Franchising Sep/Oct Issue 2016 by Octomedia Pty Ltd

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FRANCHISING

Franchising YOUR ESSENTIAL GUIDE TO BUYING A FRANCHISE | WWW.FRANCHISEBUSINESS.COM.AU SEP/OCT 2016 VOL.29/NO.5

7 SIGNS YOU SHOULD QUIT YOUR JOB AND BUY A FRANCHISE NOW

SEP/OCT 2016

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.WHAT YOU CAN DO TO RENEGOTIATE YOUR AGREEMENT P.42

COULD YOU BE FRANCHISEE MATERIAL? P.14

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CONTENTS

COV E R STORY

12 THE BASICS OF FRANCHISING

How does it all work?

14 ARE YOU FRANCHISEE MATERIAL?

Check out your aptitude and attitude

CAN YOU RENEGOTIATE YOUR AGREEMENT? What you need to know about renewing a franchise term

56 BORN TO THRIVE

The potential in the children’s services market

16 COUNTER INTELLIGENCE Retail trade figures

18 THE FIXERS

Franchise brands make their mark in the handyman field

22 WHY BUY A FRANCHISE? What the franchising sector offers

64 REVVING UP THE FUTURE

How franchises are delivering auto services

72 THE COMMON TOUCH

Two businesses adopt a membership model in a new field

78 RULING THE ROOST

What’s happening at Red Rooster?

TAKE A BITE OUT OF THE CHICKEN MARKET

THE ENERGY BAR

Statistics to work up your appetite

24 7 SIGNS YOU SHOULD QUIT REGULARS

5 6 94 98 100 102 103 104 106 114

EDITORIAL INSIGHTS LEGALESE SKETCH LEADERSHIP CHECKLIST GLOSSARY DIRECTORY LISTINGS ADVERTISERS INDEX

YOUR JOB

You don’t have to wait for the stars to align before you leave the job and buy a franchise

ARE YOU READY TO DITCH THE SUIT AND TIE? UK Accounting franchise model that's breaking the rules

26 TOP FRANCHISEE TIPS

Don’t hold back, say business owners

30 WHAT’S THE BEST FRANCHISE? How to discover the perfect franchise

32 HOW TO MINIMISE RISK

Take steps to avoid a risky investment

36 HOW TO AVOID FAILURE

Make sure you set yourself up for success

40 WHAT HAPPENS IF YOU DON’T MAKE MONEY?

Preparing for the worst SEP/OCT 2016 | 3 | WWW.FRANCHISEBUSINESS.COM.AU

86 DOG LOVERS, THIS ONE’S FOR YOU

Turn your pooch-passion into a business with the latest opportunity

90 WHY YOUR REASON FOR

NOT BUYING A FRANCHISE MAY JUST BE AN EXCUSE

You don’t need experience to become a franchisee

SumoFranchiseMagazi

RIA EMMA LI : VICTO

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NIT BASED MULTI-U

ANCHISEE SUMOSALAD FR

om ORR nchise.c a fr d la sa o m .com FO u ad .s VISIT www W ILD AT andreww@sumosal OI CE BU SIN ES S CH DR EW CONTACT AN

MA TIO AL L TH E INF OR

AL TH Y TO MA KE A HE N YO U NE ED

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( WELCOME )

e love new and exciting initiatives, new concepts, new projects. And if you’re a prospective franchisee perhaps the newest and latest in our sector gets you inspired too.

If so, then there’s plenty happening right now with brand new business models and existing tried-and-tested concepts entering the franchise arena. Think massage. The latest entrant into this fledgling franchise field is Massage Envy from the US, brought to Australia by the business that introduced Anytime Fitness to our shores. Then there is dog whispering, bringing behavioural skills to the canine world, and building a business out of a worthwhile service. And we have the old favourites who are adopting fresh ideas to encourage new customers – like Red Rooster which has introduced two exciting initiatives. You can read about all these businesses in this edition. And alongside these fantastic tales of franchise innovation, you’ll find vital information about industries that might appeal to you as investments. The children’s services market is packed full of potential, the auto services business proves a consistent business opportunity, and the popular juice bar model is thriving as Aussie consumers continue their appreciation of healthy eating and wellbeing.

SARAH STOWE EDITOR

Of course purchasing a franchise is a challenging process – making the decision to go ahead is taking a leap of faith, for starters. So in this issue, we look at some of the ways you can ease this: top ways to minimise risk, steps to take to avoid failure, understanding the basics of franchising, looking at whether you are franchisee material. While you undertake the research required to make the decision whether or not buying a franchise is the way forward for you, we’d love to be your companion. In addition to this print magazine, which we publish six times a year, we can keep you up to date online and through social media. Vist our website, franchisebusiness.com.au (the official online directory of the Franchise Council of Australia) for the latest news and business opportunities, as well as advice, video snapshots and inspiring franchisee stories.

Stay motivated and on track with our six step journey on how to buy a franchise - it's easy, free and will help guide you through the process of becoming a franchisee

Signing up to our newsletter will ensure you get the hottest news delivered to your inbox. Stay motivated and on track with our six step journey on how to buy a franchise – it’s easy, free and will help guide you through the process of becoming a franchisee. Find out more at franchisebusiness.com.au.

EDITOR Sarah Stowe P: 02 8484 0900 sarah.stowe@cirrusmedia.com.au

NATIONAL BDM/ACCOUNT MANAGER Charlotte Redfern P: 02 8484 0731 charlotte.redfern@cirrusmedia.com.au

JOURNALIST Noha Shaheed P: 02 8484 0740 noha.shaheed@cirrusmedia.com.au

CLIENT SUCCESS MANAGER Jarha Serafi n P: 02 8484 0973 jarha.serafi n@cirrusmedia.com.au

NATIONAL SALES AND MARKETING MANAGER David Strong P: 02 8484 0905 david.strong@cirrusmedia.com.au

GRAPHIC DESIGN Ian Sudjatmiko P: 02 8484 0843 ian.sudjatmiko@cirrusmedia.com.au

For subscription enquiries call customer service: 1300 360 126 ISSN: 1321-408X

CIRRUS MEDIA Tower 2, Level 3, 475 Victoria Ave, Chatswood, NSW 2067, Australia Locked Bag 4700, Chatswood Delivery Centre, NSW 2067, Australia P: 02 8484 0888 F: 02 8484 0633 ABN 80 132 719 861 www.cirrusmedia.com.au

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ALL FRANCHISING MATERIAL IS COPYRIGHT. REPRODUCTION IN WHOLE OR IN PART IS NOT ALLOWED WITHOUT WRITTEN PERMISSION FROM THE EDITOR. OPINIONS EXPRESSED IN FRANCHISING ARE NOT NECESSARILY THOSE OF FRANCHISING OR CIRRUS MEDIA. © COPYRIGHT CIRRUS MEDIA, 2016

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INSIGHTS

WE’RE ON INSTAGRAM! Have you seen our Instagram page? We’re celebrating franchise businesses, real people, some fabulous throwback pictures and much more. Check out our newest posts by following us: @franchisebusinessau FIRST COFFEE FRANCHISE DRIVE-THROUGH IN MELBOURNE FOR GLOBAL CHAIN Melbourne has its first drivethrough Gloria Jean’s Coffees outlet, thanks to existing franchisees Steven Li and Tracy Liu. The seasoned franchise partners have been part of the network for more than six years. BURGER URGE FRANCHISE NOT FOR THE FAINT-HEARTED Burger Urge applicants are now required to go skydiving before signing the franchise agreement. Applicants are required to cover their own insurance for the rite of passage. The maverick burger franchise also plans to open 20 new stores across southeast Queensland by December 2016. QUEST ADDS NEW ROLE TO HELP DRIVE INTERNATIONAL EXPANSION Quest Apartment Hotels has appointed a chief commercial officer to lead the business into its next stage of growth and international expansion. Craig Ryan joins Quest from Oakwood Worldwide where he was managing director – Asia Pacific. He will play a key role in driving international expansion.

Which two beauty franchises are merging? Two well-known franchise in the $3.8bn hair and retail sector are joining

brands beauty forces.

Australian Skin Clinics will merge with the Ella Rouge Beauty franchise, which was acquired by Hairhouse Warehouse in early 2016. This merger will double the Australian Skin Clinics’ franchise footprint in Australia and New Zealand overnight. Australian Skin Clinics managing director Deb Farnworth-Wood said the merger with Ella Rouge Beauty and the partnership with Hairhouse Warehouse was an easy decision with all companies having clear synergies. "Hairhouse Warehouse, Ella Rouge and Australian Skin Clinics all share the same target market, which will afford our brands the opportunity to provide enhanced services and offerings to our loyal customers, and it is this customerfocused culture that has aligned the businesses so well.

“Ella Rouge Beauty has been looking after millions of Australian women and their beauty needs for more than 17 years. Aligning the two companies will provide benefits such as the utilisation of consumer data bases, buying and trading upsides with common suppliers, and the ability to have robust negotiations with most of the mainstream landlords." Nine of the 25 Ella Rouge outlets are corporate owned, the rest franchised. The merger of the two medi-aesthetic businesses will see all the Ella Rouge Beauty stores rebrand to Australian Skin Clinics with the latter's portfolio growing from 25 stores to 50 stores. Farnworth-Wood said there are "further growth plans in the pipeline including more than 20 new clinics in the 2016/17 financial year and another four clinics in New Zealand over the next 12 months". Since launching in 1992, Hairhouse Warehouse has expanded to more than 140 outlets across Australia and with current network sales in excess of $200m.

SEP/OCT 2016 | 6 | WWW.FRANCHISEBUSINESS.COM.AU

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INSIGHTS

FRANCHISEES’ BRIGHT IDEA SPARKS CHANGE TO GYG’S STRATEGY Franchising is about a lot more than chasing franchisee money and equity. That’s the belief of Mark Hawthorne, CEO of Guzman Y Gomez.

Yoga franchise has aggressive growth plans in QLD, NSW, VIC and SA Peak Physique Hot Yoga plans to expand in the outer suburbs of Brisbane, Sydney, Melbourne and regional South Australia. Ten franchises per state are set to open in the next two years. The fitness franchise offers a work life balance through its 23 hour working week, together with low risk and franchisee income. Suzanna Calava, co-founder and franchisor, said Peak

WHICH TWO FRANCHISED PHARMACY BRANDS ARE PLANNING TO MERGE? A merger between two major pharmacy groups is set to create a retail pharmacy network with about 500 franchised outlets and a combined retail turnover of $2bn. When the Terry White Group and Chemmart join forces the merged group will leverage scale and combined capabilities to increase competitiveness and marketing strength. Terry White Group is the parent company of pharmacy fran-

Physique Hot Yoga is dedicated to providing affordable yoga classes to middle class Aussies. “Our focus is to expand in the outer suburbs of Brisbane, Sydney and Melbourne,” she said. With six franchisees already signed in Adelaide, the brand is also focused on major regional centres in South Australia. Peak Physique Hot Yoga is planning to recruit 10 franchisees per

chisors Terry White Management and Chemplus. Headquartered in Brisbane, the group provides support to a network of approximately 230 pharmacies. Chemmart, part of the EBOS Group, is a wellbeing pharmacy franchisor with a network of about 270 pharmacies throughout Australia. Terry White Group CEO Anthony White said “We have a substantial array of core retail capabilities and support platforms which are scalable to handle this growth and support future network expansion. “Significant investment in our

Speaking to Franchising about the planned expansion of the Mexican fast food model, Hawthorne says “There’s a lot more to franchising than chasing money and equity. That’s really a narrow minded approach that can lead to decisions that can compromise the brand.”

state in its growth plans. The initial investment of a franchise is $70,000 for a turnkey model inclusive of the heating system required for hot yoga, business and software training, marketing plans and profit/loss reports, and a dedicated support team. “Ideal franchisees are those who are looking to help and transform people’s lives,” added Calava.

Enterprise Resource Planning system is already driving efficiencies and improved operations, allowing pharmacists to raise customer service levels and drive strong retail sales growth.” The franchise management entity will be renamed to reflect the multiple brands within the group and a broader health focus. The management team will be led by Anthony White and Chemmart executive director Duncan Phillips will join the existing executive team as chief operating officer. The proposed merger is subject to Terry White Group Limited shareholder approval.

SEP/OCT 2016 | 8 | WWW.FRANCHISEBUSINESS.COM.AU

Hawthorne sees franchisee involvement as key to the development of the business. “It’s very nice to access the equity, but we want to bring in people who can execute the business better than we can. Franchising is an enabler to better execution. “There is really good thinking among franchisees and we can capture that entrepreneurial spirit.” GYG’s first drive-through outlet in Nerang, Queensland, is a prime example. The concept was generated not by the corporate business but by existing Gold Coast franchisees that saw an opportunity to convert a Pie Face site into a GYG drive-through. “We put a bet on the franchisees, allowed them to test and have a shot at it. We saw how it could change GYG’s model and, in my mind, possibly double the number of units across Australia. “It’s about the company culture and the guest experience. Franchisees are co-creators of the future of the brand,” said Hawthorne.

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INSIGHTS

MASTER FRANCHISOR FACES COURT FOR ALLEGED UNDERPAYMENT OF WORKERS

Put in a lot of work to get started and established. It's basically up to the franchisees to get their own business

The head Australian company and master franchisor of the Yogurberry frozen yoghurt chain faces legal action for allegedly short changing young overseas workers thousands of dollars.

Stuart Jaeschke, First Class Accountants

Four employees at the frozen yoghurt chain were allegedly underpaid almost $18,000. The watchdog today announced court proceedings against YBF Australia Pty Ltd, the master franchisor of Yogurberry in Australia located in World Square Shopping Centre in the Sydney CBD.

EAGLE BOYS NATIONAL FRANCHISE UP FOR SALE

Also facing legal action is YBF Australia part-owner Soon Ok Oh, Yogurberry World Square Pty Ltd and another Yogurberry Group company, CL Group Pty Ltd.

A new owner for the troubled Eagle Boys’ Pizza brand is expected to emerge in the next six weeks after the franchisor entered voluntary administration in July. The chain of 120 plus franchisees is continuing to operate as usual – the appointment of administrators does not apply to these individually owned businesses. However the embattled national franchise is reportedly in debt for $30m and has closed 13 of its company-owned stores. Roy Morgan Research has just reviewed the performance of the major players in the pizza market. Competitors Pizza Hut and Eagle Boys have both suffered what Roy Morgan Research has described as the ‘Domino’s effect’, and appear to be the losers in the so-called pizza wars which have focused on dishing up $5 pizzas. In the past four years visits to

Eagle Boys’ outlets plummeted from 852,000 to 336,000 customers on an average four week cycle. That’s a massive 61 percent drop. The research also reveals a lack of brand loyalty among Eagle Boys’ customers: their tastes for takeaway has shifted to major rival Domino's and extended beyond pizza to include KFC, Red Rooster and Subway. Angela Smith, group account director, Roy Morgan Research, says “Eagle Boys has been slow on the technological uptake, yet doesn’t stand out with its menu either. “It will certainly be interesting to see how this pans out and how different the Australian pizza market looks this time next year.” Innovations at the chain include a new look store unveiled last year and a virtual drive-through concept trialled earlier this year. So could the new owner be

among the current franchise community? Don Meij, Domino's CEO, has expressed interest in the rival pizza chain as part of the brand's expansion plans. "We are taking a look (at Eagle Boys)," Meij said, according to Inside Retail, adding “it is quite small”. Speculation that a private equity firm could be eyeing up the Eagle Boys business alongside a purchase of the Pizza Hut business from Yum, has not been confirmed by administrator SV Partners. “We have had a large number of interested parties contact us and are now looking for a clear commitment through the due diligence and binding offers stage. Despite recent press articles, we are not preferring any one interested party over another at this point. That decision will be made during the due diligence stage once Expressions of Interest have been received.”

