contact Nicola Kingaby, on 0117 917 7869. Nicola Kingaby is a specialist competition lawyer at national law firm TLT. Visit www. TLTsolicitors.com

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FRANCHISE DEVELOPMENT ADVICE

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

Richard Holden Head of Franchising Lloyds Banking Group Tel: 07802 324018 richard.j.holden@lloydstsb.co.uk www.lloydstsb.com/franchising Richard Holden heads up the Lloyds Banking Group Franchise Unit and is an expert speaker at exhibitions and seminars. He also regularly contributes in the national and trade press. The Lloyds Banking Group has trained franchise managers based throughout the UK to offer support to both franchisors and franchisees. Lloyds TSB and Bank of Scotland are affiliate members of the British Franchise Association.

Franchise advice you can really trust by Richard Holden, Lloyds Banking Group

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www.franchisee k . c o m

franchise

FRANCHISOR DEVELOPMENT ADVICE

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

Developing any ethical franchise network will take a significant initial capital outlay from the franchisor and it usually takes several years for most franchises to be self financing.

he conclusion I have reached whilst researching this article is that there is plenty of good, mediocre and frankly terrible advice available for people looking to develop their existing business through franchising. Let’s dispel some of the myths about franchising a business straight away. 1. Any business can be franchised without risk to the owner It is true that franchising as a route for business expansion works well across many industry sectors however not all. Good advisors will thoroughly review the feasibility of franchising your business and whether there are alternative options which may better suit your particular business. Franchising doesn’t work for everyone and business owners should carefully consider their options before embarking on their franchising journey. 2. We do most of the franchising work for you, leaving you more time to devote to your core business I’ve seen some consultants claim that they will do 90% of the work for you. Believe this and you are setting yourself up for a big fall. Even if it was possible to develop a viable franchise system without much of your own input, why would you want to do that? You’ve devoted the time and effort to build your business and you know it better than anyone. To develop any franchise the business owner’s input is essential and it will mean a significant amount of time needs to be set aside. Avoid consultants who say that they will do most of it for you no matter how tempting their offer may seem. 3. You can franchise your business for a fixed fee from around £6,000 It is easy to see why these offers are so tempting, particularly in the current economic climate, when some consultants quote three, four or even five times this amount. There is truth in the old saying ‘you get what you pay for’ and £6,000 doesn’t get you very far in developing a viable and successful franchise. Unscrupulous advisors make claims to franchise your business saving you thousands of pounds on unnecessary costs however they do not deliver what is most important; a sound franchise system. Another timeless phrase springs to mind ‘If it sounds too good to be true then it probably is.’ w w w. f r a n c h i s e e k . com

4. Developing a franchise is selffinancing as you are using the franchisees capital to fund the growth of your business network I’ve seen consultants claim that your franchisees will fund the expansion for you. It can be quicker to develop a franchise network over growing your business organically using your own capital. Developing any ethical franchise network however will take a significant initial capital outlay from the franchisor and it usually takes several years for most franchises to be self financing. Some advisors may suggest unrealistic growth targets, which makes everything sound so simple. The reality is that you won’t recover your initial costs after just a few months from recruiting your first couple of franchisees. There are no short cuts if you wish to build a successful franchise brand with longevity. 5. You can expect rapid growth and a quick return on your investment Advisors that promise they can significantly grow your wealth through franchising your business are out to get what they can for themselves. I don’t know any reputable franchise consultant who would make these claims. It is irresponsible and misleading to project anything other than modest franchisee recruitment targets particularly in the first year or two. Franchising is not a get rich quick scheme for business owners and those who think that it is will be franchising their business for the wrong reasons. 6. Templates of franchise documents will save you both time and money Consultants who claim to offer would-be franchisors a service that is customised to their specific business needs and then promote template franchise documents are to be avoided. Businesses are individual and unique and a ‘one size fits all’ approach simply doesn’t work. Franchise legal agreements, prospectus, training and operations manuals should be bespoke to each business. Template documents can save you both time and money when you initially set up the franchise however without the right professional advice there is a likelihood that you are being set up for massive and very costly problems down the line.

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FRANCHISE DEVELOPMENT ADVICE

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

Before you do anything I recommend that you attend a franchise seminar. These must attend events will give you an invaluable insight into franchising your business.

7. We will recruit all your franchisees for you The sole responsibility for the selection of potential investors should not be put in the hands of franchise consultants. It is your business and you need to control the selection process making the final decision about who you award a franchise to. You may welcome guidance and support in recruiting your first few franchisees until you have learned the ropes. Be weary of consultants who make their money by recruiting franchisees for you. The temptation will always be there to force unsuitable candidates upon you so that the consultant can secure their commission. This will lead to big problems for you down the line.

10. If you are not fully satisfied we’ll give you a money back guarantee The old ‘money back guarantee’ sales method is tried and tested and lures people into making a commitment that they may later regret. How many people do you know who have actually been successful in getting their money back for not being fully satisfied with a service? Not many I guess. Always get the terms of a guarantee in writing before you make a commitment, better still avoid people who make these offers altogether. These consultants are unregulated so who do you go to if you wanted to escalate a complaint against them? Using a British Franchise Association (bfa) affiliated consultant will give you some level of comfort.

8. It’s simple, franchisees have the motivation to succeed Don’t be fooled by those who tell you that all franchisees are 100% focused on making their business work and they will follow your systems to ensure their success. Most will but some won’t. Any established franchisor will tell you franchisees that closely follow their systems perform better than those that don’t. Franchisees are individuals and some well be better motivated than others. What is certain it won’t all be plain sailing! New franchisors will spend time and effort supporting their network and they will have plenty of performance and motivational problems to deal with, just like any employer would have with their staff.

Next Steps Before you do anything I recommend that you attend a franchise seminar. These must attend events will give you an invaluable insight into franchising your business. Lloyds TSB has organised free educational seminars for would be franchisors on the 2nd March (London), 3rd March (Oxfordshire) and 14th April (London). The bfa also runs a programme of seminars throughout the UK and details are available on the www.thebfa.org website. The Franchise Departments of the major banks will offer guidance on which franchise professionals you should speak to as well as the ‘rogue’ consultants to avoid.

9. Banks are supportive to all franchise businesses Franchise specialist banks, such as the Lloyds Banking Group, do offer preferential terms to well established and proven franchises and provide valuable assistance to investors purchasing a franchise opportunity. For those businesses that develop their franchise model without the support of reputable franchise professionals the banks are unlikely to finance their business or support potential investors with the finance they may require. Banks have a duty of care to their customers and will not provide finance to them to invest in a franchise that has been set up to fail. Franchising on the cheap will severely restrict you and your franchisees banking and finance options. 16 franchise focus

My advice is to only use the services of experienced franchise consultants and solicitors who are affiliated to the bfa. Get a letter from the consultant prior to engaging them setting out what they will offer you and an individually costed breakdown of the entire process. Ask for references from their clients and follow them up. Meet with at least three consultants before deciding who is best suited to assist with the development of your own franchise. You wouldn’t rush the decision to buy a house, so don’t make the mistake of jumping in to franchising without researching your options and the checking out those who will be advising you.

www.franchisee k . c o m

Lloyds TSB can help you with your franchise plans. Whether you’re buying into a franchise or franchising your own business, it’s important to have the right kind of support and guidance before you take the next step. That’s why we have a team of specially trained franchise managers who have a wealth of knowledge, and can offer you practical support and guidance. To find out more call:

0800 587 2379 lloydstsb.com/franchising

Calls may be monitored or recorded. Lloyds TSB Commercial is a trading name of Lloyds TSB Bank plc and Lloyds TSB Scotland plc and serves customers with an annual turnover of up to £15m. Authorised and regulated by the Financial Services Authority under numbers 119278 and 191240 respectively.

franchise

FRANCHISE ADVICE

Trading-Up By Andrew Cutler, Sales and Franchise Director of Card Connection

he continued challenges of the economic environment means that franchises need to become more streamlined in relation to their business processes than ever before. A significant degree of effort will be necessarily focused on generating new sales and gaining additional customers. However, it is widely suggested that it is 18 franchise focus

seven times more difficult to gain a new customer than to â&#x20AC;&#x2DC;up sellâ&#x20AC;&#x2122; an existing one. Therefore, when times are tough, it is important for franchisees to look hard at their existing customer base and see how they can maximise revenue from clients where that hardwon relationship has already been built. www.franchisee k . c o m

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FRANCHISE ADVICE

The ‘getting to know your customers better’ process will also provide the opportunity to introduce additional elements of your service or product offering

There are several ways to look at maximising revenue from existing business. Firstly, nurture your relationships. The more you interact and get on with your clients the stronger that relationship will become and because people buy from people they like, this approach will minimise the chance they may look at alternative suppliers. Understanding your customer base will also allow you to provide a better service. If you know a client prefers to accept a delivery or make an appointment at the end of the week then by accommodating this, you will increase their satisfaction levels. The ‘getting to know your customers better’ process will also provide the opportunity to introduce additional elements of your service or product offering. For customers to buy from you they need to know precisely what you can do for them so don’t be backward in coming forward and be sure to take time to explain all the aspects of your franchise business. Understanding your customers and allowing them to get to know your entire offering also results in the all important chance to ‘trade-up’. This is best explained by an example: our longest established franchisee, Peter Javens, who covers the Nottingham and Grantham region has been a Card Connection franchisee now for 18 years now. In the past year, despite the economic downturn, Peter has spent some time re-focusing his business. As a result, he has been able to increase his business profit by 4% compared with last year. His new strategy which has resulted in this success is largely due to trading-up existing customers by adding higher pricepoint luxury greetings cards to his retail displays. Turnover is vanity, profit is sanity, or so the saying goes. Although Peter hasn’t increased his volume of sales by a large degree, by focusing on selling slightly higher-price point, luxury greeting cards within his existing retail customer account outlets, he has increased his profit margin very successfully. Trading-up can involve selling higher priced products or more products to the same customer. The important point, is to look at how a customer who is buying from you already could be encouraged to spend more. Volume discounts and promotions can achieve this but they will erode profit margins. Therefore, improving the quality of products or services will ultimately be more profitable. Additionally, ‘pile it high and sell it cheap’ business models do not generally appeal to customers’ aspirations. The key to tapping into the mentality of w w w. f r a n c h i s e e k . com