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According to the Fair Work Ombudsman, the backpackers were paid just $8 an hour for up to six hours training, before being paid flat rates as low as $11 an hour. The Korean nationals, 19 and 20 at the time, were in Australia on 417 working holiday visas. YBF Australia Pty Ltd, Yogurberry World Square Pty Ltd and CL Group Pty Ltd each face penalties of between $25,500 and $51,000 per contravention. Ms Soon Ok Oh faces maximum penalties ranging from $5100 to $10,200 per contravention. The watchdog has previously issued YBF Australia with a letter of caution and two infringement notices (on-the-spot fines) since 2013 and requested the company back-pay a number of employees. The employees have now been back-paid all entitlements.

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Your guide to fra nchising 10 1 I

f you’re considering buying a franchise, you’ll need to understand the basics, writes Noha Shaheed.

HOW DOES IT FUNCTION? Franchisees invest in an existing franchise model with a competitive advantage. This advantage may be that your selected franchisor is part of an established brand and has a strong network. The franchisor licences to franchisees the right to operate the business to carry out services for a specific period of time – known as a franchise term. Terms can be three to five years or longer. Some brands offer an option to renew this term. In return, franchisees pay franchisors a fee: ✱ initial payment ✱ regular ongoing fees These payments are made in exchange for the franchisor’s expertise, tried and tested methods and brand power. Franchisees must operate the business as outlined in the operations manual provided by the franchisor. Some franchises are defined by territories, which may or may not be exclusive.

WHAT DOES THE FRANCHISOR PROVIDE? The initial investment and on-going fees can cover the following: ✱ training before the start of trading ✱ provision of an existing business model ✱ the backing of an established brand ✱ the franchisor’s operating systems and processes ✱ marketing support for local or national advertising campaigns ✱ ongoing support for the life of the term A franchise business with a large network of franchisees may add the weight of combined buying power as a benefit to franchisees.

WHAT MAKES IT WORK? On top of the franchisee’s ability to manage and grow the business, franchising works best when there are good relations between franchisee and franchisor. Together with power of the brand, backing of the franchisor and following a proven system, it can be a profitable venture.

THE FRANCHISING CODE It’s important to know that franchises are regulated by the Franchising Code of Conduct (the Code), administered by the Australian Competition and Consumer SEP/OCT 2016 | 12 | WWW.FRANCHISEBUSINESS.COM.AU

Commission. This document provides rules and protections for both franchisors and franchisees and it also provides franchisees with a seven day cooling off period after signing the initial franchise agreement.

WHAT DO YOU NEED TO KEEP IN MIND? It’s very important to understand that despite what is advertised by the franchisor, there is no guarantee of success or immunity from the risk of a franchisor going bust. Researching the business and the specifics of the opportunity and conducting due diligence with legal and financial professionals is absolutely necessary regardless of the brand. Franchisee compliance is also a key aspect in the success of the network. There are two important things a potential franchisee should be asking: ✱ is the system compliant with the law, including the Competition and Consumer Act and the Code? ✱ can I comply with the system and the franchise agreement? Reading the legal documents that come with the franchise agreement, operations manual and the disclosure document will help determine if the system is one you can follow.

HH-ASC_CirrusMedia_

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National and regional franchise opportunities available

Enquire today for a confidential discussion Call Peter Fiasco 0451 370 060 or email franchising@hairhousewarehouse.com.au hairhousefranchising.com.au

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Are you

FRANCHISEE MATERIAL?

ou want to strike out for the future and be your own boss. That’s fantastic and a great opportunity for you to take control of your destiny and build a business. Setting up as a franchisee will be exciting, challenging, and hopefully rewarding – both personally and of course financially, writes Sarah Stowe.

So before you get started, take the time to ask yourself eight important questions. ARE YOU GOOD FRANCHISEE MATERIAL? While there might be franchises to suit every desire, there are certain characteristics and practical considerations to take into account before plunging yourself, your family and your finances into a new business venture. Will you prove to be a stellar franchisee, one that your franchisor holds up as a beacon to other franchisees and potential franchisees? Here are eight questions to ask yourself:

1. ARE YOU AN OPTIMIST? An optimistic personality is a boon for any franchisee. When times are tough – and they will be at some point – a positive mindset will help

you stay motivated, keep your business on track, delight your customers and prevent you from sinking into apathy.

3. DO YOU UNDERSTAND THE RESPONSIBILITIES OF A FRANCHISEE?

2. DO YOU FOLLOW RULES?

Yes, you will have responsibilities – to yourself and your family, to your fellow franchisees, to the franchisor.

Franchising works because each business model can be replicated. That means compliance is important. Compliance to systems, processes, brand requirements, operations, uniform guidelines, marketing parameter and the list of rules you will need to conform to as a franchisee goes on. If you’re simply not happy following the path that has brought success to others, then there’s not much point in buying a franchise. If you’re more inclined to work outside the lines, to take your own approach to doing business, then why not consider a start-up of your own? Successful franchisees see compliance as an integral part of the business equation.

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When you invest in a brand, you commit to everything the brand stands for. You also commit to the term of the franchise, and this is a legal contract. As a franchisee you, like the franchisor, are bound by the guidelines contained in the Franchising Code of Conduct, regulated by the Australian Competition and Consumer Commission. Apart from good business ethics, there are some pointers that are specific to the franchising sector. Take the time to understand before you buy, just what the roles and responsibilities are for both you as franchisee, and your franchisor.

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4. WHAT’S YOUR WORK ETHIC?

circumstances – contributes to the success of a franchisee.

hindered or dictated to by the state of your health.

The easy-money franchise just doesn’t exist. It’s generally accepted across the sector that franchisees who put in the hours and the effort are more likely to see good returns than those who expect to have the business delivered to them on a plate.

Greg Nathan, founder of Franchise Relationships Institute which conducts regular surveys in the industry, says “Running a business drains people’s energy and affects their attributes. So if good colleagues, friends or advisors support you they can make a big difference.”

7. ARE YOU PASSIONATE?

While you are part of a larger structure in the franchise group, and are investing in the brand, training, marketing, operations manuals and support that a franchisor provides, how you run your business will to a large extent determine your success. Hard working individuals are always welcome in the franchise sector.

5. DO YOU HAVE FAMILY SUPPORT? A strong support structure – whether that’s family or friends, depending on your

6. ARE YOU IN TIP-TOP HEALTH? Running a franchise when you are not in the best of health will be a challenge – starting up a new business even harder. Be honest about whether or not you are healthy enough to take on the demands of a franchise, particularly if you are considering roles that require a lot of physical activity. You want to be able to set up the business, manage it to success, and choose your moment to exit – not be

Ask franchisors what they are looking for in a franchise buyer, and they will always cite passion. It makes sense. Everyone wants to have franchisees who believe in the brand, in the franchise model, who are passionate about delivering great customer service, who have a real love for building their business.

8. ARE YOUR SKILLS FRANCHISE-FRIENDLY? Lots of franchisors embrace franchisees with no experience in their chosen field, but many (depending on the type of franchise) are looking for some business skills. Attributes such as good customer service, sales and organisational skills are popular with franchisors. But above all, a can-do attitude works wonders!

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Franchisees who put in the hours and the effort are more likely to see good returns than those who expect to have the business delivered to them on a plate

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COUNTER

INTELLIGENCE R

etail trade figures are showing the slightest rise for the second quarter of 2016 and industry experts are banking on consumer confidence to pick up now the dust has settled post-Federal Election.

Total retail sales for June 2016 were $25bn, reports the Australian Retailers Association, which is hoping the August interest rate cut will halt the year on year slide of retail sales growth.

+0.5% (June 2016) +1.6% (June quarter) ✱ Food retail +0% (June 2016) -0.1% (June quarter) ✱ Household goods +0% (June 2016) -0.5% (June quarter)

National Retail Association CEO Dominique Lamb said the minimal growth showed “our sector is suffering from the general lack of confidence in the economy, and the annualised growth figure of 3.1 percent was essentially flat when population growth was taken into account.”

By industry subgroup, the trend estimate increased 0.7 percent for takeaway food businesses, with cafes, restaurants and catering services up by 0.1 percent.

According to the Australian Bureau of Statistics, Australian turnover rose 3.1 percent in June this year compared to the same month in 2015. The second quarter figures were mixed.

Retail sales growth has been on a decline for the last six months, falling from a high of five percent in June 2015.

✱ Cafes, restaurants and takeaway food + 0.4% (June 2016) +1.3% (June quarter) ✱ Clothing, footwear and accessories

Seasonally adjusted however the latter sector dropped by 0.3 percent, while takeaway services saw a 0.1 percent boost.

Lamb said “Now that the election is out of the way and the Parliament is settled, we need both sides of politics to focus on policies and outcomes that will give consumers greater certainty, and allow SEP/OCT 2016 | 16 | WWW.FRANCHISEBUSINESS.COM.AU

businesses to get on with the job of creating jobs and prosperity.” The National Australia Bank has released a report showing that the traditional storefront business is trading well ahead of online sales. According to NAB’s Online Retail Sales Index: Indepth Report for June 2016, Australians spend $20.1bn online and a hefty $296.9bn in bricks and mortar outlets. That’s growth of 13.5 percent for the year to June 2016 for the online retail sector. NAB group chief economist Alan Oster said “Takeaway food continues to have the fastest annual online sales growth, growing 56 percent in the past year. It shows the rapidly changing behaviours of consumers in the way they’re ordering takeaway as apps and new services enter the market.”

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The

Fixers W

e all need a handyman or a tradesperson to build, paint or fix something around the home or garden. But is it a good business to invest in?

If striking out on your own as a handyman is a secret passion, then consider this – revenue for this sector is estimated at $943.1m this year. This brings in profits of $105.6m for the 3,629 businesses operating across Australia. Annual growth for the five years to 2016 has been 3.3 percent, with the upcoming period to 2021 estimated to see 2.4 percent growth. That means the sector will be worth $1.1bn in five years’ time. As more and more of us are time-challenged (and frankly, we don’t have the SEP/OCT 2016 | 18 | WWW.FRANCHISEBUSINESS.COM.AU

skills) the opportunities increase for tradespeople to step in and help us improve our homes. According to the IbisWorld report Tradesman and Handyman Franchises in Australia, May 2016, the sector is boosted as more Australians either move home and require alterations, or choose to invest in improving their existing home; capital expenditure is forecast to increase. With growing demand comes increased competition and this is where the value of a franchise really shines.

Insulation

Plumbing

Concreting

Plastering

Lawn mowing

Carpeting

Air-conditionning Tiling

Glazing

Heating

Alarm installation

Report author Alen Allday writes “The franchise business model has become more prevalent over the past decade. This has largely been due to increasing competition, as franchise businesses are more effective in collectively marketing and promoting tradesmen and handymen. As a result, more tradesmen and handymen have been joining franchise businesses to boost exposure and increase their competitiveness.” Collective marketing and economies of scale are great strengths of the franchise model. Strong brand recognition sets apart

Excavation

Bricklaying Decorating

Brick paving

Painting

Roofing

Electrical

Carpentry

Law cleaning

Garden maintenance

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Fencing

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Scaffolding services

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franchised operators (often sole traders themselves) from independent sole traders.

an increased number of operators and franchise networks.

WHAT’S DRIVING THE BUSINESS?

Competition will also have an impact on high profit margins.

✱ Capital expenditure on homes ✱ The number of households ✱ Real household discretionary income ✱ The number of houses bought and sold ✱ Consumer sentiment index THE CHALLENGES Franchisees in this sector will need to broaden their skill base to ensure they can compete with stiffer competition from SEP/OCT 2016 | 19 | WWW.FRANCHISEBUSINESS.COM.AU

An expected decline in the volume in real estate sales is likely to have an impact on the business. Fewer unit and townhouses are lined up for construction, and high prices are deterring new buyers. But these trends are countered by a refocused householder looking to maximise their investment in their home

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with maintenance and renovation projects.

HOW TO WIN Quality of service and price will underpin success for operators in this sector. It is expected that the larger franchised networks will help with skills training to give their franchisees a competitive edge. The highly competitive nature of the sector will encourage a greater spend on marketing and advertising to reinforce the brand – this will almost certainly be passed on to franchisees in the form of increased marketing levy fees, possibly increased franchise fees.

Franchisees in this sector will need to broaden their skill base to ensure they can compete with stiffer competition from an increased number of operators and franchise networks

An established business may not find value in the branding benefits associated with a franchise, so there is unlikely to be a rush of existing tradespeople looking to convert their businesses to a franchise, particularly those who are in regional or rural areas where word of mouth is king. But could a franchised option make sense for a newcomer to the sector? Absolutely. The power of the brand, the opportunity to upskill, and network support are all benefits.

WHO ARE THE CLIENTS? ✱ Households ✱ Residential builders and property managers ✱ Small and mid-sized businesses

WHO ARE THE MAJOR BRANDS? JIM’S GROUP Estimated market share: 36.1% A privately owned Australian proprietary company which started in 1982 with Jim’s Mowing. Franchising began seven years later, and the company is now in New Zealand, Canada and the UK. It now has about 3000 franchisees across its more than 30 divisions, and a predicted industryspecific revenue of $340.7m - an annualised 3.6 percent rise over five years. IbisWorld projects franchisees earn an average annual salary at $115,000. VIP HOME SERVICES Estimated market share: 13.9% An Australian owned proprietary company SEP/OCT 2016 | 20 | WWW.FRANCHISEBUSINESS.COM.AU

established in 1972 with a focus on garden maintenance and cleaning. The business now has more 1100 franchises in Australia and New Zealand. Revenue is expected to have increased at an annualised 3.3 percent over five years to reach $131.1m this year. While the business has “somewhat saturated” the market across its current service offer, diversification into other segments is expected. HIRE A HUBBY Estimated market share: 5% A 20 year old business with about 400 franchises. This year revenue is expected to reach $46.9m, an annualised increase of 7.6 percent over five years. The skills-focus is broad, with franchisees providing general handyman services. Unlike its major two competitors, the business has increased market share since 2011. GREY ARMY Estimated market share: less than 5% Founded in 1997, the business includes handyman and gardening services. Its point of difference is experienced, mature franchisees. LASER GROUP Estimated market share: less than 3% A New Zealand business which started in 1983, it how has more than 220 franchises across Australia and its domestic market. It includes Laser Plumbing and Laser Electrical. A mark of the other businesses in the sector is locality – many franchises operate within one state or within a small region. Competition means it is unlikely that new franchises will be able to achieve a national presence and a high proportion of market share. What it takes to succeed 1. A good reputation 2. A clear market position 3. A skilled workforce 4. The ability to compete on tender 5. Aligning the business to market demand

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Why

CHOOSE a FRANCHISE?

he franchise sector provides the Australian economy $171 billion each year, employing more than 560 million people, in over 1100 franchise enterprises and across 92,000 franchise establishments.

Being your own boss and buying into a franchise system has never been more accessible in today’s flourishing environment, with most people finding a franchise opportunity that will suit their passions and interests – whether it’s looking for flexible hours, or building a multi-unit franchise portfolio. Franchising is a business founded on relationships – and communication plays a key role in the ongoing success of franchising systems! Running a franchise business is like any other small business; it requires hard work, commitment, passion and an ability to solve problems and make decisions on a daily basis. The benefit with franchising is you have someone there to mentor, train and coach you through the challenges, celebrate your successes, and provide the building blocks that you need to grow your business.

RELATIONSHIPS AT THE HEART OF FRANCHISING Building a solid and professional relationship is extremely important as is understanding the culture of the franchise enterprise. The culture and professional relationships between franchisors and franchisees should be aimed at building cohesive networks and support.

DAMIAN PAULL Damian is CEO, Franchise Council of Australia

We see this repeatedly at our FCA awards nights, where successful franchisees attribute their success to the core relationships in their business, primarily their partners and their franchise support networks.

One of the best examples that I’ve seen in franchising success is from Sherwin Djamil, who saw the support offered by a franchise system was a key attraction when deciding to become a small business owner. “At first, [becoming a Soul Origin franchisee] seemed like an obstacle, because I’d never been a business owner before. But I realised that it was an opportunity, and I wasn’t alone. Soul Origin had a support system, and that support system has taken me to where I am today.”

RESEARCH IS KEY The Franchise Council of Australia actively encourages all members to examine the resources, support systems and communication between franchisors and franchisees to ensure that each party fully understands their roles and responsibilities. The key to any successful investment is to do your due diligence, research, ask questions, and speak to other franchisees: they will give you a sense of whether the brand’s culture and support will suit you and your lifestyle. Australia has a dynamic and vibrant franchise sector and according to recent research, franchising continues to show steady growth. You can be rest assured that the FCA is working to ensure that franchising remains a vibrant and successful model for doing business. I wish everyone well on their journey to franchising success.

SEP/OCT 2016 | 22 | WWW.FRANCHISEBUSINESS.COM.AU

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Visit www.propertyclub.com.au/ property-club-business-opportunities/ Call 1300 663 282

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ow long have you been dreaming of owning a business? Well, perhaps it’s time to stop dreaming and take action. Here are five indications that you should step up to the challenge, resign from your job and invest in a franchise.

1. YOU HAVE ALWAYS WANTED TO OWN YOUR OWN BUSINESS You’re thoroughly sick of working for the man, and are ready to be your own boss. Working for the shareholder only gets so rewarding, and you’re after that feel-good feeling in a job. You want to play a part in the decision making process and have a say in future plans.

2. YOU’RE LOOKING FOR BUYING POWER Many small businesses fail because they don’t necessarily have access to network support in a franchise. A franchise network can provide a competitive edge in site selection, supply chain, and equipment. A franchisor can offer their expertise and connections to leverage these aspects of the business.

3. YOU DON’T WANT TO START A BUSINESS FROM SCRATCH Sure, you want to own your own business, but the thought of starting from scratch isn’t ideal. The cost, the risk, and the uncertainty of going on

your own is not what you had in mind. You don’t want to be so caught up in the day-to-day running of a business that you don’t have a chance to work on the bigger picture. A franchise system can offer network support with operations, marketing, and in some cases, a coach to help you work on the business. A proven system is also plus in your eyes.

4. YOU WANT TO OWN MULTIPLE BUSINESSES The idea of operating more than one business is something you’ve always wanted, but double or more of the risk, cost, and uncertainty of starting from scratch is not what you’re up for. Many franchised brands encourage multi-unit franchising. And with the support of a strong franchise system behind you – why not?

5. YOU HAVE A BUSINESS PLAN You have ambition, but not without reason. You have clear ideas about how you would structure a business and how that model would work. You’ve thoroughly considered how each cog would function, and

are ready to present your plan to a business advisor.

6. YOU HAVE DONE YOUR RESEARCH You understand what franchising is all about. You’ve spent time researching the industry, you’ve looked at the sectors that interest you, you’ve considered a few brands that seem to have potential. So if you’ve got a good appreciation of what’s at stake - because no franchise is risk-free - and you believe you have the commitment and hard work required to make a success of any franchise, it’s time for decision-making.

7. YOU HAVE THE FINANCE Access to the financial werewhithal to purchase a business is essential - whether that comes from a windfall, a lifetime of saving, divesting other investment interests, mortgaging your home or family funds. If you’ve got the cash - or can get a loan for the investment and for the working capital to keep you afloat in the early days and you’re keen to make your mark as a business owner, then what’s holding you back?

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7 SIGNS you should QUIT YOUR JOB and BUY A FRANCHISE The

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Top tips from franchisees:

Don’t hold back! Y

ou’re thrilled about owning a franchise and maximising your profits as quickly as possible. Here are some important tips from existing franchisees about what you can expect getting started.

You’ve thoroughly completed your due diligence, signed the franchise agreement and are ready for lift off. You were born to own a business, and have plans and paperwork to prove it. You’re ready to hit the ground running and become a franchisee superstar overnight. Everyone has a different experience in franchising, but a common theme resonated among franchisees speaking at the Brisbane Franchising Expo. Franchisee success is all about how much effort and time you’re willing to put in. “A business is as good as the work you put in,” said Kirstie Zillman, Hydrokleen. “When we started we had no customers.” Especially the work needed at the start. “Put in a lot of work to get started and established,” added Stuart Jaeschke, First SEP/OCT 2016 | 26 | WWW.FRANCHISEBUSINESS.COM.AU

Class Accountants. Although the franchisor does support franchises, he said the franchisee’s role is clear. “It’s basically up to the franchisees to get their own business.” And great achievements can require a lot of your time. “I have to work more than a regular job, that’s for sure,” said Ciprian Cioaric, Real Property Photography. He explained that franchisees need to go the extra mile to keep clients happy. But at the end of the day if you’re thinking about buying a franchise, don’t hold back. That was another recurring theme at the seminar. All these franchisees wished they had taken that leap to become a franchisee early and bought their business years ago.

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We are at your service Visit the home of Franchising magazine online at FranchiseBusiness.com.au and ďŹ nd FREE resources to help you on the way to franchising success: 1. How to Buy a Franchise: We share the journey to franchise ownership by revealing the six fundamental steps anyone interested in buying a franchise must know. 2. Franchise opportunity email alerts: Activate daily email alerts on franchise opportunities and never miss out! 3. Bi-weekly industry newsletter to keep you abreast of all the latest developments in the franchising industry.

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What’s the

BEST FRANCHISE TO BUY?

o you’re in the market to buy a franchise. There are so many categories to choose from, all vying for your partnership with their gleaming model and system. So which is the best one to buy?

There are a few things that make a great franchise system. A likely profit is a great starting point, but there are a few more aspects that fit the bill too. A model that offers a strong return on investment (ROI) is also attractive. The market’s potential together with the brand’s reputation is also a good indicator of its potential as a franchise. And finally the level of support and lifestyle offered is a dealmaker. THE LOT? If we take a clinical approach to the above features of a great system, then the best one would have each and every one of them within the model, right? But there is no universal formula for which franchise is the best for you. The key variable is you! Here are a few tips that can help you find the right one for you. ✱ Be honest with yourself: a realistic purchase within your financial capacity can more profitable than chasing profit in a pricey franchise. Make sure you can fund the capital investment franchise you choose. ✱ Speak to existing franchisees: if the franchisor is telling you profit is SEP/OCT 2016 | 30 | WWW.FRANCHISEBUSINESS.COM.AU

guaranteed and the ROI is exponential, speak to franchisees on the ground. ✱ Are you in love? Passion and motivation are an important piece of this puzzle. Selecting a franchise attuned to your interests and skills can play a big part in leveraging success as a franchisee. You don’t want to find yourself disillusioned by the brand or system after a period time. ✱ Learn more: it’s imperative to seek advice from legal and financial professionals that specialise in franchising. Experts can explain the franchise terms for you to help you understand if the brand and model is right for you. Yes, this may set you back a little, but not as much as a mismatched franchise model. What to keep your eyes peeled for in a functional franchise system: ✱ Network management and support ✱ Business planning and system development ✱ Organisational structures and personnel ✱ Policies, procedures and legal ✱ Public relations and communications / marketing and promotions So the ideal franchise depends on what you consider important, after you’ve done some solid research.

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HOW TO MINIMISE RISK WHEN YOU BUY A FRANCHISE

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ntering into a franchise agreement is a long-term commitment, and making wrong decisions can affect your bank balance, health and your relationships, write Rouse Lawyers Janice Bywaters and Luke McKavanagh.

Before you sign on the dotted line, and throughout the course of the business relationship with your franchisor, there are some important steps to take to minimise your risk.

DO YOUR DUE DILIGENCE AND DON’T RUSH Firstly, ask yourself whether you are cut out to run not just a business, but a franchised business where you must strictly follow the system stipulated by the franchisor. If you are opening a franchised business at a greenfield site (and even when purchasing an existing business) then you need to ensure that you have sufficient capital to start a business and survive the losses you may incur while you build it until it is established. This may involve ensuring you have the capability to raise fi nance and SEP/OCT 2016 | 33 | WWW.FRANCHISEBUSINESS.COM.AU

being prepared to put your assets at risk. Choose the right franchise system. Whilst you may have your heart set on a particular franchise, there are many good systems to pick from, and they should all be investigated. This involves asking the questions: ✱ What is the franchisor’s business background and experience? ✱ How long has the system been in operation? ✱ How many franchisees are there? ✱ How many franchisees have started, sold or ceased to operate within the past year? ✱ How extensive is the training provided? ✱ What are the fees, both upfront and ongoing? ✱ What support does the franchisor provide in exchange for your fees? Before you sign the franchise

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agreement the franchisor is required to provide you with a disclosure document, which should provide answers to many of these questions. A key part of this disclosure document will be contact details for existing and former franchisees. You should contact as many current franchisees as you can to find out whether they are happy with the system. Don’t just contact franchisees recommended by the franchisor. Former franchisees should also be contacted to find out why they left.

Investing in the right structure at the beginning can limit your liability and risk to your personal assets if the business is unsuccessful, or maybe help with the tax minimisation when the business is successful

The more investigations you make the more comfortable you will feel. Remember, don’t sign the franchise agreement until you are happy with everything. Don’t feel you need to rush to make the next training date or because someone else is interested in the area. Take your time and proceed at your own pace.

CHOOSE THE RIGHT STRUCTURE A lawyer and an accountant will help you choose the right structure for your business. Whether you enter into the franchise as a sole trader, partnership, company or trust, making the right decision from the outset is essential. Each structure is different and the most suitable structure will depend solely on your circumstances. The best attitude to have is to expect the best but to plan for the worst. Investing in the right structure in the beginning can limit your liability and risk

to your personal assets if the business is unsuccessful, or maybe help with tax minimisation when the business is successful. Each structure has different taxation consequences.

RECORD PROMISES Never rely on a promise or representation regarding the potential for the business without first undertaking your own research and investigations. If the franchisor makes a promise about something which is not specified within the franchise agreement or the disclosure document, make sure this is recorded in writing. It is common when entering into a franchise agreement that a prior representations deed is also signed, prompting you to answer questions about any promises you are relying on.

COMMUNICATE WITH THE FRANCHISOR Remember that franchising in itself is not a business – it is a system of doing business. The franchisor has a proven system for success and has opted to duplicate that system by franchising. This means you must comply with the franchisor’s way of doing things. Don’t assume that just because it is your business that you can run it the way you want. If the franchise agreement restricts the products or services you can offer, or the colour scheme and layout for your store, then you must comply with those restrictions. This often includes getting the

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franchisor’s prior approval before you make any changes to your business. Remember, always get this approval in writing.

ADHERE TO TIME LIMITS If your franchise agreement provides you the option to renew for a further term, then diarise the time limits. The time frames to exercise your option are strict. If you miss the time frame, then the franchisor has no obligation to grant you the option. Also, don’t forget about the time frame to exercise the option under your lease. You don’t want to renew your franchise agreement but have no store to operate from. If you receive a breach notice from your franchisor, act on it immediately. Whether it is paying your outstanding fees or speaking to your lawyer about your options, non-compliance within the time frame under a breach notice may entitle your franchisor to terminate the franchise agreement.

OPTIMISE YOUR OWN EFFORTS A franchised business is not a guarantee for success, and you must still: •Follow the franchisor’s system •Not expect the franchisor to do everything •Recognise your own abilities and deficiencies •Work hard in the business

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11 WAYS TO AVOID A FRANCHISE FAILURE

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uying a franchise is a big investment in your future, so you want to get it right and not become a franchise-fail statistic, writes Sarah Stowe. Check out our 11-points to consider and give yourself the best chance of success.

Buying a franchise is often regarded as a shortcut into business – taking steps into business ownership without standing alone. You are buying into a business with a brand name, an existing system of processes, marketing campaigns and training programs. The franchisor is providing franchisees with the means to do business. So what are your expectations? It’s easy to make certain assumptions when investing in a franchise but it will help to understand just what the franchisor expects from you. Perhaps the most common mistake is to assume that the franchisor will be responsible for your business. Buying a franchise requires solid commitment, application, hard work and an appreciation that the business is yours to turn into a success or a failure. Of course there are elements that need to be aligned to ensure the best chance of succeeding, and it’s worth taking time to check these out. Let’s start with the franchise system and the franchisor:

1. IS YOUR CHOSEN FRANCHISE A PROVEN SYSTEM? We all love new ideas, and it’s exciting to be involved in a brand new project that will take the world by storm. Of course every household brand name started out as a small business but when it is your money being invested and your future at risk, you need to be sure that this great new concept will work in different locations, in tough economic times, in three years’ time. If you’re a big risk taker, then dipping your

toes into the start-up pool can be terrific; but if you’re cautious by nature, and you need your funds to bring you a solid return on investment, then picking an established brand probably makes more sense.

2. IS YOUR FRANCHISOR WORKING FOR YOUR FUTURE? Yes, we’ve just said that your business is your responsibility, but one reason to buy into a franchise system is to gain competitive advantages offered by a go-ahead franchisor who offers vision, direction and support for the whole franchise network. The franchisor also takes on the research and development role, looking ahead to new markets, new product or service offers, regulation changes, industry trends.

3. IS YOUR FRANCHISOR CASHED-UP? Consider how your franchisor makes money: is it from selling franchises, from selling products to franchisees or from royalty fees? If the network is growing fast, does the franchisor have the finances and resources to support this speedy growth? Signs that franchisors might be struggling financially can include reduced communication with franchisees, phone calls or emails not returned, staff redundancies, and a decline in advertising and marketing campaigns.

4. ARE FRANCHISEES SUCCESSFUL? Every franchise model will have some franchisees that have not succeeded. What’s important to discover is what the failure rate is across the network, and

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what has brought about these failures.

Every franchise will have franchisees that have not succeeded. What's important is the failure rate across the network and what has brought about these failures

The number of franchisees who renew their agreements is one sign to look for; another is to find out how many of the franchise outlets up for sale are distress sales.

chising, but if your chosen franchise does, it’s a good sign to see lots of franchisees investing in their second and third outlets.

Now we’ll turn to you as a franchisee:

5. WHAT ARE THE NEGATIVES ABOUT THE BUSINESS?

New ideas are what take business to the next level, but franchise systems are built on compliance and conformity.

6. ARE YOU A CONFORMIST?

Speak to existing and former franchisees to delve deeper into this. Are franchisees happy with their return on investment? One of the best signs of a good franchise is a network of profitable franchisees.

You can discover from franchisees what they find difficult in their relationships with the franchisor and head office team. You can also find out if disputes are common, and how they are handled.

You might want to ‘do your own thing’ with your business, but you need to ensure you are following the rules and the processes that have made the franchise a success for existing franchisees.

A revealing question to ask franchisees is whether or not they would buy into this business again. Like repeat customers, multi-unit franchisees who keep coming back must be confident in the system.

Go online and find out what is being said about the franchise chain.

You’ll need to be a team player as other franchisees will be relying on you to follow the rules.

Then you can go back to the franchisor and question them about any concerns you might have and find out how the franchisor responds to negative publicity.

Being your own boss in a franchise really means being responsible for your own business, not running the business exactly the way you want.