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

getting customers to pay slightly more for a higher quality product is to add value where you can. This may mean the merchandise is presented better than the competition or even where the overall buying experience is more satisfactory. This ‘added value’ is where increased profit lies. It is why Tesco’s ‘finest’ range is so successful and why Waitrose and Marks and Spencer food halls are so popular despite the recession. Gaining repeat business is also critically important and so the whole customer experience needs to be considered. A quality product or service will go along way but how your products are presented or merchandised is important and can influence an impulse buying decision. Card Connection for example, has recently invested in new point-of-sale material which helps to show the greetings cards off to their best advantage. Our franchisees are already reporting increased sales volumes as a result. How smartly you are dressed, the slick signage on your clean and shiny delivery vehicle and always wearing a friendly smile, will also effect the perception of your service in the eyes of your client. Similarly, attention to details such as arriving for appointments on-time or a follow-up call to ensure your customer is happy with the service you have provided, can all help add to an overall positive buying experience. How you work with your clients or customers is also important. Your product or service should be solving a problem and not adding to one! Managing customer expectations is one way of achieving confidence in your business and this confidence encourages customers to continue to trade with you. If you have promised that a delivery will arrive before Wednesday at 12pm then ensure it is there by 11.45am. If you have agreed to call a customer before the end of the week, contact them by Friday lunch time. Consistent under promising and over delivering builds confidence where never delivering on your promises, failing to return calls or not doing what you said you would, destroys credibility. Its currently pretty tough out there in the market place and improving the quality of your products and the overall buying experience will help to tradeup your existing client base. Although attention should still be focused on generating new customers, remember to consider how keeping and optimising income from existing, hard-won clients is essential to secure and even improve profitability within your franchise.

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franchise Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

FRANCHISE TRAINING

Franchising... More than simply Buying a Job By Paul Monaghan

F Paul Monaghan is a Director of The Franchising Centre with special responsibility for the development and delivery of training through The Franchise Training Centre.

ranchisors often tell us that one of their biggest problems is to get franchisees to genuinely want to build a business rather than simply ‘buy a job’. Yet I often wonder how much emphasis the franchisor places on this during the recruitment and initial training process. If ‘building a business’ isn’t in the frame from the outset it is perhaps not surprising that some franchisees stop building when they have reached a personally targeted income level, their ‘Comfort Zone’. One of the many benefits a franchisee gains by joining a franchise network is access to both initial and ongoing training in the franchise system. The whole rationale of franchising is based on the replication of a proven business system and so it is important, if the franchised outlet is to be successful, for the franchisee to fully understand and then implement all elements of the operating system. However it is not sufficient simply to know how to deliver the product or service provided by the franchise. Knowing how to deliver care to a housebound client or a pizza to a couch-bound football fan is only part of the story. Perhaps the most important part is knowing how to run a business that does the delivery. In his series of books based on ‘The E-Myth’ Michael Gerber identifies what he calls ‘The Fatal Assumption’ that leads to the failure of many businesses. The Fatal Assumption, he says, is that new business owners all too often assume that just because they know how to do what a business does, they know how to run a business that does it. That is to say, just because they know how to deliver the pizza or clean the carpet doesn’t mean to say that they understand how to operate and manage a business that does it. One of the simplest definitions of running a business that I have come across makes the point that the purpose of any business is to find and keep profitable customers. This very succinctly describes the process of finding customers through marketing activity, keeping customers through delivering first class

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products or services with excellent customer care and doing it in a way which is profitable. All three of these activities underlie the operation of a successful business. No doubt most franchisors will believe that in their induction training they pass on these skills and processes to their franchisees, franchisees who for the greater part may be totally new to running a business. The franchisor will, in many cases, be the founder of the business, an entrepreneur who has developed his or her skills and experience over many years. Indeed it is precisely those skills and experience that the franchisee is investing in when they purchase a franchise. It is easy, however, for an entrepreneur to forget just how long it took to acquire those skills in the first place and what innate skills they might have brought to the original business. This in turn can lead them to believe that much of what they now do in the business is little more than ‘common sense’ and this can lead them to assume that their new franchisee will have a better understanding of some of these issues than is likely to be the case. It is important, therefore, that in developing both an induction and an ongoing training programme for franchisees the franchisor addresses in great detail all aspects of running a business as well as how to operate the franchised system. Finding ... Most business need to continually find new customers either to grow their business or just replace existing customers who, for whatever reason, cease to buy from them. In some businesses a customer may only purchase the product or service once every five or six years so relying on repeat purchases could mean a long wait and new customers must be continually sought. Marketing training should not simply identify the processes that a franchisee must undertake, for example cold calling, advertising, networking, but www.franchisee k . c o m

franchise

FRANCHISE TRAINING

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

Remember, a good business plan is as much about the process as the final document.

must also make sure that they understand why these processes are important. The training could, for example, include a scenario, based on a full year of their activity, which the franchisee works through, to demonstrate the time-lag between beginning a marketing activity and securing a sale. Understanding the extent of this possible time-line will emphasise the importance of developing a marketing pipe-line that ensures that there is a continuous flow of new customers. Having identified a new potential customer, most franchises will have a structured sales process in place, a process that will have been tested and improved over the years. Underlying this process will be many of the core principles of selling. However it is important that any franchisees should understand not simply the process but the theory behind it. Only then will they be able to respond to new situations which might not have been identified in the original system. Sales training, therefore, should include both the theory and practice of good salesmanship. ...and Keeping Having worked hard to win a new customer it is important that every effort is made to retain them as a customer no matter how long the repeat purchase cycle might be. In order to do this it is important not simply to ensure that the product or service is first class but also that the delivery and subsequent customer care are also first class. It is no longer, and arguably never was, sufficient to have ‘satisfied customers’. Satisfied customers, if asked, will undoubtedly say that you are OK – but is that what you want as the motto on your corporate flag flying over your Head Office ‘BUY FROM US. WE’RE OK!’? What are needed are customers who are, in author Ken Blanchard’s words, ‘raving fans’, who will talk to other potential customers in such glowing terms that they can’t fail to buy from you. This passion for customer care needs to be instilled in new franchisees from the start so that they get the full benefit from their marketing and sales activities and should be continually reinforced through the ongoing training programme. ....Profitable Customers Given that most new franchisees will have little experience in managing a business, understanding the basics of profitability will have a clear impact on their w w w. f r a n c h i s e e k . com

ability to make decisions about the direction of the business. All too often, when talking to small business owners, including franchisees, they define profit as what is left after all the bills have been paid. Whilst this is a simplistic definition it treats profit as a result and not a goal. Profit is often seen as the result if everything goes right, a reward for success. In fact the achievement of, at least, a satisfactory level of profit should be one of the key drivers of the business. Whilst for many franchisees the financial success of the business will be only one of many drivers, others perhaps being ‘being their own boss’, ‘achieving a better work-life balance, etc, they will achieve none of the others in the long term if they do not make a sufficient profit to allow continual reinvestment in developing their business. It is too simple to assume that increasing sales will increase profits. Franchisees need to have a full understanding of, and an ability to work out, the effect of marginal movements in the price they either pay or charge for their products and services. One of my favourite questions when speaking to prospective franchisees or small business owners is: ‘If you reduce your prices by 10% by how much will you need to increase your sales to achieve the original level of profit?” Many will reply ‘10%’ and are then staggered to be shown that, dependent on the original level of margin, the sales would often need to increase by 30 or 40%. The effect of ‘discounting to close the sale’ then becomes very apparent. It is important, therefore to ensure that all potential franchisees have a clear understanding of the ‘mechanics’ of profitability, preferably prior to committing to setting up their business, since the generation of profits will be crucial to their achieving whatever other goals they aspired to in becoming selfemployed. Franchisors have a key role to play in ensuring that their franchisees have the motivation and the skills to build a business in line with the franchisor’s expectations and aspirations. Including these aspects in both the recruitment and training process is the starting point for developing a mutually successful relationship.

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FRANCHISE ADVICE

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

The Manual as a Benchmark for Quality by Penny Hopkinson, Founder, Manual Writers International

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www.franchisee k . c o m

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FRANCHISE ADVICE

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

fter the Franchise Agreement, the Operating Manual (also referred to as the Operations or Operational Manual or, simply, ‘the Manual’) is the most important document issued to the franchisee. While the Agreement sets out the contractual obligations between franchisor and franchisee, a good will document - in operational detail - precisely what must be undertaken by franchisees to fulfil their obligations. Because the Manual underpins the Agreement, it provides a fair benchmark for the type of support the franchisees are likely to receive from their franchisor. Therefore, it would be wise for an intending franchisee to evaluate the Manual as part of due diligence – ie. before signing the Franchise Agreement. Under the terms of the Agreement, the franchisor is obliged to issue a copy of the Operating Manual to each franchisee – usually at Initial Training - as part of the Initial Franchise Package. The Manual is provided on loan for exclusive use by the franchisees and staff for the duration of the term granted. However, not all franchisors at start-up or as the business matures and changes, give the Manual the high priority it and their franchisees deserve. This may be because the importance, scope and functionality of the Manual are under-estimated, or because it is difficult to develop from scratch and onerous to maintain. This is also true when the budget is tight or when the management is under constant pressure due to rapid expansion of the network. However, if a franchisee is unable to understand how to operate the System correctly to stated quality standards, then the franchisor cannot blame the franchisees for failing to deliver consistent brand, quality and customer excellence. To be effective, the Manual must be considered a work in progress - a living document that transfers the franchisor’s Know-How and Business System and reflects any changes, modifications and additions to working methods and practices. Therefore, it is also the franchisor’s contractual obligation to keep the Manual up to date. w w w. f r a n c h i s e e k . com

When combined with appropriate training and good support, the Operating Manual becomes an extremely powerful quality management tool, worth many thousands of pounds, to which the franchisee will refer at all stages of the life-cycle of their business. When every franchisee complies with the Terms & Conditions of the Agreement and follows operational detail contained in the Operating Manual, the Franchise Network becomes strong – and successful. Of course, the reverse is also true; and a seriously out of date manual will be worthless. These days, franchisees are just as likely to be issued with a Manual in electronic format as in a hard copy version. Depending on the type of business operated by the Franchisor, and the franchisee profile, the Manual may be issued on CD-Rom or available through the franchisor’s secure Intranet. It may comprise one or a number of volumes and may encompass and/or reference other manuals such as equipment manufacturers’ instructions, data protection and health and safety requirements.