Not all embrace

franchise systems multi-unit fran-

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7. ARE YOU COMMITTED TO THE FRANCHISE? When you sign up to a franchise agreement it is most likely you will be signing a contract for a three or five year term. That means you need to love the business that you’ll be committing to, particularly if it’s a hands-on operation that demands your presence on-site for most of the time you’re trading. See if you can find a franchisee with whom you could spend some time in the business, getting to understand the dayto-day reality of operating the franchise before you invest your money.

8. IS YOUR SUPPORT NETWORK SUPPORTIVE? Will your family and friends be behind you every step of the way? Buying into a business is

a challenge, and battling alone without support from those closest to you makes it all harder. Ensure your immediate family in particular understands what hours and commitments you need to undertake to make this business work. Go into your franchise clear about what you want to achieve and how this franchise investment can deliver your goals.

9. CAN YOU AFFORD TO FAIL? Are you fit and healthy? Will you be able to take on the demands of the role? Can you and your family survive failure? It’s important not to take on a business initiative that, if it fails, would see a marriage

break-up or put your fi nancial situation in serious peril.

Add extras like tax and superannuation into the budget too.

If so, consider whether going into business perhaps isn’t the right step for you right now.

11. DO YOUR RESEARCH

10. HAVE YOU GOT THE FINANCES? Doing a proper budget is essential before you buy a franchise. On top of the initial franchise fee will be legal, accounting and any business registration or licensing costs; there may be extra costs for equipment that you need to consider. Always check with your franchisor what additional costs there will be. It’s imperative to have sufficient working capital to ensure your business doesn’t collapse from cashflow problems in the first few months while you are establish yourself in the market.

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The best way to be confident in your franchise choice is to be thorough in researching the opportunity, location, costs, the franchisor and the market. It’s essential to do your own research or due diligence, so that you are not relying solely on information provided by the franchisor. As part of this process, seeking legal and accounting advice from experts experienced in the franchising sector is a wise move. Confidence is invaluable in any business but over-confidence can stop you from seeing the danger signs. Measure up your concerns and be as objective as you can about what happens next.

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WHAT HAPPENS IF I DON’T MAKE MONEY IN MY FRANCHISE?

t is to be hoped that you won’t find yourself in this position, but if, against all the odds, you do, what happens next? Forewarned is forearmed, so here we take a look at how you can handle the situation.

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After some deliberations, due diligence and thorough research you have made a decision and purchased a franchise business. However, the business is not performing as you expected and the income is not coming in or is coming in much slower than anticipated. You start asking: “What went wrong and why?”

JANE GARBER-ROSENZWEIG Jane’s practice, Gable Lawyers, focuses on commercial law, franchising, distribution and licensing on a domestic and international basis, leasing, and the protection of intellectual property. Jane is also adjunct lecturer at the College of Law and a board member of Awards Victoria.

First thing to do is not to panic. You need to assess your options and look at your business as a whole in order to ascertain the best option moving forward.

ASSESSING THE BUSINESS You should fi nd out all the information about the business before you took over. Was it profitable? How was it operated? What is different in your way of operating it? Have fi xed costs such as rent gone up a considerable amount? What other changes have occurred in the last year or two? Are you following the system? These are just some of the questions you should be asking. You also need to look at the history of your franchise business and work out at what point it turned from a profitable business, if this was ever the case, into a business causing you more debt. Look at what changes have occurred in the last 12 to 24 months including changes in staff, menus, product offering, hours of operation and any new competitors. Look at how the other franchisees in your system run their businesses, find out if there are any differences in operations or marketing and work out if you could be doing something to improve the business.

GETTING THE FRANCHISOR TO ASSIST YOU Many franchisors will and should assist franchisees during the tough times. Speak to the franchisor, keep communication channels open and work out with them how they can help you to trade out of trouble. The franchisor may make suggestions on how to turn your business around. Franchisors can also offer further training for you and your staff if they feel you are not following the system or need upskilling in order for the business to become profitable. In exceptional circumstances the franchisor may be able to offer you fee relief and even get the landlord to provide fee relief. You should note that this is very rarely offered. SEP/OCT 2016 | 41 | WWW.FRANCHISEBUSINESS.COM.AU

SELLING THE BUSINESS You can consider selling your franchise to a third party, provided that you have obtained the franchisor’s written consent to such a sale. The franchisor may have an option to purchase your business under your franchise agreement and may choose to exercise it, depending on the offer by the third party. However, if your business is not doing well, this will most likely be reflected in the price you would be offered.

MISREPRESENTATIONS In some cases, franchisees are provided with certain fi nancial promises by the franchisor which they rely on in making the decision to buy a particular franchise. But if these don't come to fruition, proving that the franchisor has made misrepresentations is difficult. Moreover, most claims of misrepresentations often end up being simple misunderstandings of information presented. Franchisees should ensure that any projections or any other fi nancial information provided by the franchisor are looked at by a qualified accountant prior to signing the franchise agreement.

SURRENDERING THE FRANCHISE You can request that the franchisor allows you to surrender your franchise agreement. The franchisor has no obligation to let you out of the franchise agreement early, especially when there is a lease of premises and rent payments involved. The franchisor may ask you to pay a certain amount for them to let you out of your agreement, but this is better than operating the business at a loss for a number of years.

FINANCIAL RESTRUCTURE Depending on your overall fi nancial situation, you may wish to consider obtaining advice from an insolvency practitioner in order to restructure your fi nances. This does not mean that you need to put your company in liquidation or declare personal bankruptcy. However, obtaining such advice will provide you with better understanding of your options, considering your fi nancial position. Consider all of the above and make an informed decision about the future of your franchise business.

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CAN YOU

RENEGOTIATE A FRANCHISE AGREEMENT? SEP/OCT 2016 | 42 | WWW.FRANCHISEBUSINESS.COM.AU

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BY ROBERT TOTH Robert is franchise partner at Marsh & Maher, an accredited business law specialist, a member of the International Franchise Lawyers Association (IFLA), and a member of the Australian Institute of Company Directors.

ranchise agreements are generally drawn by lawyers after months of detailed consultation and workshopping with clients and consultants. Most franchise agreements can only be varied by written agreement of the parties.

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From the detailed business plan the lawyer’s role is to then document the business model. The lawyer’s role is to reflect the franchise model that has been workshopped into the core contractual documents. A franchise agreement is a fixed term agreement and generally considered to be drawn heavily in favour of the franchisor. The agreement protects the franchisor’s intellectual property, their system and brand.

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PRE-AGREEMENT Franchisors aim to ensure their agreements are uniform, although there may be special conditions or concessions negotiated in the lead up to signing a franchise agreement by the franchisee or their lawyers. The time to negotiate special conditions or concessions ideally is within the 14 day disclosure period prior to signing the franchise agreement. There is greater ability to negotiate concessions where it is a new franchise system rather than an established system as the franchisor may be keen to get franchisees on board. The franchisor may be willing, for example, to make concessions on the upfront franchise fee, waiving the minimum performance obligations for the start up phase, waiving marketing fund contributions or providing an extended territory in which to operate. We have on occasion negotiated early exit rights where the franchisee brought into the franchise an existing business which had established goodwill and reputation.

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SEP/OCT 2016 | 43 | WWW.FRANCHISEBUSINESS.COM.AU

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On renewal or extension of a franchise, the terms of the new franchise agreement may differ from the original

ONCE THE FRANCHISE AGREEMENT IS SIGNED, CAN YOU VARY IT? Most franchise agreements have a provision that states the franchise agreement can only be varied by written agreement of the parties. The Franchising Code does not specifically address this issue, other than providing an obligation on both parties to act in good faith. Franchise agreements also often provide that on renewal or extension of a franchise the terms of the new franchise agreement may differ from the original.

UNFAIR CONTRACTS LAWS AND THEIR IMPACT ON FRANCHISING Changes to the unfair contract provisions contained in the Australian Consumer Law will come into effect on 12 November 2016 and restricts unfair terms in relation to standard form small business contracts. These changes will apply to franchise agreements and ancillary agreements. This will require franchisors to review and revise provisions in their franchise agreements, which may be rendered void and unenforceable. SEP/OCT 2016 | 44 | WWW.FRANCHISEBUSINESS.COM.AU

The impact however may not be as severe as first thought as the law provides that if a provision is determined unfair, the provision is void and unenforceable but the agreement continues to bind the parties. The franchisor cannot rely on the unfair term and if it does so it would enable a franchisee to argue that it is unlawful, apart from also being a breach of the good faith obligations under the Code and possibly conduct against good conscience. The Australian Competition and Consumer Commission will enforce the law to agreements entered into, amended, extended or renewed on or after 12 November 2016 and has indicated that it will target the franchise sector (amongst others) due to the imbalance of power in the relationship between franchisors and franchisees.

WHO DOES IT COVER? A contract shall be deemed a small business contract if: â&#x153;ą at least one party employs fewer than 20 persons (includes full-time, part-time and casual employees employed on a regular and systematic basis); and â&#x153;ą whether the upfront price of the contract is equal to or less than $300,000 (regardless of the term) or as is more

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likely in franchising the term is for more than one year and the upfront price is greater than $1,000,000

Most franchise agreements will qualify as standard form contracts but master franchise agreements, often individually negotiated, may fall outside the Act

Most franchise agreements are for five or 10 year terms and the upfront costs can vary greatly. The “upfront price” includes any “consideration” provided at the time the contract is entered into. This includes franchise fees or upfront payments for supplies, stock or inventory or fit out but it does not include “contingent” payments such as royalties payable. A small business contract will be presumed to be standard form unless a party can prove otherwise. The court can use its discretion to determine whether a contract is a standard form contract taking into consideration:

✱ The bargaining powers of the parties ✱ Whether the contract was prepared in advance of discussions between the parties ✱ Whether the parties were given an opportunity to negotiate the terms of the contract ✱ Whether the contract takes into account the specific characteristics of the other party, or the particular transaction. It is likely that most franchise agreements will qualify as standard form contracts but master franchise agreements which are often individually negotiated may fall outside the Act as they are individually negotiated.

considered to be an unfair contract term where: It will cause a significant imbalance in that party’s rights and obligations under the contract; It will cause loss, financial or otherwise, to a party if applied or relied on; and It is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by them. In determining whether a provision is “unfair” the Court will also take into account whether the term is clear, legible and in plain English.

WHAT DOES THIS MEAN?

SPECIFIC ISSUES IN FRANCHISE AGREEMENTS

If a franchise agreement falls under the Act, a provision is

The provisions that may be considered unfair and which

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commonly appear in franchise agreements include terms that only enable the franchisor at its sole discretion to:

chisee consent may be considered unfair. Terms that limit a party’s right to sue the other party or restrict evidence one party can present, are also likely to be considered unfair.

1. Avoid or limit its obligations 2. Vary or terminate the contract 3. Renew or not renew the contract 4. Vary the price or other “characteristics” of what is supplied without the other party being able to terminate 5. Assign the franchisor’s rights without the franchisee’s consent 6. Unilaterally determine if a breach has occurred

Terms which are not unfair are those that specify the scope of the franchise grant, setting the upfront price payable and terms applicable by law, for example, under the Franchising Code. There are a number of terms in franchise agreements that allow a franchisor to act unilaterally that will need to be reviewed.

Terms that limit one party’s perceived liability or allow one party to assign the agreement to the detriment of another will be unfair. This may mean that terms allowing franchisors to assign their rights under a franchise agreement without the fran-

For it to not be a standard form contract a franchisor would have to encourage negotiation, which is adverse to their interests, in having a standard form contract.

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lending and squeezing: the vital statistics of operating a smoothie and juice bar in Australia, writes Sarah Stowe.

Mmm, have you got the taste for a juice bar investment? Thanks in no small part to Boost Juice Bars, which is taking its brand around the world, Australians are enthusiastic consumers of smoothies and juices. In fact in 2015-16 we are spending $360.7m on our favourite liquid fruit and vegie treats. And that’s bringing in profits of $13.3m for the businesses operating in this sector. And annual growth has been high – 9.8 percent for the five years up until 2016. But despite a slow down on growth, predictions for the next five year are for a positive 4.1 percent increase. There are 91 businesses in the juice bar marketplace, which is still at an early stage of development, according to IbisWorld’s Juice and Smoothie Bars in Australia Industry Report, March 2016. As the sector matures competition increases. Franchised brands have taken hold of this young segment of the beverage market, with Boost Juice Bars, Top Juice and Kick Juice Bars the key players.

THE SQUEEZE Fruit and vegetables are core ingredients and inevitably affected by weather conditions and production costs. The past five years have seen substantial cost increases in Australiangrown vegetables as a result of changeable weather patterns and prices for both fruit and vegies are expected to rise this year. There is a growing trend to counteract seasonality and

maintain a constant supply of produce by importing vegetables and fruits; the downside of this is an exposure to exchange rate fluctuations. But affordability is expected to drop with forecasts of a depreciating Aussie dollar through to 2021, suggest IbisWorld. Fuel, herbicides and pesticides contribute to the production process so when these prices rise, the smoothie and juice bar franchisees will face increased product costs. Juice bar operators cannot intermittently raise and drop their prices for smoothies and juices so any cost variations will influence industry profit margins. Controlling inventory is key to success so a sustainable supply chain is an important element of the franchise system. Fruits, vegetables, dairy products and packaging are key costs. However, IbisWorld predicts input prices will match the increase in sale prices, so the average profit margin could be maintained for the next five years. Average profit margins have been estimated by this analysis firm to sit under four percent. The cost of doing business – ingredients, rent and labour – is increasing. The industry relies heavily on part-time and casual employees. For every dollar spent on capital, a juice bar business will spend an estimated $16.71 on labour, reports IbisWorld. As we have seen with other retail franchises, particularly

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food franchise systems, the way to combat rising rents is to embrace new, smaller footprint models. Of course as the market matures there will be further challenges for juice bar franchisees. IbisWorld highlights the use of polystyrene cups as an issue that is expected to put pressure on juice operators, and some have responded by converting to paper cups. Perhaps unsurprisingly, fresh juice and smoothie consumers are increasingly looking for ethical behaviour and sustainability from the brand to back up their feel-good factor in choosing a healthy drink option. As companies head overseas with their successful Aussie brands, the changes to business models to suit local demographics, cultures and tastes may in turn improve the franchise operations here. Greater efficiencies will help the brands expand.

WHAT’S IN THE BLENDER? The wellbeing trend has had a positive impact on the expansion of the market which has embraced new ingredients as a way to differentiate a brand offering – for example, almonds, acai berries, goji berries, pomegranate. Introducing value-add products like protein shots, chia seeds, wheatgrass and immune boosters to the menu creates the opportunity to increase prices and see subsequent revenue growth. Smoothies make up just over half of the revenue (55.6 percent) with juices accounting for 42.5 percent, and other food and beverages incidental at less than two percent. Competition from supermarkets and other retail outlets offering bottled natural juices has had an impact on the fresh juice segment which has dropped its share of revenue in the last five years.

WHAT ELSE IS IN THE MIX?

– with hot and humid Queensland in third place.

Discretionary income and nutritional trends have a big impact on demand.

Typical locations are shopping centres, food courts in shopping centres and airports, and sites neighbouring gyms, sports centres or cafes.