Penny Hopkinson Manual Writers International Tel: 01926 641402 ManualW@aol.com Website: www.manual-writers.com

All information contained in the Manual is confidential. It will be protected by copyright and must not be given to – or fall into the hands of anyone who is not specifically authorised. Therefore, before an intending franchisee is able to see the Manual, the franchisor is likely to insist on a written undertaking of confidentiality. Even so, the intending franchisee may not be given the opportunity to look through the Manual in any depth until the Franchise Agreement is signed. An Operating Manual that is fit for purpose must be: •

Up to date.

•

Detailed.

•

Relevant.

•

Easy to read.

•

Easy to understand.

•

Easy to navigate.

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franchise Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

For a newly franchised business, it is acceptable to develop the Operating Manual gradually as systems are developed and procedures are improved through experience and consultation with the first franchisees.

Ask to see a copy of the Manual Ask to see a copy of the Manual and, if necessary, offer to sign an Undertaking of Confidentiality. A franchisor who subsequently refuses to show you a copy of the Manual may have something to hide – eg. it may not exist, or be seriously out of date. Find out when the Manual was last updated Ask the franchisor when the Manual was last updated and, if available, check for evidence – eg. • A Copyright Notice published in the front of the Manual. • A Record of Amendments provided in the front of, or with the Manual. • The date published against the copyright symbol © at the top or bottom of a page. A series of updates may be demonstrated by different dates across a number of pages. Another indication that the Manual hasn’t been updated regularly may be found within the body of the Manual an example of which is the IT equipment specification that refers to a version of the software program that has been superseded by one or more versions. If appropriate, confirm when updates are planned and obtain this in writing. Evaluate the Structure, Contents & Content Turn to the main Contents page(s) at the front of the Manual. Scan the headings. A good Structure will be based upon: • Two main principles of the Agreement - the franchisee’s Initial Obligations (eg. New Business Set-up & Support) and the franchisee’s Ongoing Obligations (eg. Day to Day Operating Requirements). Comprehensive Content may be evidenced by: • A detailed list of Contents with several pages of headings and sub-headings that will enable franchisees to identify swiftly what they need and where to find it easily. New Business Set-up & Support must provide, in detail: • A breakdown of all the resources and actions necessary to launch a franchise successfully; and • Information about the support the franchisor will give you post-opening and throughout the life time of the business to facilitate growth. 24 franchise focus

Day to Day Operating & Management Requirements must cover core operating brand standards and operational procedures to deliver consistency and excellence for every element of the business – eg. Recruitment & Training, Products & Pricing, Marketing & Promotion, Customer Service, Finance, Health & Safety, Logistics. Evaluate a sample of the Content From the Contents page, pick a topic of which you have little or no knowledge. Locate the appropriate pages and read to see if you understand the Content. Checklists are useful but the ‘devil is in the detail’ that lies behind them. The topic must be described fully and clearly in operational detail – ie. you understand when, where and how to carry out a procedure and what are the minimum operating standards. A supportive franchisor will also provide mechanisms for monitoring and control to assure conformity and uniformity throughout the franchisee network and set benchmarks for improvement – eg. annual franchisee audit system, Key Performance Indicators (KPIs), financial reviews, reports and action plans. If Content seems to be inadequate, ask the franchisor if additional documentation is available elsewhere – eg. online, accessed by a secure Intranet or in another manual. For a newly franchised business, it is acceptable to develop the Operating Manual gradually as systems are developed and procedures are improved through experience and consultation with the first franchisees. If the franchise is Provisionally Listed in accordance with British Franchise Association’s requirements, the Manual may be developed as a Edition but will need to be developed into a full within two years if Associate Membership is to be considered. Don’t be fooled by appearances Appearances, too, may be deceptive. Just because the design is imaginative and the production glossy, it doesn’t mean the Content is comprehensive. It may be a veneer to cover some inadequacy. The most useful manuals often look boringly basic because they are functional and easy to update year on year. Similarly, simplicity of a System should not be confused with a franchisor’s ability [or otherwise] to provide the franchisee with a comprehensive and effective reference work covering all aspects of the business.

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RECRUITMENT

What franchisors can learn from traditional recruiters

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

By Steve Frost, Smith & Henderson

ranchisors frequently cite a lack of suitable franchisees as a significant barrier to their growth. Steven Frost, Franchise Consultant at Smith & Henderson, explains what they can learn from traditional recruiters to help overcome this.

Converting Customers – happy customers are advocates for what you do and tell their friends and family. Best practice franchisors build awareness of their franchise opportunities and convert these to future franchisees.

The idea that the best talent is concentrated among people not looking for jobs has become widely accepted in the recruiting community. Dubbed, 'Passive Candidates', these are people satisfied with their current position, who are highly engaged and most importantly, many are high flyers accomplishing great things. They are not actively seeking a new opportunity and do not spend anytime trawling through job boards or reviewing job advertisements in the press.

Social Media – these channels allow franchisors to build awareness of their brand, increase candidate pull and strengthen relationships with potential franchisees. With sites such as LinkedIn growing by 100,000 users each week if used effectively, these offer franchisors unrivalled opportunities to reach hard to find talent.

In contrast, 'Active' job seekers are those who are not satisfied with their current situation. Many of these are driven by 'push factors' – unhappy and demotivated, and often average or poor performers. It's estimated that less than 15% of the population are Active Candidates and it is these who are likely to be identified through traditional advertising. Because the best candidates often aren't seeking work, traditional recruiters invest time and resources reaching out to them. Most franchisors however, do not. They tend to focus on recruiting franchisees through advertising in the trade press, online directories and franchise exhibitions but these all share a fundamental flaw - they only target people actively pursuing franchise opportunities.

Specialist Talent Finding Partners – franchisors that benefit from specific skills and experience can appoint a search consultant to proactively seek out the best match franchise talent. They should think carefully about this and only work with a partner with a strong understanding of franchising and who they believe can represent their brand appropriately. For more information, please contact steven.frost@smithhenderson.com. Smith & Henderson are a leading firm of Franchise Recruitment and Development specialists, and British Franchise Association Affiliate Members. They specialise in helping leading franchisors radically improve how they source, select and manage the very best franchise talent.

Reaching passive candidates can be quite challenging. The approach a franchisor takes should depend on its unique requirements and the franchise profile. The tools available include: Referral Programmes – encouraging staff and existing franchisees to identify and refer suitable potential franchisees. These could be friends and family, or weaker ties such as people they have worked with in the past. Referrals can be the number one way to identify potential franchisees as well as establish contact.

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FRANCHISE MIDDLE EAST

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

A franchising panorama of the

Middle East by Fadil Alnassar, Middle East Franchising

In a region that holds over 1,200 franchised US-based restaurants, there are stellar growth opportunities, and business sectors that are largely untapped. Middle East is a franchising gold mine growing at up to 25% per year. Franchising plays a vital role for any region or country development. Business sectors including education, retail, health care, media, hospitality, banking and even governmental organizations and charities use franchising to develop profitable business models and operating structures. 26 franchise focus

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FRANCHISE MIDDLE EAST Developed countries have embraced a franchising as a lucrative form of doing business, while the franchising culture in the Middle East is yet to develop to the same level of maturity. Franchising in the Middle East is currently subject of significant growth, a trend that has been steadily heading upward over the last few decades. The franchising market size is estimated at $30b with a growth per annum between 10% to 25% according to recent figures. While the financial crisis paralyzed much of the global economy in 2008, many of the markets in the Middle East were less impacted and recovered fast. As a result, the markets have continued to ramp up investment efforts in local and foreign business. A market that is growing and maturing Over the course of the last decade, the franchising culture in the Middle East has matured. No longer just an exclusive form of ownership limited to large investment groups, today there are many small, younger entrepreneurs investing and running franchise units for established brands such as Subway. Countries in the GCC and Middle East have also established franchising exhibitions, conferences and seminars to help raise awareness and interest in the culture of franchising as a whole. In many countries, the chamber of commerce is actively involved to support these events, and recognizing the enormous growth potential in the industry. It is broadly considered, that not only does franchising help grow national and international business opportunities â&#x20AC;&#x201C; it helps create new job opportunities, leaving a positive social impact. Local market understanding critical It must be noted, that as with any multi-cultural business platform, there are differences in how cultures and markets embrace products and services. Consider a market like Europe. A successful TVcommercial in Italy, may not at all resonate with a Scandinavian consumer. The same way, the marketing or selling of a product that works according to specific framework in the Western world, may not fit like a glove in the Middle East. Western brands need to consider localization and adaption of their brands and service platform before getting successfully established. Discussing with local franchising expert is often the route to take. The difference in approaching a business situation On the upside, there are tremendous opportunity gaps in almost every business segment. Local consumers in the Middle East have a strong preference for international brands and are extremely open to investing in a Western-based franchise from US, UK or Europe. w w w. f r a n c h i s e e k . com

The investment tactics are different. Letâ&#x20AC;&#x2122;s review the differences: In the US, an entrepreneur prefers to buy a franchise based on the investment. The help and support obtained from the franchisor minimizes his risk.

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

In the Middle East, the philosophy is different: Either you invest in a brand that is well established with a clear value proposition and selling points, or you develop a new, non-franchised brand from scratch. There are still many individuals who do now perceive the value of franchising, or how it helps minimize investment risk. One of the reasons is that many individuals that pursue a business opportunity work with a platform of personal cash, and seldom turn to support from banks.