This is an industry dominated by the health conscious consumers aged 20 to 34 who have high levels of discretionary income. It’s encouraging that teenagers are the second biggest consumers of smoothies and juices, who although they have limited income are attracted by branding and marketing campaigns. The third largest group is the 35 to 50 year olds, likely to include parents of these teenagers. They embrace the health conscious trends but are constrained financially by demands from their dependents. This is an urban business, with New South Wales and Victoria hosting the majority of juice bars in Australia – 60 percent

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Boost Juice Bars has a national presence, Top Juice operates interstate, but most brands operating multiple sites in this sector are focused on their local region. When the smaller players make moves to expand, it will be through either improved economies of scale or joining existing franchise systems. There is a medium level of competition with the influencers of success the price to value equation, location, customer service, brand recognition and staffing. External competition is seen in cafes and coffee shops, fast food outlets and grocery stores. And supermarkets are seeing

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the strongest soft drinks performance coming from products perceived as healthy or nutritious. According to Euromonitor’s evaluation of the bottled soft drinks market, Nudie Foods has a 3.7 percent market share while South Australian family owned Nippy’s Fruit Juices takes 2.8 percent of a market dominated by the global giants The Coca-Cola Co and PepsiCo. Boost Juice founder Janine Allis lists four keys to a good franchise: profitability, successful franchisees, leveraging buying power and marketing.

Sara Agostino, research associate at Euromonitor International says “In 2015, consumers continued to seek out highquality beverages with a unique value proposition. This could be through unique flavours, functional benefits, packaging or production method. Most recently, new product formulations included stevia, superfoods, or locally-sourced fruit and vegetables.”

Brooke Tonkin, the author of the IbisWorld industry report, writes “both Starbucks and McDonald’s have launched new smoothies nationwide, which is testament to the pervasiveness of the health and wellbeing trend”. While the appeal of the growing health trend will attract new entrants to the market, the difficulty of sourcing appropriate locations will act as a deterrent, particularly with Boost Juice Bars “wellentrenched” position. Tonkin writes “Boost Juice Bars has made fruit and smoothie bars a staple of shopping malls, high streets and densely populated urban centres across the country. The company shows no signs of slowing down, with store numbers increasing by more than 40 percent over the past five years. Increasing participation in

the industry is expected to lift industry revenue 9.5 percent during 2015-16. BOOST JUICE BARS Boost Juice Bars, launched in 2000 by our cover star Janine Allis, is part of the Retail Zoo business, now 70 percent owned by private equity firm Bain Capital. In 2004 Retail Zoo consolidated its position in the market with the acquisition of its main competitor, Viva Juice Bars. About 70 percent of Boost Juice outlets are franchised. Overseas there are more than 400 outlets across 12 countries. The brand had a false start in China due to poor franchisee management, but is looking to return to the Chinese market and add to its portfolio countries such as the US, Japan, Italy and Argentina.

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Boost was quick to capitalise on the growing awareness for healthy eating and the company’s financial performance has been strong, with sales revenue expected to have increased by an annualised 11 percent for the five years to 2016. However the business has kept product prices fairly steady and with rising operational costs, a drop in profit margins is likely, suggests IbisWorld. Estimated market share: 55.4 percent. TOP JUICE

fruits, yogurt and chocolatedipped fruit.

With a background in fruit and vegie retailing, Ali Sawan opened the first Top Juice store in Sydney in 2008. A point of difference for the brand is local sourcing of ingredients, and the business model includes the sale of salads, cut

The business has seen rapid expansion, moving from four stores in 2010 to almost 50 this year. Franchising was employed in 2012 as a method to expand the network.

Top Juice has outperformed the industry, with a forecast store sales revenue of 61.5 percent annualised over five years. As growth slows, sales revenue is expected to slow too, through to 2021. Company profit margins are on track to increase with

more company owned outlets showing greater profitability over time. The business is owned by Ayman Investments. Estimated market share: 10.7 percent.

“Seafood remains the #1 take-away food item sold by independent take-aways in Australia.”

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http://www.famousfish.com.au/franchising.php SEP/OCT 2016 | 53 | WWW.FRANCHISEBUSINESS.COM.AU

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KICK JUICE BARS Pacific Retail Holdings is the parent company for Kick Juice Bars. The group is also the parent company for Go Sushi and Wasabi Warriors, and co-branding is promoted for Go Sushi and Kick Juice Bars, with the two brands often operated by a single franchisee. Kick Juice Bars outlets have spread interstate but with the parent company driving the sushi franchise business, it has not made a significant impact on the market. Estimated market share: 1.3 percent. FEELING FRUITY JUICE CO This small Victorian based juice business includes smoothies and yogurts on the menu. Estimated market share: less than 1 percent. What’s changing? Improvements in blending technology have resulted in compact systems that can be brought into smaller locations, creating the concept of an express juice bar.

Boost Juice Bars has added both express models and café-style outlets with lounge seating.

ADDING VALUE AT TOP JUICE

TOP JUICE Barry Barber, general manager, says “Consumers are more educated with a strong understanding of the impact of food and beverage choices and are conscious of making healthier choices for themselves and their families. Chronic diseases and obesity levels have also driven a switch to nutritious options. More time poor than ever, Australians are seeking convenient products on-the-go. “While plain juices like fresh orange juice remains popular, consumers are seeking more exotic fruit and vegetable blends, and green juices and smoothies remain a growing sector. Not all juices are created equally – and people are recognising this. Within the juice category, there are pockets of customers requesting specific offerings such as cold-pressed juices – and we offer a wide-ranging selection to satisfy these needs.” Top Juice continues to grow its presence in the eastern seaboard markets. Recently reaching a 50-store milestone, the business

plans another 10 outlets to reach 60 stores by the end of the third quarter. This year Top Juice will enter the Canberra market with three stores. Barber says there is strong interest from franchise buyers in the Top Juice brand. “This system means that all produce sourcing and preparations are conducted at our central kitchen, leaving franchisees to focus on their store presence and customer interaction.”

BOOST JUICE Franchise recruitment manager Sally Nathan says “Despite the

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predictions of reduced profits by IbisWorld, Boost Juice has continued to see a steady increase in sales and profits, year on year. “Across the world, Boost Juice has the largest global footprint of any juice and smoothie bar and we are always focused on development across our business to ensure that our franchise partners continue to see healthy profits from their Boost Juice businesses, whether they own one store, a cluster of businesses or the rights to a whole country internationally. “We closely monitor our yearon-year sales and many other facets of our business to ensure

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we understand all areas for opportunity therefore one of our greatest assets is we know where we stand on a daily bases and we can react quickly.” Nathan says franchise demand is strong. “We carefully manage our applications to ensure that we align new partners with the right business opportunity for them,” she says. “We do however have a limited number of new store opportunities which make the application process a competitive one. It also means we induct via a recruitment process rather than a sales orientated one. “Despite the number of stores we have across the country, we still believe that there is opportunity for domestic growth,” she says. “Firstly, we have identified that there is great opportunity and interest in larger regional cities and towns. We have seen great success in stores that have opened in regional locations over the last few years and we will continue to explore these opportunities further, where we believe it is viable. “We are also looking into alternative model and footprints

for our stores. For example, we opened the first Boost Juice store in a service centre in BP Stapylton in Queensland at the end of 2014. We have seen great results from this store and as a result we will shortly be opening our second service centre store in BP Caboolture with more to come.” The business closely monitors product trends across the world. “We have seen changes over the last few years and a shift from a focus on ‘green’ products, to those that pack a well-rounded nutritional punch. With this change, we developed our Black range which has been incredibly well received,” says Nathan. “One of the benefits of joining a strong franchised brand such as Boost Juice is that we have a dedicated team who source and negotiate produce for stores on behalf of our franchise partner network. “This group buying power results in not only cost savings for our partners, but strategic relationships that we have built across the industry to ensure that the impact of produce shortages is minimised across our business.” SEP/OCT 2016 | 55 | WWW.FRANCHISEBUSINESS.COM.AU

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BORN TO

thrive

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he success of future generations is shaped by childhood development, which is why the children’s services industry is a key point of interest. Not to mention its potential in the market, writes Noha Shaheed.

A recent IBISWorld report indicates that the child care services industry is forecast to grow at an annualised 5.8 percent over the five years through 2021-22, to total $16.4 billion. Over the next five years, higher fees, continued government support and increased maternal labour force participation rates are expected to drive further industry growth.

KEY TRENDS: ✱ Franchisees require relevant police and background checks, whilst specific brands also expect accreditation or experience ✱ Ideal sites are those which are close to high traffic areas with families ✱ Ideal franchise operators are passionate about developing children’s skills in sport, creativity or learning. ✱ Local area marketing is key to growth LITTLE KICKERS Little Kickers is committed to providing every preschool child with a positive introduction to sport, in the area of preschool football for young children. “Franchisees get exclusive territories. Whether it is a metropolitan or country area, the franchisees that do very well in our system are those who engage their local communities,” says Andrew Gow, director. Social media, word of mouth, and local marketing by engaging the community are key to franchisees sourcing customers. Multi-unit franchising is also encouraged for franchisees with a proven track record of success. However, quality recruitment can be a challenge for franchisees. “Convincing some parents that 18 month olds can engage and learn skills and attributes about soccer is sometimes a hurdle,” he explains. “But once parents attend the classes and see what we have to offer, they are always pleasantly surprised with what their children can achieve.” Ideal venues are located near shopping outlets, schools and community hot spots like swimming pools. However, sites also include community halls, basketball courts, schools and council venues. SEP/OCT 2016 | 57 | WWW.FRANCHISEBUSINESS.COM.AU

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Franchisees require relevant background checks, but don’t necessarily need business experience.

LITTLE KICKERS

“Having a background in business is not important as we provide comprehensive training, however, being passionate about getting young children involved in sport and gaining healthy habits for life is,” says Gow. The initial investment of a Little Kickers franchise is between $20,000-$50,000 for a five year term with an option to renew. Included in the model is comprehensive initial training, access to a sophisticated back-of-house business system, marketing, ongoing field support visits, session assessments, forums, Google Apps and access to the global franchise network. CHERRY BRIDGE STATION Specialising in the early years of learning and education, Cherry Bridge Station is a global brand dedicated to the aspiring needs, support and sensitivities required for children. Debbie Pham, who heads up Cherry Bridge Station, says franchise territories are extremely important, and local area marketing key to franchisees sourcing customers. “We clearly define all franchised territories and we provide provisions to ensure that current franchisees have an opportunity to grow our business in neighbouring areas.

supervisor is employed to manage the centre, and the franchisee would only need to visit two days a week to oversee operations and work with the management team.

“Our franchisees source customers from our carefully tailored local area marketing toolkit which involves identifying and implementing marketing opportunities in local communities by engaging positively with individuals, groups, organisations, businesses and local media.”

“This ensures that the centre is managed by qualified individuals and this in turn protects the franchisees investment,” explains Pham.

Pham says franchisee profit is attributed to the brand’s tried and tested management systems, as well as monthly review profit and loss statements to implement best practice, and action plans to increase profit. Multiple units are also encouraged. “Once a franchisee is financially sound and operationally excellent in one centre and the franchisee shows a passion for another centre, we will nurture that passion and make it a reality,” she adds. The Cherry Bridge Station model stands out as franchisees are likened to investors rather than owner/operators. A nominated

An ideal candidate is a person who has a passion for the future development of children, has a business acumen, strong management skills and is a great communicator. The franchisee is also required to attain their Certificate III in childcare within 12 months of opening the childcare centre. The initial investment for a Cherry Bridge Station franchise (inclusive of franchise fee, training fee, and fit out costs) ranges from $1 million to $4 million depending on the location and size of the centre. Further working capital is also required for trade up to a period of 12 months. The initial franchise term is 10 years with possible future terms of five by five years. The model includes support from the operSEP/OCT 2016 | 58 | WWW.FRANCHISEBUSINESS.COM.AU

ations management team who conduct monthly operational audits and recommendations for the franchisee to ensure the centre is meeting government laws and regulations, occupancy and financial targets. PYJAMA DRAMA Offering creative drama and imaginative play classes for children up to seven years, Pyjama Drama classes are designed to develop keys skills such as concentration, co-operation, and communication and confidence . Former franchisee and upcoming franchisor of the UK brand in Australia, Amanda Plumridge, says that customers are actively sourced through schools, day care and family centres, as well as demonstrations at children’s events. Social media and fundraisers also play a part in franchisee recruitment of customers. “Generally franchises find their own sites as they have best knowledge of their geographical areas,” she explains. Territories are carefully selected for its

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BRICKS 4 KIDS

We maximise profit by creating a business plan that allows, over time, a franchisee to offer all the above programs

population size, the number of children under seven, the number of day care centres and schools as well as the socio-economic makeup of an area. Franchisee profit is leveraged from age differentiated classes for babies, toddlers, preschool children and for children between five to seven years. “We maximise profit by creating a business plan that allows, over time, a franchisee to offer all the above programs,” says Plumridge. “If a franchisee has a proven track record of success and is ambitious enough to take on a second territory then we would support them in this ambition.” However, there are challenges involved. “Often the type of person that is interested in a children’s franchise has children themselves, and is looking for a flexible career that fits in around their family,” says Plumridge. This is why superior organisational skills are required to achieve work/life balance. An ideal franchisee has drama skills (but not necessarily a background or qualification in drama). Although a business background is not a necessity, candidates are ambitious, hardworking and passionate about the power of drama and imaginative play. All franchisees in Australia require a Working with Children’s Check and police clearances. Ideal sites are in areas that attract a high ratio of young families, including libraries. “In Western Australia we have got our first contract with the local council offering our program via the library service,” says Plumridge. SEP/OCT 2016 | 60 | WWW.FRANCHISEBUSINESS.COM.AU

The initial investment of a Pyjama Drama franchise starts from $25,000 in the Perth area to up to $35,000 outside of Perth. Investment is a five year term which is renewable at no extra cost for a further five years, which is again renewable at 10 years. The model includes franchise-to-franchise support, business webinars, annual seminar and sales meetings, and continued support from head office. Plumridge says a key differentiator of the brand is its class materials, adding: “You won’t find our music, songs, stories or games anywhere else – they are original to Pyjama Drama – and a child can start age six months, finish at seven years and never repeat the same session twice!” BRICKS 4 KIDZ BRICKS 4 KIDZ offers a range of educational programs to families and schools using LEGO® products. Steve Bealing, director, believes that all kids learn best through play and that there are inherent cognitive and physical benefits from children building with their hands. “We use our programs to inspire children around STEM (science, technology, engineering and maths) concepts,” he says. “Our offerings range from robotics and programming, school incursions and after school programs through to holiday workshops and birthday parties.” Bealing says franchisees source customers by engaging the local community and establishing relationships with schools and local families. “Our owners have the ability to market

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directly to their communities through the use of digital channels such as Facebook and Google, as well as through traditional tools such as flyers.

SOCCAJOEYS

“We trust our owners to find sites for their services based on their local knowledge, which we then screen and approve,” he explains. Territories are also fundamental to BRICKS 4 KIDZ operations. Multi-unit franchising is also encouraged if candidates succeed in their first territory. “Our owners start as mobile businesses, because it is lower risk and lets them build their understanding of the business, and then they can move into bricks-andmortar,” says Bealing. He also highlights three main challenges to the business: staff retention, building a sales engine, and navigating decisionmaking structures in schools. An ideal franchisee is a self-starter, has entrepreneurial spirit, the willingness to learn, strong interpersonal skills, and a view to the long term. “We look for owners with the ability to manage staff and handle sales rather than deliver our programs; while all owners do that initially, we want owners who are seeking a business rather than a job in children’s services,” he admits. Bealing says franchisees require an applicable state Working with Children check, and at least one of their staff members will need a valid first aid qualification. The initial investment for a BRICKS 4 KIDZ is $45,000 to $50,000 for an eight year term with options to renew. The model includes no training fee, use of online support tools, annual conference focusing on local support, quarterly best practice meetings, and professional development support. SOCCAJOEYS Soccajoeys is an Australian-based preschool soccer program designed for children aged three to five years. Managing director Stacy Alogdellis says the brand offers a rewarding and fulfilling industry in early childhood education. He also adds franchisees can enjoy a return on investment in less than 12 months. “The early childhood sector is changing where a lot of physical education and gross

motor skills are part of the curriculum,” he says. “Children’s services has huge growth potential and growth models.” Franchisees source customers through local area marketing in community events and child care centres combined with head office support in social media, search engine optimisation and search engine marketing. Soccajoeys offers seven program offerings: minis (two-and-a-half to three years), pre-school (three to five years), junior six to eight years, school holidays, day care centre programs, birthday themed, and public school programs. “We promote multi-unit franchising in our network,” he said. “We have seven franchisees that have more than one franchise.” Sites are high volume, high traffic indoor sports centres, community halls, school halls. The best sites depend on rental costs for hire as they are not fixed locations. However, Alogdellis says that the biggest challenge for franchisees is finding dedicated, suitable, employees for a mixed age group, that are committed to developing children and being a leader. He says ideal franchisee candidates are energetic, driven and passionate as “we teach everything else”. A Working with Children Check is also required, and staff for the six to eight years group requires an accreditation as a soccer coach from Football Federation Australia. SEP/OCT 2016 | 61 | WWW.FRANCHISEBUSINESS.COM.AU

A Soccajoeys franchise costs an initial investment of $30,000 for a five year term with one renewal option, and the model includes head office support for administration, marketing, area managers on the ground, and supplied programs and curriculum on a termly basis.

KEY GROWTH AREAS FOR IN THE CHILDREN’S SERVICES INDUSTRY ✱ Ability to attract local support: maintaining a good reputation in the local community ensures ongoing business. ✱ Ability to alter mix of inputs in line with cost: an optimal number of enrolment places and age mix of children helps ensure profitability for industry operators. ✱ Compliance with government regulations: industry operators must operate under the National Quality Framework. Childcare facilities are assessed and rated against National Quality Standards by the Australian Children’s Education and Care Quality Authority. ✱ Optimum capacity utilisation: maintaining high occupancy rates is crucial to success in the industry. A centre must have an occupancy rate of at least 70 percent to be successful. ✱ Ability to take advantage of government subsidies: government assistance is available to childcare operators and is crucial to the viability of many childcare centres. ✱ Easy access for clients: sites are an important factor in the profitability of childcare operators. Supply and demand factors affect occupancy rates and the fees that can be charged. Source: IBISWorld report Child Care Services in Australia July 2016

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REVVING UP

THE FUTURE

n an industry where consumer demand is determined by the multi-faceted nature of the industry, that is, the role of insurance companies bargaining with service providers and car dealership servicing deals, brands attempt to stand out. The motor vehicle maintenance and body paint and interior repair consumers expect quality services at a budget, writes Noha Shaheed.

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Where can you find a Top 10 Food Franchise with 115 years of retail experience?

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TRENDS MOTOR VEHICLE ENGINE AND PARTS REPAIR AND MAINTENANCE:

MOTOR VEHICLE BODY PAINT AND INTERIOR REPAIR:

• Industry potential: Industry revenue is forecast to continue its steady growth over the five years through 2015-16, growing at a compound annual rate of 1.9 percent to reach $15.4 billion.

• Industry potential: Industry revenue growth has been constrained as a result of consumer expectations, growing by a compound annual rate of 0.9 percent over the five years through 2015-16, to reach an estimated $6.7 billion.

• Challenges: Over the past five years, industry growth has been restricted by the increasing prevalence of cappedprice servicing on new cars, which keeps servicing in car dealership service centres and reduces the price paid by consumers.

• Challenges: Most smash repairers rely on insurance claims for business, so obtaining pre-ferred smash repairer agreements with insurance companies is essential to ensure a steady stream of new customers. Constrained industry revenue growth and the growing bargaining power of insurers has increased industry consolidation over the past five years.

Source: IBISWorld Motor Vehicle Body, Paint and Interior Repair in Australia Report, April 2016

Source: IBISWorld Motor Vehicle Engine and Parts Repair and Maintenance in Australia Report, February 2016

We tick the franchising boxes. Best Multi Unit Franchise in Australia Career business path in franchising Four entry points including retail store Best known brand in the pool and spa industry

With some 1.4 million pools already built in Australia - and more being built every year - we have new marketing areas available right across Australia. So call us now on 1800 245 447 or visit poolwerx.com.au/franchising today.

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Every franchisee is supported with the allocation of a primary retailing area in which only the assigned store can market

Franchising caught up with Russell Potts, franchise development manager at What Scratch, which specialises in cost effective solutions to traditional automotive paint scratch repair; and Andrew Moffatt, managing director, Bridgestone Australia and New Zealand, known globally in the tyre industry. While both brands operate on different ends of the marketplace with varying products, both offer interesting insights for the franchisee experience.

HOW IMPORTANT ARE FRANCHISE TERRITORIES? RP: Crucial. Each franchisee is provided with a designated territory that is determined by postcode, population and target trade customers. AM: Recognising the importance of franchise territories, we undertake robust analysis to ensure sustainable marketing zones are established. This helps ensure our franchisees can maximise sales and

GET THE RIGHT ADVICE BEFORE YOU COMMIT FINANCIALLY Whether a Franchisee or a new Franchisor getting the right advice may save you considerable money and heartache in the future. Robert Toth and Marianne Marchesi have over 30 years of specialist franchise knowledge and experience. :H DFW IRU ORFDO DQG LQWHUQDWLRQDO )UDQFKLVRUÂˇV DQG SURYLGH Ă&#x20AC;[HG fees based on the scope of services.

Contact Robert or Marianne on (03) 9604 9410 or by email at rxt@marshmaher.com.au / mim@marshmaher.com.au

Marsh & Maher are members of: The Franchise Council of Australia (FCA), International Franchise Lawyers Association (IFLA), US Commercial Service. FRANCHISE LICENSING AND RETAIL GROUP

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profits in their local zones. Every franchisee is supported with the allocation of a primary retailing area in which only the assigned store can market. IS MULTI-UNIT FRANCHISING ENCOURAGED?

The challenge from a franchisee's point of view is to sell a quality product that the customer will be satisfied with and will return to buy again

RP: Yes. As territories develop, franchisees are encouraged to expand and purchase additional territories. AM: Multi-unit franchising is encouraged, but only at a time when the franchisee is well established in their existing store and significant preparation has been completed to ensure they are ready for second and third store opportunities. WHAT ARE SOME CHALLENGES THAT COME WITH OWNING AN AUTOMOTIVE FRANCHISE? RP: As most Australians own cars, the market is large but competitive. There are also the challenges of fluctuations in consumer confidence and the economy. We are fortunate to have an exclusive patented product that is only available through our franchisees, which to a degree protects us from competitors and market fluctuations. AM: The market is becoming increasSEP/OCT 2016 | 68 | WWW.FRANCHISEBUSINESS.COM.AU

ingly competitive, with cheap tyre brands attempting to enter the Australian market. The challenge from a franchiseeâ&#x20AC;&#x2122;s point of view is to sell a quality product that the customer will be satisfied with and will return to buy again next time. While selling a cheap product might work in the short term, the delivery of value through quality products and a high standard of service is the recipe for long term success. WHO IS AN IDEAL FRANCHISEE? RP: Our ideal franchisee is predominantly someone who is fit, good with their hands and enjoys working with cars. No experience is necessary, as our training is comprehensive. The person must be teachable and be willing to develop customer service skills. We have technicians from a number of backgrounds including IT and administration. We also have husband and wife teams. AM: Our franchisees come from a range of different backgrounds â&#x20AC;&#x201C; some have a passion for cars and motoring and some do not. Bridgestone stores are required to be open five and a half days a week, offering a better work-life balance than many other franchise options. Franchisees who are owner operators are usually the most successful, suggesting that those

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involved in the day-to-day running of their business produce the best results. WHERE IS AN IDEAL SITE? RP: We provide a mobile service to trade businesses and private homes. AM: Successful Bridgestone stores may stand alone, be located within shopping centres, in auto alleys or in strong residential or light industrial areas. While store location plays a role, the proactive, motivated franchisee behind that store is ultimately the key to its success. WHAT KINDS OF ACCREDITATION OR QUALIFICATIONS ARE REQUIRED TO RUN AN AUTOMOTIVE FRANCHISE? RP: Our franchisees do not require any formal qualifications, just to complete our training. AM: We provide all the training and support required to successfully operate a tyre and auto franchise.

We also work closely with franchisees to conduct local area marketing

WHAT IS THE INITIAL INVESTMENT COST OF A FRANCHISE AND HOW LONG IS A TERM?

whether workshop equipment is owned or leased. Terms are five years with a five year option.

RP: The initial investment is $60,000 including GST and a work vehicle approved by the franchisor. The initial term is five years with an option of renewal each five years.

WHAT IS DIFFERENT ABOUT YOUR FRANCHISE MODEL?

AM: The investment required to open a new Bridgestone Select is typically around $350,000 to $400,000, with the cost depending on a number of variables, including the size of the store and

RP: What Scratch provides an exclusive product for repairing paint scratches that is faster and costs substantially less than traditional scratch repair methods. AM: A core component of Bridgestone Selectâ&#x20AC;&#x2122;s success is its ability to offer consumers a one-stop-shop for all their

BUILDING, EQUIPPING AND MAINTAINING YOUR BUSINESS

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tyre and auto servicing needs. This allows our franchisees to improve customer loyalty and retention by engaging with their customers regularly throughout the year â&#x20AC;&#x201C; generating additional revenue. WHAT KIND OF SUPPORT IS INCLUDED FROM THE NETWORK? RP: On top of our initial training, we have a dedicated franchise support manager who helps our franchisees develop trade customers when starting out. What Scratch also provides ongoing leads for retail customers through online marketing and other local marketing support. AM: Our franchise support executives provide dedicated support to franchisees, helping them implement the Bridgestone Select systems and processes and offering ongoing advice on how they are performing and how they can improve their profitability. We also work closely with franchisees to conduct local area marketing. Every new franchisee completes our week-long

induction program, which is customised to their experience and understanding of the tyre and auto servicing industry. From there, they engage with ongoing online training modules, in store training and product knowledge training. Our national and state conferences are further opportunities for franchisees to enhance their business knowledge. WHAT ARE SOME MISCONCEPTIONS ABOUT OWNING AN AUTOMOTIVE FRANCHISE? RP: The greatest one is that itâ&#x20AC;&#x2122;s easy. Whilst you get to see the results of your skill, and there are financial rewards if you work hard, it can also be physically demanding, and takes time to develop proficiency. AM: Often people are under the impression that to run a successful Bridgestone Select franchise they need to be interested in motoring, which is not the case. Franchisees do not need to be mechanics to be successful either. We provide significant training and support to help franchisees drive the auto servicing side of their business.

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The

common

TOUCH

oothing the muscles of hard working Australians could be the way to better wellbeing for our population and a brilliant career for you.

which has found clinics keep growing their client base for several years, and remain a stable business with between 1500 and 2000 customers. The American story is success writ large – 1100 locations across the country (the nearest competitor has 250).

We’re talking massage. It’s a brand new market for the franchising sector and it’s going to smooth out the knots and niggles in our bodies on a regular basis. That’s the plan of two franchise operators who are bringing massage to the masses under two separate banners: Massage Envy and Massage Club. What’s interesting is that both have adopted a membership model to encourage repeat business, and they are building their business empires as far apart as can be done across this vast country.

Here we find out more about franchise models from Sydneybased Massage Envy and the west coast business Massage Club.

MASSAGE ENVY The latest US import to the Australian franchise landscape taps into the growing trend for wellbeing. Massage Envy comes to our shores courtesy of experienced master franchisee Justin McDonell. He is confident of the model, drawing comparisons with the US experience

McDonell, with his sister Jacinta, brought over Anytime Fitness, the US brand of 24/7 gyms, back in 2008; today that network has reached 450 gyms across Australia. And now under the banner of Collective Wellness (a business launched with fellow Anytime director Richard Pell) McDonell has turned his attention to a softer side of life – massage. But there’s no easing up on the business goals. The strategy is simple – reach 150 outlets, predominantly in metro

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locations in Sydney, Melbourne and Brisbane, within the next five years. “We plan to grow relatively quickly over five years to dominate the market, providing an affordable solution,” McDonell says. Massage Envy is all about making massage mainstream. “We want to take the people who’ve had good experiences with massage, take away the perceived luxury indulgence and provide a regular routine without the high end price,” he says. Similar to the Anytime Fitness model, Massage Envy has adopted a membership structure. Customers pay a monthly fee of $79 and can book either one massage or a facial – so far in the existing two stores about

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90 percent of bookings are for a massage. There are opportunities to upgrade, to receive a discount on a second booking within the month, or to transfer the session to another month. What’s on offer to the consumer is a simple choice of massage or facial treatments. Typically a day spa or beauty salon will have four treatment rooms; a Massage Envy site in contrast accommodates between eight and 12 rooms. The ambience draws on the day spa philosophy with treatments conducted in individual rooms set up with well-dressed massage tables, a calming environment and neutral colourways appealing to both female and male clients. The gender neutral stance is reflected in advertising and marketing material. Emma

Harrison, operations and development for Collective Wellness, says the approach to men links to their efforts in the gym. “We tell them, if you’re working so hard, you need a massage.” Remedial therapists are part of the team, able to fi ll the gap between the results-focused, no-frills remedial massage and the relaxing treatments of a day spa.

managers looking after up to 20 stores and helping them drive profits. For any franchisees used to the hands-off gym model epitomised by Anytime Fitness, running a large scale massage facility requires different levels of attention. “You have to manage a bigger team in Massage Envy,” says McDonell.

The business looks to create a comfortable work environment for the therapists, with a break room, and a desire to encourage work flexibility.

He first came across the brand on trips overseas and joined as a member to evaluate the experience. “It was always consistent,” he says.

BENEFITS FOR FRANCHISEES

While there is no Massage Envy signature massage or standard massage techniques to follow, brand consistency comes through the draping protocols for the electric massage bed and the service, making sure the customer feels comfortable.

Unlike the DIY process at Anytime Fitness with its fixed fee and operating manuals, Massage Envy has a seven percent fee which pays for a more personalised service with business development

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Constant education is the way to maintain consistency. Connecting with massage schools is just one step taken towards securing well-trained therapists. Different training providers will maintain the educational elements but it’s important to have personalised treatments, says McDonell. The franchisee however is not expected to be a therapist. What are required are strong business skills and an understanding of how to sell, how to get people in the door. “We provide training that includes two weeks in clinics, and then seven days in their own store.” A new brand that’s linked to an established business has benefits such as the capacity for shared services like franchise recruitment and finance.

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Wellness is growing globally. People are trying to be active, to live and enjoy life. We’re looking for brands in wellness and service, that’s what we understand. We think we can develop this, it’s a niche for the Australian market, no-one really owns the market. We want to dominate

For the team working at establishing this brand in Australia, the big challenge now is integrating IT. While the customer-facing online portals are all working well, getting the platforms behind the scenes to talk to each other has proved a big task. The business is working on an online live booking system and is adopting a consolidated approach to marketing, focused on digital. “The consumer is just buying differently. We have digital panels in-store and we can change the message from head office so we have better control.”

“Wellness is growing globally. People are trying to be active, to live and enjoy life. We’re looking for brands in wellness and service, that’s what we understand. We think we can develop this, it’s a niche for the Australian market, no-one really owns the market. We want to dominate.” MASSAGE ENVY ESSENTIALS This is a seven day a week business. Opening hours are 9am to 8pm weekdays, and 10am to 7pm at weekends. The investment is $450,000 to $500,000 including a $45,000 upfront fee, and has finance options for equipment.