Fadil Alnassar Middle East Franchising Tel: 00966 546 111 758 e-mail: fadil@mefranchising.com

In the Middle Eastern tradition, business funding often stems from funds within the family. This is a vastly different modem from the Western countries, where business is often started with the bank support or franchise bank loan. Market maturity and next steps for the region Over the last decade, certain local brands have been established that have expanded in the Middle East through franchising models. In the overall category of franchising, the Food & Beverage and Retail segments remain strong players. There are presently over 1,200 franchised restaurants in Middle East only from US. Other sectors are largely untapped, presenting a huge opportunity. The only franchising association in the region is in Lebanon which holds occasional events, and help with match making. Unfortunately, the international franchise events and exhibitions have not been useful to the Middle Eastern audience. The content is often highly localized and geography specific. As such, the region is in strong need for a platform in which general information, local policies, financing and regulations can be distributed. There are presently no local or regional laws governing franchising in the Middle East. Without a governing franchising association or regulator to monitor franchising rules for agency and distribution agreements, it remains difficult for locals to become fully oriented with franchising, or develop the sector towards a Western level of maturity. In conclusion, the future of franchising of the Middle East is promising with a clear growth trend throughout the region. While local governments and chambers of commerce are ramping up efforts, we need to see continuous work towards a more organized industry, increased governmental support and blessing for future projects that will develop the entire franchise industry as such. franchise focus 27

franchise Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

Franchise Information: New ID Franchise www.franchiseek.com/MemberDetails.asp?franchiseID=10571

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www.franchiseek.com - FRANCHISE CLASSIFIEDS It's A Grind Coffee House

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Maid2Clean Franchise Ltd

A BFA management franchise at the forefront of the recession-proof domestic cleaning market. Tel: 0845 257 6243

Issue 9 sponsored by: Lloyds Banking Group www.lloydstsb.com/franchising

novum publishing: the anchor and the solution for new authors Tel: 00436769708091

Skidproof International

Unique and patented health and safety product Tel: 07947 609099 www.franchiseek.com/MemberDetails.asp?franchiseID=10569

Labels4kids Ltd

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New ID Studios combines two of the UKâ&#x20AC;&#x2122;s leading names in the hair, beauty and cosmetics businesses Tel: +44 (0)121 634 6606 www.franchiseek.com/MemberDetails.asp?franchiseID=10571

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franchise focus 29

License Fee: ÂŁ9,000/250,000 population Territories: Worldwide In Business Since: 2002 Contact: Howard Dunlap Telephone: 001-800-518-3040

Alloy Wheel Repair Specialists is a Unique Diamond Unless you happened to land on this site while web surfing, there is no way you could ever know that a business such as this could offer you financial independence. Our franchisees enjoy the fruits of a rapidly expanding industry and have a great deal of fun participating in the energy of the evolution. The power of our growth momentum can only be compared to a select few organizations such as McDonalds, Starbucks, Coca-Cola, Home Depot, and Office Depot. Check it out for yourselves! Investigate! This is not sales rhetoric; it's a fact. Just talk to our people and learn the facts. If you are interested in owning your own business, don't miss an excellent opportunity to improve the quality of your life.

Be a Part of the World's Largest Mobile Wheel Repair Business Alloy Wheel Repair Specialists is the world's largest leader in the wheel repair industry. There are no close seconds. We have over 140 franchisees operating 400 mobile units, 7 re-manufacturing facilities and 20 wholesale distribution centers with an inventory of over 50,000 OEM replacement wheels. AWRS operates in 500 cities throughout the United States, Canada, England, Ireland, Saudi Arabia, France, Spain and Germany. www.mobilewheelrepair.biz/

novum publishing franchise: your chance to run a successful business

License Fee: Upon Request Territories: Worldwide Contact: Reisner Manuel Telephone: 00436769708091

We are a publishing house for new authors situated in Austria and operating on the market since 1997. Our novum publishing concept is based on the fact that many authors cannot find traditional publishers, because these are snowed under with thousands of manuscripts and so most new authors are ignored. Therefore the solution and alternative for new authors is novum publishing, which offers a wide range of services beginning from contract-making with the author to his own marketing plan. These services require a cost-contribution by the authors. The cost contribution by the authors is the main pillar of turnover for the publishing house. The novum publishing concept is ready. Get part of it now! http://www.novumverlag.at/franchise/

business

In this section: Marketing on the move Managing your company's public image Top 10 consumer trends in 2010

franchise business

PR & MARKETING

Marketing on the Move Linda Daichendt is CEO of Strategic Growth Concepts 32 franchise focus

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PR & MARKETING

iven the precarious state of today’s global economy, franchise organizations are on ‘high alert’ for new ways of increasing their franchise development capabilities and helping their franchisees to increase revenues. While recent technology advances provide a variety of methodologies that can be useful in achieving these goals, there is one that has only recently come to the forefront of marketer’s awareness – Mobile Marketing. While you may not yet have heard a lot about it, be assured that in the very near future, you will need to know as much about it as you previously needed to know about direct mail, telemarketing, radio or TV. Consider the cell phone and its capabilities if you will: recent studies indicate that there are currently over 4 Billion cell phone users worldwide; of those phones, 99% are text capable and 57% of those mobile subscribers use texting on a regular basis; and over 84% of cell phone owners won’t leave home without the device and keep it within 10 feet of them at all times. These statistics lend legitimacy to the school of thought that Mobile Marketing is likely to become a substantial portion of marketing budget expenditures within the next few years. Given that, franchise owners and marketers will likely be intrigued by the following facts about Mobile Marketing derived from recent studies: 97% of mobile subscribers will review a mobile message within 15 minutes of receipt, over 80% of them will respond to SMS messages within 1 hour; average response rates for mobile advertising range between 7 – 15% (though some firms have seen response rates in the 50 – 65% range!), 23% of SMS campaign messages are forwarded and become viral; and the messages sent via mobile are actionable and trackable thru specific consumer replies. First, let’s review what it is. Mobile Marketing is a simple-to-use, targeted and measurable method of reaching consumers anywhere, anytime via their mobile phones. Types of Mobile Marketing There are a variety of methods of Mobile Marketing, among them are: •

SMS (short message service) • Also known as ‘texting’

•

MMS (multi-media message service) • Messages that contain multi-media objects such as images, video and audio

•

Mobile Web Applications • Browser-based web services such as the World Wide Web using a mobile device

Protocol) – an open, global specification that empowers mobile users with wireless devices to easily access and interact with information and services instantly • Bluetooth (short-range wireless technology; up to approx. 33 ft) • Also known as proximity marketing • The localized wireless distribution of advertising content associated with a particular place. In other words, if you have a cell phone in the proximity of a marketing broadcast, you would be able to receive a message or advertisement •

Location-Based Marketing • Delivers multi-media directly to the user of a mobile device dependent upon their l ocation via GPS technology

•

Linda Daichendt is CEO of Strategic Growth Concepts, a U.S. based firm that provides consulting and training services to start-up, small and mid-sized businesses in the areas of Start-up, Marketing, Operations, HR and Strategic Planning with areas of specialization that include: mobile marketing, social media marketing, and virtual events production.

QR Codes (quick-response barcodes) • Two-dimensional barcode

•

Voice • IVR (Interactive Voice Response) a technology that automates interactions with telephone callers • Voice broadcasting calls numbers from a computer managed list and plays a prerecorded message to the call recipient or answering machine • Pay-per-Call • ADC (Abbreviated Dialing Codes) dial the code to access voice content

•

Mobile Banner Ads

•

Mobile Website • A Mobile-optimized version of an Internet website providing an easy way for consumers to learn about your company ‘on-the-go’

•

Mobile Commerce • Payments for purchases made via cell phone

Next, are they right, should your business be using Mobile Marketing? Is it really as effective as they say it is? According to the Director of Research at Nielsen Mobile, “People look at every text message they get”, and 97% of them do so within 15 minutes. Can you think of any other advertising medium where you are almost guaranteed that every person targeted will see your message?

• Utilizes WAP (Wireless Application w w w. f r a n c h i s e e k . com

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PR & MARKETING Small business owners can implement their own unlimited mobile advertising campaigns – within minutes –through a program now being offered by Strategic Growth Concepts, called ‘Mobile Marketing for Franchises’.

Kodak’s Jeffrey Hayzlett says, “Mobile marketing is quickly growing beyond the experimental and is showing tangible results. Two examples are Barack Obama’s unprecedented mobilization of supporters during his presidential campaign, and the incredibly successful American Idol reality show, where over 20 million mobile users text their votes each week.” An additional recent example of mobile’s results is the spectacular fundraising efforts for Haiti which were driven by mobile donations. Almost $5 million dollars was raised in less than 48 hours via text message contributions, and to-date, more than $30 million has been raised via mobile. Some industry statistics may help to clarify the effectiveness of Mobile Marketing for you: •

According to industry estimates, by 2013 the U.S. will top 100% per capita penetration of mobile phone use

•

SMS is typically read within an average of 15 minutes after receipt, and responded to within 60 minutes

•

While 65% of e-mail is spam, less than 10% of SMS (texting) is spam

•

A survey of 2,400 moms reveals that the single most important tech gadget in their lives is the cell phone

•

A Nielsen study indicates more than half of mobile data subscribers (51%) who saw a mobile ad responded to it by sending a textmessage, clicking on it, or calling a specific number.

•

In analyzing the mobile audience, Nielsen found that teens were the most likely to recall seeing some type of mobile ad (46%) compared to 29% of users overall. Asian-Americans and African-Americans were among other demographic groups with high recall rates, at 42% and 40%, respectively.

•

88% of all mobile subscribers have a text enabled phone. 51% have received SMS marketing messages, and 25% have opted in to marketing messaging from a brand.