60 percent of its turnover over these two days. The first outlet opened four years ago with nine rooms. “We didn’t know what was a good massage,” reveals franchisor Grant Jones, an experienced franchisee and franchisor in the food and retail sector, but with no benchmarks for the massage sector. “The only way to measure was to make sure therapists are qualified. That wiped out a huge percentage of massage therapists, who might be good but weren’t qualified. “With this policy in place, it takes away our requirements for time spent on teaching people to massage.”

Looking ahead, the US franchisor is building a matchmaking system that will automatically align clients’ preferences with therapist availability but this is at least 12 months away, says McDonell.

The great benefit for franchisees is the recurring income derived from a membership structure, and a database of clients to market to.

MASSAGE CLUB

Therapists bring something personal to the job – consistency comes in touchpoints like client greetings. And a professional standard.

For Collective Wellness, the future business plans don’t stop with the massage initiative.

Walk into any mature Massage Club outlet in Perth on a Friday and Saturday and you will see a business taking up to

“We made a decision to pay under an award, the hair and beauty industry, and this

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creates consistency.â&#x20AC;? Itâ&#x20AC;&#x2122;s about â&#x20AC;&#x153;volumetricsâ&#x20AC;? says Jones. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re not discounting, we refuse to focus on price. Manning a clinic is the major cost but if you do 200 massages, the cost is quite reasonable, just $8 to $10 per massage.â&#x20AC;? Since opening up the business with a third founder, Jones and fellow investor Matthew Goss have assumed complete control of the business (although Goss has no day to day involvement) and most recently appointed franchise lawyer Tamra Seaton and former food franchisor Steve Hansen to the board. That puts them in franchiseready mode, says Jones, poised to strengthen the brand throughout Western Australia before heading south to Tasmania next year to open one in Launceston, two in

Hobart, and then expanding into South Australia. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ve been waiting until the foundations are right. We wanted to get the board because accountability is important.â&#x20AC;? â&#x20AC;&#x153;Iâ&#x20AC;&#x2122;m nervous of someone else representing the brand. The profit and loss statement is a result of a business being run, it doesnâ&#x20AC;&#x2122;t tell you about the business,â&#x20AC;? he says. â&#x20AC;&#x153;I used to think we were in the massage business but weâ&#x20AC;&#x2122;re in the membership business and we offer a massage. When youâ&#x20AC;&#x2122;re in a tough economy, those 800 clients a month are so important. This means we can commit to therapists and it helps us keep them in regular work. â&#x20AC;&#x153;This is so different to work in an industry where people

love what they do,â&#x20AC;? says Jones. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s very different from fast food. We have an environment where people have invested in their learning and have a desire to heal. Itâ&#x20AC;&#x2122;s a wellness perspective.â&#x20AC;? The message to the market is â&#x20AC;&#x2DC;Join the clubâ&#x20AC;&#x2122;; the message internally is â&#x20AC;&#x2DC;Need for speedâ&#x20AC;&#x2122;. â&#x20AC;&#x153;We believe there is the opportunity to have one Massage Club for every 150,000 to 160,000 people. â&#x20AC;&#x153;Iâ&#x20AC;&#x2122;ve got a lot of admiration for Massage Envy, and how it has grown the industry in the US. I think itâ&#x20AC;&#x2122;s great theyâ&#x20AC;&#x2122;re here, another franchise with muscle. In 10 years, over the whole industry, there could be 500 to 1000 clinics around Australia. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ve tweaked the model from our experience over four years. They can draw on their

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experience through Anytime Fitness. “If you don’t have a competitor, you’re a monopoly and it’s harder to sell. Now we’re a considered option. “We can be a great contributor to changing the perception of massage industry.

We educate the client - you can trust the therapist but you can also trust the brand. We’re about building trust

“We’ve done 600 hours of massage now, we have 13000 memberships. When people are coming back, it’s the ultimate confidence.” The current model works well in suburban areas like outer Perth: standard sites requiring 200 to 250sqm sites to house a minimum of 12 treatment rooms. It will be more challenging to take this model to more densely populated city centres and the eastern seaboard. “If I want to move into cities, we have to get the model to 120-150sqm, and eight rooms. “There are more beauty businesses closed than open. So finding sites that can convert into our business is a strategy,

and we expect to convert a business in the next three to six months,” says Jones. The business has to be owneroperated, but multi-unit operation is part of the strategy. “The franchisee I’m looking for is a believer, who thinks this is an amazing business. We’re not a spa, we don’t want to be a spa. When people tell us it looks a bit clinical, that’s great. “This is good for someone looking to change their lifestyle. We don’t yet trade on a Sunday, because of penalty rates.

massages on the treatment menu: 40 percent are remedial, 30 percent are deep tissue, 20 percent are relaxation; the remainder are sports, reflexology, hot stones, and seniors. The hot stone massage is an opportunity for the franchisee to upsell, to try and amplify the experience, says Jones, “to try and add value to the massage experience”. “We educate the client - you can trust the therapist but you can also trust the brand. We’re about building trust.” MASSAGE CLUB ESSENTIALS

“People who are coming out of a gym or health industry, people with franchising experience who’ve done high volume business but are now looking for something more balance. “What’s really important is that they can provide a comfortable sell.” The majority of the treatment provided is remedial, reinforcing the wellbeing and health rather than the luxury spa focus. So there are a dozen

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1. The long term goal is 50 franchises in the next five years. 2. Franchise buyers will need to invest between $200,000 and $300,000, depending on landlord contributions - this includes an allowance for working capital. The initial fee is $50,000 for a 15 year term, and ongoing franchise fees are seven percent; franchisees will pay a three percent fee for marketing, and a one percent levy for technology.

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Ruling the

roost SEP/OCT 2016 | 78 | WWW.FRANCHISEBUSINESS.COM.AU

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ou’ll remember the big red chook from years back and the smell of the roast chicken and chips. Nothing has changed, yet so much has. That’s the story at Red Rooster which has instigated a series of initiatives to refresh the brand, give the franchisee network more competitive advantages, move with the consumer trends, and yet retain its value familymeal feel, writes Sarah Stowe.

The signage and the branding stays. “There’s a high recognition of Red Rooster so it makes sense to leverage that through advertising,” says Chris Green, Red Rooster CEO. Stores are looking different though, with 75 outlets undergoing refurbishment in the last 12 months and more to come. The second phase of redeveloping the look of the brand is just around the corner. Reggies. It’s the name of the latest incarnation at the Red Rooster portfolio. And it offers potential franchisees the opportunity to buy into a household name at a fraction of the usual cost. That’s because, as the name might suggest, Reggies is a smaller format store. Green points to the economic benefits of this fresh-faced franchise model: “Capital costs are lower, there’s a 60 percent reduction in the upfront cost; it’s approximately $350,000, so there’s a lower break-even.” SEP/OCT 2016 | 79 | WWW.FRANCHISEBUSINESS.COM.AU

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So rather than the traditional drivethrough spot, Red Rooster will be seen in shop-front locations. “It’s a bit of a shift to the high street, but we’re targeting less than $75,000 per annum rent,” Green explains.

The Reggie model will tap into an existing marketing spend that reaches an audience that doesn't always have access to a Red Rooster

Where a typical drive-through sits on a 1500-3000sqm block with 20 car spaces, and toilets, the Reggie model will accommodate between 16 and 25 seats in a 75-150sqm site. This means a more attractive annual rental compared to the $100,000 to $200,000 yearly rental costs of a drive-through location. Reggies will need access to parking for customers and because the model will adopt the popular delivery options introduced nationally this year. These stores will require less equipment but still offer the same menu options as a standard store. Typically locations will need a minimum of 7,000 to 10,000 households within a 10 minute drive. Red Rooster has identified more than 60 locations across the country, including areas such as Sydney's Northern Beaches and southern suburbs. The model is SEP/OCT 2016 | 80 | WWW.FRANCHISEBUSINESS.COM.AU

also well suited to regional towns, says Green, citing areas such as Batemans Bay and Taree where there is already high customer demand and no Red Rooster presence. In Victoria, Melbourne’s city suburbs are in the plan, along with regional spots such as Ballarat. The Reggie model will serve as an easy introduction into Tasmania for the roast chicken brand, Green adds. Existing franchisees are already lining up to invest in this new concept, but Red Rooster is also looking for new franchise buyers to take up the business model. “This model enables us to have potential franchisees come to us with possible sites that we can consider.” Any proposed locations will go through an approval process, he says. “We are also offering financial incentives to early adopters.” The Reggie model will tap into an existing marketing spend that reaches an audience that doesn’t always have access to a Red Rooster store.

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DELIVERING THE CHOOK Not than everyone needs to be able to drive to their local store to pick up a tasty chook. Not now there is a tried and tested delivery option. In August Red Rooster reached a line-up of 200 stores offering a delivery service. “We’ve put an incredible investment into this and it has equated to more profits for franchisees. Delivery has a halo effect, pulling up other sales in the store,” Green says. On average franchisees are seeing a 20 percent uplift in sales after introducing the delivery model. The average spend in deliveries is two or three times that of in-store purchases.

popular mid-week alternatives to pizza, Green reports.

holds, offices, industrial areas - within 10 minutes drive.

“It’s about ultra-convenience for families and singles,” he adds.

“It’s not cannibalising existing business, it’s opening up a new channel, opening up the brand to new customers or existing customers using us at a different time,” Green reveals.

It’s also filling a gap in the delivery market occupied by pizza brands and local Indian, Thai and Chinese restaurants. “Our product is quicker to get out of the store. The chicken is cooked and ready, and we cook chips fresh, but we have a natural speed advantage.” Franchisees will sustain higher labour costs and will need to lease or buy a branded car, but there are higher gross margins in deliveries, according to Green.

And the Coburg, Victoria store has done exceptionally well, up 50 percent on turnover, delivering 300 orders each week.

The delivery model was launched in September 2014 and trialled at a Baulkham Hills, Sydney outlet for a year before it was extended across seven stores.

While lunch time sales are predominantly from businesses using delivery for catering purposes, 80 percent of customer demand is skewed to dinner time, predominantly Friday and the weekend.

As a result, the business reset costs, adopting a differential pricing system. “The model had high customer demand and now it is a strong economic model for franchisees,” explains Green.

But the perceived healthier meal options of roast chicken with veggies or chicken burger with chips are also proving

This allowed the brand to take the delivery model nationally, targeting areas with sufficient customer demand - houseSEP/OCT 2016 | 81 | WWW.FRANCHISEBUSINESS.COM.AU

To launch the concept, Red Rooster partnered with Menulog, and this has generated new customers. But it was always part of the plan to develop a proprietary online system and app and with nearly $2m invested, this has now been realised. “Now customers can go online and order directly, it’s a better customer experience,” says Green. He believes that linking the Red Royalty customer loyalty program to delivery orders, allowing customers to earn dollars towards future orders, is a key customer advantage of the model. Green expects up to 50 further stores in the 360-strong network to adopt the delivery model by November this year. So watch this space…there’s plenty happening in the Red Rooster business.

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Take a bite out of the CHICKEN MARKET

FRANCHISE OPPORTUNITY Join the world’s largest car rental company and create a local business with a global presence. Redspot is currently offering to eligible, committed individuals an exciting business opportunity. We are seeking the right people to become Redspot franchisees – offering the Redspot, Enterprise, National and Alamo brands in all states and territories across Australia.

FOR MORE INFORMATION Redspot & Enterprise group have 9,000 global locations, running 1.7 million vehicles with a turnover of US$19 billion.

SEP/OCT 2016 | 82 | WWW.FRANCHISEBUSINESS.COM.AU

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heck out these facts about the fast food arena and Australia’s favourite meat

The humble chook accounts for the third largest share (17.5 percent) of the fast food industry turnover, which is worth a total $19.3bn according to IbisWorld’s Fast Food Services in Australia industry report (July 2016). Key operators in this popular sector include KFC, the three Quick Service Restaurant brands Red Rooster, Oporto and Chicken Treat, and Nando’s. Customer perception of chicken as a healthier choice than other fast food options has helped the sector grow, albeit slowly. There are two other key drivers that affect this market: discretionary

income and convenience. Today many households have two working parents – and that demographic can boost demand in the fast food sector because the need for convenience is matched by disposable income to pay for takeaway or delivered ready meals. Last year’s figures from the Australian Bureau of Agricultural and Resource Economics and Sciences indicate that chicken meat production is set to increase through to 2020. Andreas Dubs, executive director of the Australian Chicken Meat Federation, says that the report confirms the industry’s own assessment. “Consumers appreciate the good value that chicken represents but also appreciate the consistent quality, convenience, versatility and nutritional qualities of chicken meat.” And in 2011 about 19 percent of all chicken meat was destined for fast food outlets.

SEP/OCT 2016 | 83 | WWW.FRANCHISEBUSINESS.COM.AU

Australians are big meat eaters, and like our global cousins, big consumers of chicken. The per capita consumption of poultry meat in Australia was just over 10kg in 1970 – 40 years later it was estimated at more than 43kg. According to the Organisation of Economic Development and Cooperation, chicken has overtaken pork as the most popular meat on the plate worldwide. So what’s so good about chicken? It’s a low fat meat with significant sources of protein, magnesium, niacin, B6, B12, vitamin D, iron and zinc. Chicken retail franchise chain Lenards points out that 100g of baked chicken provides nine percent of the recommended dietary requirements for energy. It’s perceived as good value meat too. But above all it tastes great and that’s what appeals to the average Aussie consumer.

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Are you ready to

DITCH THE

SUIT AND TIE?

new accounting franchise model is breaking the rules and bringing in business.

A TaxAssist Accountant franchisee in Australia has turned his operation into a $50,000 business within four months of opening the doors. The UK business model TaxAssist is geared specifically to serving the small business owner. “We are focused on what the client wants, not what the accountants want,” says David Paulson, UK and international development manager at Tax Assist. “We’re retailing accountancy, making it more visible and accessible. We’ve banned blinds from our shopfronts, and they are open plan inside.” Franchisees are encouraged to ditch the suit and tie, to remain professional but ensure they create an environment where a tradie is comfortable to sit down in. “Lots of business people are scared of accountants. So we recommend they drop the word chartered from most of their material,” says Paulson. “That makes people think it’s expensive and not for them.” There’s no branded business in this space in Australia, says Paulson, and the company sees great potential for its franchise model. SEP/OCT 2016 | 84 | WWW.FRANCHISEBUSINESS.COM.AU

“We’ve learned from our UK experiences and fine-tuned our model.” The business has been established 21 years in the UK, and now counts 60,000 clients on its books, with 210 franchisees bringing in an $80m turnover. It’s the 24th biggest accountancy firm in the UK. The UK business has been awarded for its training and support program, overtaking McDonald’s to take top spot. One thing experience has proved is that shop front businesses bring in more than double the revenue than office-based accountants. Tax Assist expects its franchisees to be in a retail environment within three years of opening. Typically the brand appeals to CPA qualified individuals, who are working not in their own business but within industry or banking, and are fed up with 60 hour weeks. Training and support includes software, practice management, sales and marketing techniques. Within the next 12 months Tax Assist is aiming to appoint between five and 10 franchisees.

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DOG LOVERS, THIS ONEâ&#x20AC;&#x2122;S FOR YOU

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ou could make a change for the better and turn your pooch-passion into a worthwhile business.

The process of assessing a pooch’s pattern of behaviour and finding ways to re-train it saves about 15000 dogs from being put down every year. Troubled or hard-to-control dogs can become part of the family’s social life once they have been through the program, McDonald explains.