Will my customers want to receive mobile messages? A new survey published by Compete.com indicates Smartphone owners are very receptive to mobile coupons. The survey, which looked at the time of 34 franchise focus

day most Smartphone owners use their devices, as well as what mobile advertising concepts they’re most interested in, found that usage during commutes to work and while watching TV were the highest by far. To find out their receptiveness, the survey asked Smartphone owners how interested they were in receiving various types of mobile advertising. The results were quite interesting, indicating consumers were most interested in receiving grocery coupons (36%), scanable barcodes (29%), offers to save and pursue at leisure (26%), movie theater offers (26%) and promotion/coupon ads (21%) via SMS (text) when passing by a retailer. Can I afford mobile marketing? Absolutely! Mobile marketing is an extremely costeffective medium to use with an exceptional returnon-investment. While some firms have achieved an ROI as high as 54% or 62%, typical results range between 7 – 15%; still quite high as compared with more traditional media such as Direct Mail which typically attains a 2 – 3% ROI. And now, Mobile Marketing is very accessible for even the smallest of firms. Small business owners can implement their own unlimited mobile advertising campaigns – within minutes –through a program now being offered by Strategic Growth Concepts, called ‘Mobile Marketing for Franchises’. Where do I begin? If you would like to learn more about Mobile, or the ‘Mobile Marketing for Franchises’ program, please TEXT the word FRANCHISE to 57711. This will opt you in to Strategic’s Mobile Club, and notify us to schedule you for a FREE demonstration. Members of our Mobile Club will be eligible for future special offers, and will receive tips on using Mobile Marketing to benefit their business. If you prefer not to join the Mobile Club but would still like to receive the FREE demonstration, you can contact us directly at info@St rategicGrowthConcepts.com. The author, Linda Daichendt is CEO of Strategic Growth Concepts, a U.S. based firm that provides consulting and training services to startup, small and mid-sized businesses in the areas of Start-up, Marketing, Operations, HR and Strategic Planning with areas of specialization that include: mobile marketing, social media marketing, and virtual events production. Daichendt is an award-winning blogger on the use of new media in growing a business, and a recognized business expert with 20+ years of corporate, small business and franchising experience. Linda can be contacted at linda@StrategicGrowthConcepts.com , and the company website can be viewed at www.StrategicGrowthConcepts.com.

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Franchise e-books

How do I choose the franchise for me? You need to read this guide before signing any franchise document, or parting with any money. Published by: Franchiseek Limited GBP 10.00 - 0.00 | Buy and Download http://www.franchiseealliance.com/index.php?q=node/253

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franchise business

Managing your company's public image by Tristan Rogers, Concrete Group

The ability to manage a companyâ&#x20AC;&#x2122;s public image is vitally important for any business, says Tristan Rogers, Managing Director of Concrete Group. However, for franchised businesses operating in the Internet age, there are some specific points that marketing teams need to consider

36 franchise focus

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n recent years, many UK companies have enjoyed significant success with the adoption of various franchise strategies. This (relatively) low-risk route to market has huge appeal, especially to anyone who has previously experienced a major financial loss with a more traditional “wholly owned” business model. A key benefit of franchising is that it allows individual business owners to combine their own experience, enthusiasm and skills with the franchisor’s business expertise and well-established brand identity. In addition, individual franchise owners benefit from having access to a variety of tried-and-tested sales techniques, operating procedures, marketing programmes, and training provided by the franchisor, as well as ongoing support and guidance. However, there are still some potential drawbacks to consider. For example, many in the business world still believe that franchising suffers from a lack of control and poor performance visibility. Likewise, local marketing initiatives are sometimes handled in a rather ad hoc fashion, which means that franchisees will often bypass recommended suppliers to use cheaper local alternatives that fail to reflect the quality standards that the brand hopes to represent. Now more than ever, this is where problems can arise, since a single franchise owner can now cause serious damage the brand in the blink of any eye. In today’s online world of social networking and 24/7 blogging, one bad customer experience can now be shared with millions of other consumers in an instant. However, fear not: although managing a company’s reputation in his environment can certainly be challenging, marketing managers can take some practical steps to avoid these pitfalls. To begin with, all of the marketing tools, procurement processes, best practices and efficiencies that the marketing team has enjoyed in its own home market need to be seamlessly made available to the whole franchise network. Technology can provide an extraordinary amount of help here. Web-based portals can now provide a single branded “shell” that can be accessed by each franchise, thereby creating a community of users that can be contacted simultaneously, guided toward costs savings, trained to promote onbrand messaging, and administered with reduced overheads from the head office. By using collaborative working and web-based computing in this way, franchise operators can completely transform the way in which marketing collateral and information is accessed and deployed throughout the franchise network, and can therefore maintain brand consistency much more effectively as a result. Although systems like these are typically deployed internally, they can rapidly feed into any w w w. f r a n c h i s e e k . com

number of external and online channels, which is why the marketing team plays such a key role in their management. With this kind of technology, any franchise can access all of the company’s marketing materials, brand guides and guidance literature, whilst also having the means to procure supplies and any other customer-facing collateral from approved suppliers. In addition to ensuring quality and consistency, this approach will also allow franchises to gain access to the same volume discounts already negotiated by the franchise operator. Solutions like these can also help franchise operators to communicate and collaborate more effectively across the workforce, wherever that workforce happens to be, and at whatever time is convenient. However, in order to connect with an extended workforce in this way – whether that means internal staff, suppliers, agencies or customers – it’s important to ensure that communication strategies like these are easy to coordinate, and that they can be achieved very quickly, using simple tools that require little or no training or specialist equipment. After all, with a franchise model, the company’s core marketing team must ultimately rely on the skills and abilities of the franchise owners to rollout their key marketing initiatives on a national (or international) scale. To be successful in this area, these regional teams will therefore need strong products to sell, of course, but also a solid marketing support mechanism which will not only help them to sell more efficiently, but also to maintain the public image that the company hopes to achieve. This approach will be even more important as the organisation grows, since it will help to ensure that the business is able retain total control of its brand (and, by extension, its reputation) as new franchises join the network. If used correctly, this kind of technology will completely revolutionise the way in which merchandise and marketing collateral and information is distributed across the entire group, leading to greater brand consistency, improved customer satisfaction and better financial performance overall. With this approach, franchise operators will be able to design and deliver high-impact marketing campaigns that resonate with today’s demanding customers. In fact, by encouraging the use of online collaboration and by providing their franchise partners with web-based tools that will help them to engage with consumers more effectively, the company’s core marketing team can go beyond traditional performance metrics, and can instead focus on transforming today’s web-savvy customers into evangelists for the brand and advocates for the entire company.

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MARKET TRENDS

Top 10 consumer trends in 2010 by Daphne Kasriel

38 franchise focus

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MARKET TRENDS

The 2010 consumer is a seasoned thrift practitioner who is now leaning towards a more positive post-recessionary [nearly] optimism.

iving through 2009 has left many craving for a happy ending including visible environmental improvements in the real world. Technology is the luxury many no longer do without, even if traditional high-end luxury feels like it’s in rehab. Consumer homes are temples of technology-led entertainment while cyberspace continues to fascinate more and older consumers, flattening world culture while connecting people in ways more local. Meanwhile, the recession has pushed consumers to take a long hard look at their own ‘personal brands’ in an uncertain world of shaky currencies and jobs. These concerns extend to health and wellness as consumers realise cosy retirements are no longer a guaranteed part of their future. Undoubtedly, many consumers will return to prerecession spending patterns but for some, their views on consumption and their behaviour may never be the same again. Globally, people under 35 will largely retain the values of thrift, simplicity-seeking and green spending that they have been shocked into learning during the recession when they’ve been forced to focus on price and value. Caring Consumption At the January 2010 US Annual Golden Globes awards James Cameron scooped the best director gong and best drama film award for his blockbuster, set to become the most successful film ever made: "Avatar asks us to see that everything is connected, all human beings to each other and us to the Earth,” he said. A sizable chunk of consumers agree, and feel proud that sharing a passion and receiving recognition from other consumers for their green lifestyles and social responsibility may have replaced ‘taking’ as the new status symbol. Challenging times see people craving care, empathy and generosity and the downturn has made many distrustful of corporate ideology and keen on "cause consumption". These consumers want to buy from brands who care about society and who are striving to reduce the negative impacts of their products and services on the environment. Companies need to reflect this societal shift which integrates personal values into purchasing choices to stay relevant to this growing global demographic. By aligning themselves more closely to a host of personal and community values close to shoppers’ hearts, they will give their customers a sense of purpose through their purchases. While the longer-term impact of what’s been called the ‘Great Recession’ remains difficult to discern, w w w. f r a n c h i s e e k . com

it has clearly forced people to re-evaluate their behaviours and attitudes. According to one US blogger: "I’d just rather spend my time and resources on non-material things, a choice that also happens to be better for the earth since I don’t need to consume oodles of resource-gobbling stuff to be happy." These feelings are just part of a mass of anecdotal evidence suggesting that some are reacting by reorienting their personal goals away from consumption and towards experience and rediscovering feelings of compassion for society and their environment. Significantly, The EU is working on a new indicator that moves ‘beyond GDP’ to account for factors such as environmental progress. Cause consumption is impacting relationships. US therapists note a rise in bickering within families over the extent to which they should change their lives to save the planet. Thomas Joseph Doherty, a US clinical psychologist affirms that the environment "touches every part of how they live: what they eat, whether they want to fly, what kind of vacation they want." These feelings of concern are increasingly felt by consumers in emerging markets beyond the USA and Europe who have an increased appetite for green products. Their sentiments are strengthened by the visibility of the effects of ‘ungreen’ behaviour like pollution and deforestation. Recent months have seen the launch of the first two green supermarket chains in Brazil, with O Mundo Verde launching in January 2010 with 150 branches across the country. "Finally we Brazilians are realizing that no growth is possible without sustainability", affirmed a woman attending a natural food course. Environmentally oriented working vacations are a new fad in Taiwan, with growing numbers of people choosing to spend their days off with their sleeves rolled up working the land. An early 2010 Polish Foreign Ministry poll found that 83% of Poles favour more financial support being sent to poorer countries, up on the 63% sum in the same poll in 2004. In 2010, with collaboration and giving such a part of the zeitgeist, it is likely that more brands will embed sustainability allied with generosity in their products, allowing customers to donate to worthy causes. Already IKEA, for instance, match solar-powered desk lamps sold with a gift of one to UNICEF. Climate change concerns are set to become more entwined with everyday life too. Groceries and restaurant menus across Sweden, for instance, are declaring the CO2 emissions per kilogram along with calories in a bid to give equal importance to climate and health. franchise focus 39

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Health Kick - The Goal of Wellness Good health and wellness are centre stage. It’s not just about exercise but the empowerment of selftreating and exploring new medical techniques. Spa visits, spiritual fulfilment, social tourism involving volunteering, medical tourism and assorted therapies such as pet therapy, anti-stress therapy, anti-obesity retreats and life quality evaluation form part of an extending ‘long tail’ of wellness treatments. The Argentinean expo-natural digital magazine explains wellness as: "more than a trend, it is a need". "Middle-aged people don’t get old anymore," the head of gerontology at King’s College, London told the UK’s Times newspaper. "They try to make midlife go on by expanding their lifestyle and extending their midlife values for as long as possible." Many "middle youth" have also taken up new careers, new hobbies and, sometimes, new spouses and families in their 40s and 50s. Although the recession has been delaying these projects, there is no doubt that we are near to the point when people around the world will think of hospitals and medical treatment as a global commodity, as international standards together with the feeling that an uncomfortable treatment can be turned into a more pleasant experience along with lower prices make this idea more appealing. An interesting development is the convergence of wellbeing and health; an example is the Longevity Wellness Resort in the Algarve. Alongside a spa are services such as blood profiling, and food intolerance analysis. The commercial impact of the consumer interest in health and wellness will continue to grow, both in terms of services (such as the exercise industry) and in terms of products (healthy eating, diet and organic food). Consumers in advanced economies are increasingly trying to balance indulgence with healthy consumption. Many national and local government policymakers such as the Mexico City mayor, Marcelo Ebrar and tourism officials in the Bulgarian government are encouraging the exploitation of the consumer interest in wellness and lengthier medical tourism visits. Consumers’ own content at blogs such as the eco-tourism-themed yourtravelchoice.org confirms that wellness is high on tourists’ priorities. Home and entertainment venue In 2010, for the millions of consumers around the world who’ve been forced to downsize, the home is the new entertainment hub. It’s frequently the staycation setting too. This summer’s World Cup will provide an ideal opportunity to see this trend played out. 40 franchise focus

This year will see even more consumers eating in and socialising in the home cocoon. "People are retreating back into the home," said Andrew Warner of electronics brand LG, at the January 2010 Consumer Electronics Show in Las Vegas. "Nothing is recessionproof, but people are still buying televisions and audio equipment," he explained. An October 2009 Irish Times survey found 23% of people are much more likely to be entertaining at home compared to a year ago. The home is also a meeting place, where one can embrace community, and fits in snugly with a resilient, if thrift- and green-tinged consumer interest in things local. There’s a sense of pulling inwards in neighbourhoods as consumers are reducing their radius. At the same time, the internet and social media can turn anyone into an activist in the big, ‘real world’ although big brands will be forced to engage with local culture if they want to prosper. Importantly, the home is also the site of an expression of consumer identity through activities linked to dÈcor improvements. For mounting numbers of consumers worldwide, home is also the place to satisfy a whimsical desire for a back to nature feel and for wellness achieved through bringing nature closer to home. In Germany, for instance, the Burda Group is planning a title called "Landgl �ck" (country bliss). This will join four other recent German consumer publications for country-lovers, often urbanites. One of New Zealand’s top nutritionists, Jacquie Dale, in response to the rising local spend on gardening believes: "Home gardens provide a great opportunity for the family to spend time outdoors together away from the couch and the TV screen." Hunger for happy endings and a slice of the dream Consumers in 2010 will still be chasing happy endings and purchases that make them feel better. Fear of the outside world, of financial troubles, job loss and pollution make them crave a delightful escape from reality. Things like their fascination with cinema-going and vampire films, with celebrity lifestyles and celebrity-endorsed products and reality shows where folks like themselves grab an unpredictable happy ending in real life or "pet parents", beautiful people social networking and risk free racing in the warmth of their homes lived out through gaming are all part of this hunger for happiness that lingers within recession-fatigued consumers. Online dating sites such as eHarmony who noted hits increased when the Dow Jones Industrial Average fell by more than 100 points highlight the link between financial stress and the consumer appeal of website dating. This happiness quest is global. Think of the joyful consumer reactions www.franchisee k . c o m

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to ‘spontaneous’ flash mobs (A group of people who gather suddenly at a predetermined time in a public place to dance or play out another unexpected activity). This desire for happiness also explains why the feeling that Tiger Woods has let people down has animated US conversations in the New Year. Despite the high divorce rate, Americans prefer the fairy tale. In September 2009, French president Nicholas Sarkozy told the French national statistics agency to include metrics of happiness and quality of life in their measurements of overall economic health. Savvy consumers in advanced economies know the difference between brands who want to sell happiness and brands that want to facilitate it, and they will endorse those brands that help them find and create happiness within themselves. Values that cannot be bought such as family, love, and friendship are very much at the forefront. This provides a challenge for companies to capture such emotions in their products. Brands would do well to associate themselves with something carefree, possibly to the extent that it makes people "feel like a child again". Luxury in rehab? Many consumers associate ostentatious consumption with the corporate greed that they blame for the downturn and numerous commentators see this as a shift in consumer psychology that will endure. Dr Clive Hamilton, a visiting scholar at Cambridge University stresses, the “suffering rich” feel poor which doesn’t bode well for luxury brands. A new generation of Japanese fashionistas does not even aspire to luxury brands and enjoy perusing secondhand clothing stores that have sprung up across Japan. "People used to feel they needed a Louis Vuitton to fit in, but younger girls don’t think like that anymore," says Izumi Hiranuma, 19. Status is now expressed instead by lifestyle choices, time, space and knowledge, cultural capital, products with a ‘story’ to tell and the enjoyment of "ecolux" items. At the same time, more discreet classically luxurious items or artisan-made products will still be a symbol for members of your own ‘tribe’ and ‘curated’ luxury ranges will continue to appeal to the wealthy. While the old rich may be tightening their purse strings, 2010 is simultaneously witnessing a new tranche of consumers. Millions of newly established middle class consumers, particularly in India and China are sampling ‘affordable’ luxury via self-treating on ‘entry level’ luxury products. A slice of luxury could be a short spa treatment, luxury pet foods or chocolates which in themselves don’t signify a luxury lifestyle. While Western consumers can be expected to w w w. f r a n c h i s e e k . com

take small and tentative steps back into the luxury industry, Asian consumers are embracing luxury in a way that was previously only found in the Middle East. The BRICs and other developing economies are breeding grounds for emerging middle classes that are drawn to the consumption of high-end goods in their more traditional, ‘blingtastic’ sense. With BRIC and many developing economies more buoyant, millions more people have discovered the delights of shopping as entertainment, and consumption as identity rather than necessity. According to Sidney Toledano of Christian Dior, couture is so strategic today because "The emerging countries are becoming sophisticated in a very fast way”. Several global luxury brands are continuing to inject a local feel into their wares to resonate with local demands. Chanel launched a new collection in Shanghai in December 2009, inspired by Chinese fashion of the 1930s and 1940s. The South Korean online newspaper, The Chosun Ilbo, insightfully headlined the report on the launch: "Chanel Turns to China for Inspiration and Cash". The Chinese are also becoming expert online luxury consumers. Ten thriving luxury sites include Beijing-based eushophq.com (which saw 40% growth in 2009), Shanghai-based 51bangde.com and Guangzhoubased yide.com. In the scramble to lure Russia’s rich, luxury executives claim to have understood a few basic principles. One is the creation of a personal relationship with wealthy consumers, who are typically younger than in the developed markets of Europe, Japan and the United States. These consumers are increasingly savvy about products they desire, and demand impeccable service. Me as a product Consumers are transforming themselves like brands - revising the presentation of themselves and what they are about/they offer online and in the real world. They can do this through what they wear, what they know and have recently learnt through training and retraining, and via attention to wellness and even plastic surgery. Consumption is still about defining yourself through what you buy in terms of sending out signals to others, but it’s gotten more personal. Consumers care less about brands. They want self-focused content but it will now be more up to them to embody a story with what they consume. Buying from niche brands means they can’t rely on products or services to provide them with that instant recognition and admiration from their peers. The ‘mass’ that consumers are willing to put up with is typically made up of products they don’t really care about (and, can get for less at discounters). The idea of the person as a product ties in with the current stress away from the group and franchise focus 41

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on individuality, especially among Asia-Pacific consumers. The ‘me as a product’ trend is also linked to the fascination with Web 2.0 and mobile communications. Me as a brand is not only but largely an online phenomenon as so many fellow consumers, potential partners and increasingly company brands we communicate with are online, while every posting and blog comment is glued onto our online personas. Expected debates on privacy reveal a clear generation chasm with younger consumers less worried about safeguarding it. The economic downturn has meant that millions of consumers now recognize lifelong training i.e. constant rebranding as a fact of life and are going for "edutainment" offerings (personalised and playful learning tools). Consumers in emerging markets are exploiting a wide range of self-development tools in order to learn, earn, and achieve the aspirational lifestyle they desire. This trend takes in: The consumption trails left by consumers online which companies like Amazon.com use to style personal recommendation lists based on users’ browsing history, for instance. With millions of online profiles, 2010 could see some consumers willing to disclose some of their purchasing intentions and inviting companies to put in bids; Dedicated social networking sites for careerists. Work wise; is your product willing to travel far? Perhaps you are a migrant commuter and part of "Generation Exodus" or you’re among the millions of consumers with a re-found love for things local? Status comes from an audience appreciative of what one knows and can create and less what one consumes or experiences; • Reselling consumed things on; • Reaching out to and connecting with the niche and long tail (obscure) interests of others; • Increased consumer interest in online selfbranding experts and online identity ‘repackagers’; • Brand endorsements by individual consumers. The allure of lifestyle multiculturalism The thinking on globalisation has matured. While consumer analysts have stressed a renewed consumer interest in things local, our world, largely through the influence of cyberspace, continues to be driven by global influences and lifestyles. Drivers of cultural flows include urbanisation and global mobility, particularly the "extreme commuters" - real citizens of the world, as well as the spread of media devices, immigration and social integration and increased exposure to other cultures. The exchange and blending of cultural influences - brands, products, art, books, lifestyles - at a global level - exposes 42 franchise focus

individuals and societies to new ideas and ways of thinking. The biggest change in South Korea, for instance, is arguably an increasing multicultural Korean society. Euromonitor International figures show that the number of foreign residents neared one million in 2009, and that this segment grew by 73.6% between 2003-2009.This figure includes expatriates, foreign students, and Korean men marrying foreign wives. The new outward-looking middle class in many African cities, the so-called Afropolitans, for instance, are the face of a renovating Africa. Today’s growing upwardly mobile class are both globalised and localised in their aspirations and anxieties, proud of being African and ready to bring a new image of the continent to the world. As a witness to this trend, Kenyan retail chain Nakumatt keeps expanding with malls in Uganda, Tanzania and Rwanda. “It’s psychological - people want upward movement,” said Thiagarajan Ramamurthy of the company. The latest wellness trends have to do with the consumer demand for a spiritual vibe and even ancestral cultures, competitive advantages that many tourist destinations are now enjoying as the economic downturn has also brought another need: mental health. Budget airlines and accommodation and extended travel are also part of this consumer interest in exotic lifestyles. New leisure Many consumers have found that they’ve quite liked holidaying at or closer to home for their holidays even though thrift was the main driver. Many stressed out and exhausted consumers relish the idea of spending their free time at home; often it’s the widely travelled that are realising their own country’s vast potential for tourism. Staycations are also ideal settings for ‘experience consumption’. Rather than buying things, consumers are increasingly engaging in shared activities that can occur in places ranging from the hiking trail to the cinema, galleries and museum and their kitchens and gardens. The growing sophistication of personal gadgets has also encouraged a trend towards "outdoor cocooning" as netbooks, smartphones and media players allow consumers to shut off their physical surroundings and enter their own world as they do in the home. Staycations also fit nicely with the knowledge among the environmentally-aware that faraway holidays aren’t green. Staycations are now a global phenomenon that goes beyond countries like the USA, UK and Germany. The Japan Times reports that Japanese consumers are seeking to economise and ease the stresses of daily life by shopping online, watching DVDs and www.franchisee k . c o m

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Staycations are now a global phenomenon... The Japan Times reports that Japanese consumers are seeking to economise and ease the stresses of daily life by shopping online, watching DVDs and eating in, converting their homes into comfortable ‘nests’.

eating in, converting their homes into comfortable ‘nests’. This phenomenon is known as "sugomori". Unlike staycationers in the USA and Europe, Japanese "nesting" is all about staying in and home entertaining and online mail order companies selling FMCG like baking ingredients and bread makers are reaping the rewards. Economic anxieties mean that many young Chinese are also opting for a staycation. "In the past, a lot of students would go to Europe for a holiday after they graduated from university," says Hu Yang, the co-founder of a chain of youth hostels and budget hotels. "But this year it’s not so easy to find a job. So now more young people want to wait until their life is more stable before going abroad." The tastes of young Chinese travellers are also changing, says Hu, and they are seeking more relaxed and unique holiday experiences. Destinations such as Naked Retreats, a new eco-resort west of Shanghai, are becoming popular with young urbanities, offering outdoor activities such as trekking and climbing, and the opportunity to eat fresh, simple, local food. In South Korea, a trend regaining popularity is "experience leisure", taking in exploration, nature and eco-travel. Thrift as a consumer habit Consumers globally have had time to become adept at practicing thrift to the extent that for many it has become routine. Even if 2010 will be seen as a postw w w. f r a n c h i s e e k . com

recessionary period in many countries, a tendency to flit from one offering to another is likely to be lasting as consumer loyalty to brands and traditional ways of shopping had become diluted. Even timid consumers have become skilled at bartering, fluent users of comparison websites and comfortable with online group buying. A bargaining culture is taking hold in major US stores like Best Buy according to the New York Times. Thrift has the bonus of making consumers appear greener to their peers too. Online resale sites such as eBay have been joined by niche sites such as Ex-Boyfriend Jewelry.com while the trend for "swishing" - finding new homes for trendy clothes by swapping them - is on the rise and a hit with fashionistas via sites in countries like the USA, China, South Africa and Brazil. In addition to being consumers, many onliners are sellers too. According to China’s top auction website Taobao, a total of 63 million Chinese were running internet businesses at the end of June 2009. Thrift has also altered consumer aspirations. Tens of thousands of what Mexican newspaper El Financiero calls "Migrant consumers" are taking advantage of stronger currencies to shop across borders. Mexicans and Canadians are coming to the USA and Australians are going on "shopovers" all over Asia. In 2010, all successful consumer products and services will be thrift-savvy to appeal to the sustained consumer association of value as quality, not just franchise focus 43

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price. This awareness is reaching younger ‘digital native’ consumers. A popular iPhone/iTouch app, for instance, is called My Shopping Lists. "Have you ever been shopping and ended up not buying what you originally set out to buy?" reads the promo. This product steers consumers away from consumption temptations with tips leading them back to the straight and narrow path of their original shopping lists. Another app for frugalistas, RedLaser, allows mobiles to read barcodes before coming up with a list of comparable prices of that product from a range of websites. Thrift has also made it onto school curriculums. 2010 will see UK schoolchildren from primary school onwards given compulsory lessons in budgeting and avoiding debt. An early 2010 NY Times piece profiles "New Poor" middle class US consumers who have learnt to value experiences over purchases. These include a former "buy, buy, buy" family in Miami whose "priorities have shifted from products to activities" and who are pictured in the used canoe they bought through Craigslist. Attendance at cultural venues and events, already up for the first time in several years in 2009, is expected to soar in 2010. "It’s a different kind of recession," said Richard Florida, author of several best-selling books about the economics of cities. "It’s not like in the ‘30s when people stopped going to concerts. Now people seem to be keeping up with experience consumption and cutting back on other necessities." For more on the New Poor, please refer to the following Euromonitor International pieces: Special Report: The "new poor" in developed economies as the risk of poverty increases among middle class households and Bye bye bling bling: Middle class New Poor struggle to cope with recession. Web 2.0 as a need Euromonitor International figures show that there were 1.8 billion global internet users in 2009. All of these have shifted parts of their lives online. Our hunger to stay connected persists. More older people are internet-savvy and overcoming security and privacy concerns to buy online. The fastest growing segment on Facebook is 55-65 year-old females. At the same time, the rapid pace of technology is creating ‘micro generations’, where even teenagers are left behind by younger siblings. California professor, Larry Rosen, shows 16 to 18-year-olds can perform seven tasks on average in their free time (texting, checking social networking sites, watching TV etc.) overtaking people in their early ‘20s (6) and those in their early ‘30s (5.5). Pope Benedict XVI will use his World Communications Day message in May to encourage the clergy to start blogging and using the internet and social media to connect better with their flocks. For millions of consumers, having an audience for their 44 franchise focus

online output is a status symbol. Social networking is predicted to play a huge role in this summer’s football World Cup. Several studies have confirmed that people feel cut off when the internet goes down, or mobile coverage is scant. The documented consumer reliance on peer review when planning purchases continues to challenge and transform advertising and brand behaviour. Consumers are partners now. As head of US ad agency Droga5, Dave Droga says: "The best type of advertising is participation advertising. The day when we were just storytellers is over." Despite a recent legally-enforced transparency in the USA on what is known as "blogger payola" - bloggers praising brands in return for cash/giveaways - consumers remain keen to blog about their good and bad consumption experiences. Consumers now crave being updated in real time which explains the millions of sites, services, instant verdicts on products and services, allergen updates and apps that facilitate instant checking, tracking, alerting, visualizing and mapping. Singer John Mayer puts it well: "You don’t go, ‘ I’m gonna put this conversation with the woman I love on my iPod and listen to it on the subway’. You have to be present, in this synthetic, listen-later sort of world." Another billion people in developing nations can’t wait to join the digital bandwagon: soon their phones and low-cost netbooks will come equipped with some kind of online connection. The recent launch of Facebook Lite, a pared down version of the site for users with slow internet connections hopes to boost membership numbers in areas such as India and South America. The impact of this Web 2.0 revolution is spilling over into the ‘real world’ which is adjusting to and mirroring the increasingly dominant online world, taking in everything from tone of voice to product development to customer relationships. Big brands have digital care directors and corporate Twitterers etc. Web 2.0 is free time for millions. Gerd Leonhard, futurist and writer, points out: "Kids now only listen to music, they don’t download it. Developments like WiFi, 4G iPhones, fancy Nokias, have all turned streaming music into the new radio." Consumers skip television ads, but they will listen to a sponsor message when they get free music in return. Consumers have also demonstrated that they will upgrade to technology they perceive as desirable that keeps them connected. More than half of 3,000 Britons surveyed before Apple’s new iPad tablet computer was unveiled at the end of January 2010, said that they wanted it, no matter the price; the hype surrounding these devices transforms launches into cultural events.

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In this section: To Buy or Not to Buy The Singapore Residential Market Buying Property Abroad

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Singaporeâ&#x20AC;&#x2122;s Residential Market:

To buy or not to buy! 46 franchise focus

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started tracking Singapore’s residential market since I moved here as an expat in September 2006 from New York.

The idea was to get up-to speed with the real estate market and perhaps more importantly, be able to buy an apartment at some point. I admired Singapore government’s initiatives to create jobs and wealth with an emphasis on a “live-work-play” environment, providing an impetus to expats like myself to relocate and establish new roots here. As a real estate investment professional, the Singapore residential market, with its volatile surprises, continues to amaze me. In this article I have tried to highlight my key “to buy or not to buy” decision parameters, especially in light of the new measures announced by the government recently to cool the residential property market. My Search Begins: With an aim to buy my first apartment, there are a lot of options to choose between new projects and from those available in the secondary market. However as far as a preference goes and what attracts me most are the properties available within the secondary market. New launches seem expensive in terms of value for money as well as are unattractive to some extent, from a pure design and size perspective. They tend to be very ‘cookie cutter’ with box style apartments, overpowered by curtain glazing and steel. On one hand though these may seem contemporary, on the other and perhaps more relevant to my preference, I find them rather uncharacteristic. Properties available in the secondary market relatively older constructions of the mid to late 1990’s – seem to offer much better value – in terms of larger house sizes, a better design and a plush layout that I prefer. Decision To Buy: Stalled Again! Simply put, I have pretty much been out-priced of the market so far. Since 2007, the rising economy and the influx of expatriates led to the creation of a strong residential demand. This caused a steep rise in both rental and capital values across the island. With the improved economic conditions, ease of obtaining loans and lower interest rates, the residential market witnessed a steep increase in capital values and became more investor driven rather than genuine home buyer driven. Investors saw huge capital appreciation by ‘flipping’ and an island wide trend began – leading to a sharp rise in property prices. The property prices did fall briefly during the global economic crises in late 2008, but the market w w w. f r a n c h i s e e k . com

quickly picked up as investors took advantage of the lowered prices. The “Good deal” remained elusive for home buyers like myself. New Measures: To Cool Overheating Recently, the government, anticipating the building of a property bubble and in a bid to control the flipping trends, intervened and announced corrective measures to prevent the overheating of the real estate market. For example, to discourage flipping, a duty of 3% of resale value will be levied on owners who sell their units in less than three years of buying them - This was a measure previously applicable only to transactions within one year of the purchase. To curtail the ease of borrowing, the minimum cash down payment has been increased from 5% to 10% of valuation, and the maximum amount a bank can lend is capped at 70%, down from 80% for buyers with at least one outstanding loan. Here’s What I Think: I expect these new measures will diminish the attractiveness of anticipated earnings from flipping and thus lead to a slowing down of the residential property prices. However, on the flip side (pardon the pun), first time home buyers will now face the onerous task of accumulating higher down payments in addition to steeper loan rates – making the dream of owning a home a bit more out of reach in the short term. In the medium term, I expect the secondary market to soften to some extent. I was particular pleased to read that at the recent National University of Singapore’s Institute of Real Estate Studies Forum, experts said that the excess liquidity in the market was the main factor driving up property prices. They also added that the dizzying rise in property prices is not sustainable and prices could fall up to 40-50% in the next 1224 months. Thus, based on this time frame, renting seems to be a more appropriate choice for me.

Pushpendra has ten years of experience in real estate investments, asset management, strategic retail consulting and marketing in Singapore, Malaysia and India. He has worked with Alpha Investment Partners, a real estate private equity firm in Singapore with $5 billion under management. Prior to joining Alpha, he worked with CB Richard Ellis, Jones Lang LaSalle and Temasek Holdings in real estate transactions and consulting in India. Pushpendra has been published frequently on design, retail & franchising in various international magazines and newspapers. Pushpendra is an architect with a Masters in Real Estate Development from Columbia University. Pushpendra currently lives in Singapore. He can be contacted on pnsharma@gmail.com

And Finally: To Buy Or Not To Buy Finally, my “To Buy or Not to Buy” dilemma continues and whether these cooling measures – to seek higher down payment requirements and tightening lending restrictions will eventually benefit genuine home buyers like myself, only time will tell. But as Barack Obama says “Believe In Change”. At this point, I do believe in it and I hope other first time buyers do too. But till that happens - For the time being, I plan to put away my cheque book and continue to wear my renter’s hat. franchise focus 47

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Seriously considering buying a property abroad but jittery because of the scare stories? by Janet Somerset

t is not all doom and gloom in the overseas market - you just need to have an understanding of what’s best and what’s not!

We all remember the remarkable days of property prices rising daily, buyers purchasing off plan and turning to great remuneration benefit and everyone from the seasoned investor to “Mr and Mrs Joneshaving a foothold on the overseas property market. This all ceased almost overnight in 2008 and it has taken quite some time to regenerate itself. The bottom fell out of the world’s market place and many owners who had taken on homes beyond their means, or with businesses needing financial input, were selling their handsome homes in haste. The result was some amazing price drops and some excellent bargains for those in a position to take advantage. In well respected and universally loved regions such as the South of France, magnificent mansions were dropping literally by millions of euros for a quick sale. In 2009 particularly we saw these tremendous drops and a London agent saying that for those who could proceed, opportunities to own a home at a price that was not likely to ever be repeated. So, for some all was not too bad; buyers were happy, agents were operating well. This of course, did have a limited life span and distressed sales in the high end price bracket seems to have very much now ceased as owners consolidate. So, having looked on the black side where is the market now? Perhaps the dinner parties and social networking events where the chatter of interesting anecdotes and vignettes of life at the “coal faceare where we learn more about this fascinating subject. People want to garner knowledge to help them understand where they are fairly safe to invest and where they are taking a gamble.

realise that prices are expected to go up in time, so buying now makes financial sense.

What is interesting to note in the current market place is the fact that at both ends of the price structure there has been noticeable up-beat approach throughout 2010. Those in a position to purchase

Some have even bucked the trend and not reduced their prices at all throughout the world’s monetary problems. Take for instance Tigne Point in Malta which is a magnificent development occupying over 30 acres of waterfront land and is part of a

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" 450 million euro development, being Malta’s most ambitious property regeneration project. In a secure, gated, exclusive car free environment of lush gardens, homeowners benefit from a brand new indoor shopping complex, outdoor cafes and restaurants, health and leisure centre and a shoreline swimming pool. Tigne Point senior sales and marketing manager James Vassallo commenting on the economic climate and how this has affected sales in the project said, “We have managed to retain our prices and still achieve a reasonable and steady stream of sales notwithstanding the adverse market conditions. Compared to a lot of other Mediterranean destinations Malta seems to have held its own quite well with the higher segment of the market outperforming much of the rest. It has not been easy and, of course, we are not through it yet, but our ‘steady-as-she-goesapproach has paid off and we have continued to sell our properties throughout 2009 and 2010 to date. h If you look at Italy, always much loved by the British, then there is still much in its favour. Italy has faired far better than the majority of international property markets due in no small measure to the fact that Italian banks were not lured by high level, frivolous lending. Keeping a steady approach they weathered the storm and can offer mortgages of between 65% and 75% (subject to certain criteria). Italy is the 7th biggest global economy and an export industry ahead of the UK. “Distressedsales, figure very little in the Italian property market which appears to offers a far safer place to invest than many other countries teetering on the brink. A lot of people are not interested in pouring their savings into banks says Linda Travella of Casa Travella. 50 franchise focus

What is noticeable in the overseas market is the number of people looking to retire abroad.

“Italians were slow to reduce their property prices bearing in mind the catastrophic drop in prices in other European countries; however they have now realised that they need to be realistic. They have not seen the dramatic falls of countries such as Spain and Bulgaria, which is good for buyers because they know that their capital investment should not halve in value. In fact, if you choose to buy in Italy you should have a rosy outcome Of course it is dependent upon buying the right property in the right area and for that you should take advice from your property consultant. The overseas market, just like the UK one, can often turn in a matter of weeks. All that is needed in the market place is confidence and the British are rather good at that! What is noticeable in the overseas market is the number of people looking to retire abroad. According to Foreign Office Research, 42% of over 55’s want to live abroad. This is obviously a culmination of things in the UK; bad weather, soaring crime, a desperate health service and the growing burden of taxes. A survey was carried out earlier this year comparing prices of a “shopping basketof everyday goods in Crete against those in the UK. It produced a figure of 12% less in Crete. The survey showed that a typical monthly supermarket shop of meat fish groceries and cleaning materials for two people costs around £360. With no council tax in Crete, this all adds up to a rather enticing place in which to retire. Mike Saunders, MD of Snobby Homes in Crete says, “Crete enjoys 320 days of sunshine every year guaranteed! It has the lowest crime rate in Europe so you can rest easy, and a hospital system which is surprisingly good with no MRSA or waiting lists. www.franchisee k . c o m

lifestyle franchise

Housing too is far cheaper. You get more bricks for your pound in Crete Turkey too is another country very much coming into the spotlight with the Turkish General Directorate of Land Registry releasing figures that show 32,000 UK buyers investing in Turkish property. Over 1 million British nationals visited Turkey in the first half of 2010 enjoying a totally different life style, many choosing the Mediterranean coastal areas. Bill Clinton, 42nd president of the USA said in October of this year that Turkey is “a major economy which managed to come out of the crisis from minus to 11% growthand it was achieved at an amazing speed. Prime Minister David Cameron, following a recent visit to Turkey where he met Turkey’s Prime Minister Tayyip Erdogan said, “You can really feel that there is a shared vision between us both strongly wanting Turkey to become a full member of the European Union Turkey therefore has a unique set of circumstances which is creating a very buoyant property market selling both to the UK market and the Turkish people themselves. Suleyman Akbay of Oceanwide Properties says, “It was as if everyone was sleeping in the early months of 2010 and then suddenly interest has rocketed. There are two main sources of interest; from Turkish investors and the UK home market. There is excellent capital growth in Fethiye on the Mediterranean coast where prices have risen in the past 12 months by around 12/30% depending on location. This is excellent capital growth with good opportunities for rental, with an average two w w w. f r a n c h i s e e k . com

bedroom apartment, purchased at around £55,000 producing up to around £350 per week rental in high season One of the countries that is difficult to project is Spain; a much loved country by the Brits which has been knocked not only by the world recession but along parts of the Costas, by the over build. Having said that, if I were to proffer an outcome, I would say that, once confidence truly comes back to the overseas market, Spain will still feature high on desirability simply because it is still just a short flight from the UK, the weather is good, the British and the Spanish seem to understand each other, the facilities and lifestyle of the two peoples gels and many of the baby boomers of today can reminisce about the wonderful holidays they had there in the 60’s and 70’s when a whole new world was opening up. Whether my comments and predictions are right only time will tell but buying abroad will never cease to fascinate the British who have always had a penchant for owning their “castlewhether in the UK or abroad. With rising costs in the UK for some time to come, sunnier climes and rosier lifestyles will continue to beckon. It can be good for investors again in the future; it certainly can be enjoyable for retirees and second home owners. Confidence is the name of the game capitalism will reign! Tigne Point www.tignepoint.com Casa Travella www.casatravella.com Oceanwide Properties www.oceanwideproperties.co.uk Snobby Homes www.snobbyhomes.co.uk

franchise focus 51

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