If you fancy yourself as a bit of a Dr Doolittle with a love for animals, then read on. You could find yourself the next dog whisperer, not just calming the family’s troubled hound but creating a business out of helping others. The original Aussie Dog Whisperer was John Richardson and he developed the Whisper Wise program, a formula for understanding canine behaviour that formed the basis for the organisation he founded, DogTech International. A well-established business for more than 20 years, DogTech has recently entered a new chapter following the death of John Richardson. The business has had a revamp and the six existing franchisees will be joined by six new franchisees before Christmas. That’s the plan of the new franchisor and CEO, Richard McDonald, a former franchisee who has experienced the benefits of this behavioural program.

It’s a great business but such a rewarding industry too. Our customers invite us into their homes to help with their troubled pooch and it is nice to feel welcomed.” Of course a franchisee needs to be a dog lover, but he or she needs to be good with people too. Franchisees accepted into the network should be running their businesses within four to six weeks of signing the agreement. The pre-start up process includes a week’s practical training and learning about the franchise system. “Training is tailored to the individual,” says McDonald. Once up and running, a franchisee will be able to conduct puppy schools, group classes and provide two-hour training sessions for individual clients. Three to six sessions are typical for the program to achieve results, says McDonald.

“There’s a big difference between obedience and behaviour,” he says. “A lot of trainers work on obedience principles which are very different from what we do.

Franchisees are expected to work a minimum of 35 hours a week, and build up referral networks with local vets, groomers and pet stores.

“This is dog psychology, understanding their thinking and how they are behaving.”

The cost of a DogTech franchise is $50,000. It is territory based with lead generation handled centrally and sent by email or SMS to the franchisee.

It’s literally a life-saving program.

SEP/OCT 2016 | 87 | WWW.FRANCHISEBUSINESS.COM.AU

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5 LESSONS FROM A STAR-STUDDED HAWKER

BECOME A QUEST FRANCHISEE A PROVEN AND SUCCESSFUL BUSINESS FORMULA As Australasia’s largest apartment hotel operator, Quest is a brand business travellers have come to rely on for more than 25 years. We’ve created a business format franchise model that takes away some of the challenges to achieving success in small business, with the support of one of Australia’s most recognisable brands.

Visit questfranchise.com.au or call 1800 809 913.

SEP/OCT 2016 | 88 | WWW.FRANCHISEBUSINESS.COM.AU

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ou may have heard about the street food vendor in Singapore who is to be awarded the prestigious Michelin star. So what can franchisees learn from Chan Hong Meng, owner of Hong Kong Soya Sauce Chicken Rice and Noodle?

WHAT ARE THE MICHELIN STARS? It is now considered a prestigious marker of fine dining quality and restaurants around the world. In a report by the Daily Mail, infamous celebrity chef Gordon Ramsey said he cried when he lost his Michelin stars for his New York restaurant. So for a street vendor to be recognised, what’s he doing right? THE STAR-STUDDED HAWKER STALL As a report by SmartCompany reads, Chan, owner of Hong Kong Soya Sauce

Chicken Rice and Noodle is the first street food cart to be awarded a Michelin Star.

MICHELIN STAR HAWKER CHAN HONG MENG

Franchised food retailing is considered a primary activity of the $171.6 bn industry, so what can franchisees learn from Chan’s success? 1. Optimising your resources: Chan customised his workplace to make sure the chopping board and table top suited his height and allowed him to sell 150 chickens a day. How can this concept work for you? There might be a more efficient way of managing your lunch time peak hour or morning coffee rush by tweaking your roster or the way orders are managed. 2. Putting in the hard yards: Chan works 100 hours a week and doesn’t close until all the chickens are sold, which is a testament to the quote ‘you only get out what you put in’. And it’s as simple as that - be prepared to work hard to see the best results. 3. Be positive: Dining at a three star restaurant may be on the bucket list for Chan, but what really shines is that he is content with where he is. It’s important for

Xpresso Mobile Cafés operate in areas nationally where there are little to no fixed location café options for the workforce in commercial and light industrial precincts. We supply premium Di Bella Coffee products – both hot and cold. Frappés, energy drinks, cold brew coffee products, bottles of water and food options such as gourmet cookies that are designed to compliment the enjoyment of an awesome espresso coffee. An Xpresso Mobile Café is perfect for corporate and school/ community events. Ask us about our unique school fundraising programs! We also stock Di Bella Coffee specialty capsules that fit the ‘Nespresso’ pod machine. Both of these services are unique to Australia!

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franchisees to be positive about the business. And enjoy the journey! 4. Does your face light up? When Chan starts talking about his food, you know he loves what he does. Franchisees need to make sure an investment is exciting. The hard yards will then be worth it. 5. Building up the customer experience: Chan says that the fair pricing of his food is because short-term profits are not his main goal, even in the face of being awarded the star. For him, the customer experience is paramount. And it’s the same for a hospitality franchise. There are many competitors in the race, so what will keep the customers returning to yours?

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Why your reason for not buying a franchise may just be an

EXCUSE D

on’t have previous experience? Worried about starting from square one? Well, Michael Mahon’s journey with InXpress may just stamp out your reasons for not buying a franchise.

Coming from a property management background, Mahon said joining InXpress, a freight consulting franchise, was nothing like what he used to do. He worked for Kennards Hire for three years as national property manager. “I loved that job but it wasn’t my business,” he explains. His family had a few businesses back in Ireland. But that experience was certainly not a prerequisite for InXpress. And he didn’t have a passion for freight consulting either. “I really liked the structure of the InXpress franchise model,” he says. “InXpress is a business that’s

always making money in the background. “You don’t have to be a salesperson or an expert in freight.” However the week long training is essential – and it is this sales and product information delivered in an intense learning process that is vital for the business, which allows franchisees from all backgrounds to operate an InXpress business. “It started from zero at the start,” Mahon explains. As with many businesses, sales need to be generated by the franchisee via door-to-door knocking and networking.

He admits that in the beginning, the business can be lonely when operating as a “one man shop”, but he put faith in the system and two to three years later - it paid off. The network is also a key feature of the model, as well as franchisee-to-franchisee support. “It really is a supportive system,” says Mahon. “Almost like a pay it forward.” In his view, price is the cornerstone to attracting customers, but great service is the formula for keeping customers. “The opportunity of InXpress is limitless,” he adds.

SEP/OCT 2016 | 90 | WWW.FRANCHISEBUSINESS.COM.AU

MICHAEL MAHON

FR0316_000_MIL

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RUN Milestone Mobile AND WITNESS ANY MOMENT WHEREVER YOU ARE

POSSIBLE STARTS HERE

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Milestone Systems Australia Tel: +61 3 9016 7877

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The

benefits of

the right tool kit

reaming about your destiny? Snap out of the day-dream and grab your future.

Today working harder and longer is becoming the norm. Well at least it is for nearly five million of Australia’s 7.7 million full-time employees, working more than 40 hours a week. If you are working for ‘the man’, extra hours often won’t increase your pay, instead they take away time to spend with friends family and may leave you imagining a career where you can be in charge of your own destiny. But it doesn’t have to be a dream. Turning hard work and passion into a business that allows you to reap the rewards is just a decision away.

And taking that step to control their own destiny is exactly what 175 Snap-on franchise owners have done, right across Australia and New Zealand.

“The lifestyle that you can have by doing this on your own is awesome. The franchise is a tool itself to get your freedom back,” says Pullen.

BUYING YOUR FREEDOM

Franchisees are buying into a tried and proven system. With extensive training and support throughout, a Snap-on franchise puts you on the front foot to achieve the satisfaction in life you deserve, says Pullen.

Daniel Pullen is a Snap-on franchisee from New South Wales who, previously working as a mechanic, regularly encountered his local Snap-on representative on the job. It wasn’t long before Pullen was tempted to move from being a satisfied customer to driving his own truck loaded with state-ofthe-art diagnostics and high quality tools. After talking to the Snap-on team and learning more about the benefits and potential rewards of the franchise system directly, he had soon purchased a franchise and was a hands-on business owner. He relishes the liberty of engineering his own future. SEP/OCT 2016 | 92 | WWW.FRANCHISEBUSINESS.COM.AU

INVESTING IN YOUR PASSION Fellow franchisee Ben Griffin was well placed to appreciate everything the 96 year-old, US brand stands for. Like Pullen, he had first-hand experience of this mobile retailer. And that meant a passion for Snap-on Tools; he has built up quite a collection of these industry-leading, well-crafted tools over his career as a plant mechanic in the mines. Queensland based Griffin needed a new

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career direction so it made perfect sense to turn to a business opportunity he understood. The possibility of combining his love of the equipment with a better work, lifestyle balance was all the motivation he needed to sign up.

SNAP-ON FRANCHISEES OPERATE STATE-OF-THEART MOBILE SHOWROOMS

“The opportunity to sell a quality product and be my own boss, while finding a nice balance between income and lifestyle was appealing. I now have more time and flexibility to enjoy other things in life that I care about.”

BUYING INTO AN ESTABLISHED BUSINESS It can ease any concerns for potential buyers to consider an established franchise that can point to decades of delivering its business model to like-minded individuals, a brand with a long history that people in the trade already know and respect for quality. It isn’t every brand that can list the space agency NASA among its clients, nor point to a near-century of experience in maintaining the highest standards of quality production while staying relevant to a changing clientele. “We are very proud of Snap-on’s franchise model. It has proven time and time again that it works. Snap-on has the training, support, financial systems and sales specialists in place to ensure franchisees can get the most out of their new business and achieve success,” says Les Coppin, franchise recruitment manager. The US business model has been shaped to suit the Australian marketplace – Snap-on has been trading successfully in Australia for more than 20 years, providing professional technicians with tools to help them do their jobs better.

JUST GO FOR IT It is a big step to become your own boss and deciding to buy a franchise can be a challenging process. Despite the opportunity to forge your own future through hard work and commitment, there are risks involved. But for plenty of experienced Australians the chance to shape a working lifestyle that suits their needs and their ambitions tips the balance.

5 WAYS SNAP-ON TOOLS DELIVERS A COMPETITIVE EDGE TO CUSTOMERS 1. More than 19,000 items delivered to the workplace 2. State-of-the-art mobile showroom 3. Finance options include the Snap-on trade card 4. High tech tools include automotive diagnostics and repair information 5. Online training and diagnostic events

HOW SNAP-ON TOOLS DELIVERS A COMPETITIVE EDGE TO FRANCHISEES 1. The mobile system avoids commercial premises leases 2. Franchisees operate from a specified territory 3. A database of potential customers is provided 4. Snap-on has a $50m research and development budget 5. There is a finance program available 6. Intensive training at the International Training Centre in Dallas, US. 7. Repeat business provides regular income

“If people are sitting on the fence about it, I’d say go for it,” says Griffin. SEP/OCT 2016 | 93 | WWW.FRANCHISEBUSINESS.COM.AU

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LEGALESE

BY RAYNIA THEODORE Raynia is a principal at MST Lawyers and has extensive experience in corporate, franchising and leasing law. Her clients include major national franchisors and franchisees.

HOW CAN A FRANCHISOR END A FRANCHISEEâ&#x20AC;&#x2122;S BUSINESS?

hat can bring about a franchisor to end a franchiseeâ&#x20AC;&#x2122;s agreement? In this article, we explore some of the common grounds for termination of franchise agreements, the termination process and the protections for franchisees under the Franchising Code of Conduct.

The most common grounds for termination of a franchise agreement involve the franchisee failing to pay moneys due under the franchise agreement, for example fees/royalties to the franchisor or rental payments to the landlord. These liabilities are amongst the major overheads for the franchise business, and it can be easy for franchisees to fall into arrears when money is tight. Unfortunately for franchisees, these are also the easiest grounds on which their franchise agreement may be terminated. This is because, generally speaking, it is easy to prove both the existence of the obligation under the franchise agreement and the failure to pay. THE BREACH AND TERMINATION PROCESS Unless the franchisor has the right to immediately terminate the franchise agreement (as discussed below), the franchisor must comply with several requirements in the franchise agreement itself and under the Code. Prior to terminating the franchise agreement the franchisor must send a breach notice to the franchisee which sets out the following:

SEP/OCT 2016 | 94 | WWW.FRANCHISEBUSINESS.COM.AU

cibo

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LEGALESE

CONSEQUENCES OF TERMINATION The consequences of termination will depend largely on the specific franchise agreement and the attitude of the franchisor. However, it is important to understand that the rights of the franchisor are not extinguished upon termination of the franchise agreement.

The franchisor will often have the right to sue the franchisee for outstanding money and damages for losses arising out of the termination

On the contrary, the franchisor will often have the right to sue the franchisee for outstanding money and damages for losses arising out of the termination. Where the franchisee leases the premises, its obligations under the lease will remain even though the franchisee no longer has the right to operate the business. Whether or not the franchisee leases the premises, when they leave the franchisee may be responsible for performing “make good works” to restore the premises to their original condition. Many franchise agreements impose restraints of trade on the franchisee on termination, which restrict the franchisee from conducting a similar business within a certain geographical area for a certain timeframe.

✱ the clauses of the franchise agreement which the franchisee has breached ✱ details of the alleged breaches ✱ what the franchisee needs to do in order to remedy the breaches ✱ the timeframe in which the franchisee must remedy the breaches (this must be a reasonable time, but does not need to exceed 30 days) ✱ that the franchise agreement will be terminated if the franchisee fails to remedy the breaches within the specified timeframe

Arguments often arise about whether the timeframe to remedy the breaches is reasonable. Where the franchisor terminates the franchise agreement on the basis of a defective breach notice, the courts may overturn the termination.

The above are just some of the many potential consequences of termination, so it is important to understand that termination does not allow a franchisee to walk away without repercussions.

IMMEDIATE TERMINATION

ADVICE FOR FRANCHISEES

Under the Code, there are certain grounds on which a franchisor may immediately terminate a franchise agreement.

If the breach notice complies with all of the above elements, then the franchisee must ensure that action is taken to remedy the breaches in the manner and in the timeframe specified in the breach notice. Failure to do so will hand the franchisor a right to immediately terminate the franchise agreement.

In these circumstances the franchisor does not need to follow the breach notice procedure as described above, but is entitled to issue a termination notice with immediate effect.

If faced with a breach notice, it is important to discuss with the franchisor exactly what needs to be done in order to remedy the breach. You should also seek legal advice on how to address this with the franchisor.

However, if the breach notice does not comply with the requirements under the Code, a franchisee may be able to argue that the breach notice was defective and have it set aside.

Some of the grounds for immediate termination under the Code include where the franchisee voluntarily abandons the franchised business, becomes insolvent or bankrupt, operates the franchised business in a way that endangers public health and safety or is fraudulent in connection with the franchised business. SEP/OCT 2016 | 96 | WWW.FRANCHISEBUSINESS.COM.AU

The same applies if you are issued with a termination notice - if you believe your franchise has been improperly terminated, you should immediately seek advice from a lawyer as to your rights against the franchisor. Our experienced franchising lawyers can answer any questions regarding the termination of a franchise or any other franchising question you may have.

FR0114_000_ATS

2013-11-28T16:00:44+11:00

Australia’s premier 7HVW DQG 7DJ IUDQFKLVH KDV RSSRUWXQLWLHV IRU SDVVLRQDWH IUDQFKLVHHV $XVWUDOLD ZLGH

<RXU $SSOLDQFH 7DJJLQJ 6HUYLFHV franchise ticks all the right boxes …. 

Low entry costs

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Large territories

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Access to an established ATS Client base

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Sales and Marketing support

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High level of administration and operational support

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Report preparation, invoicing, debt collection handled for you!

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Genuine repeat business

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Full training provided – no electrical experience required

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Not weather dependant

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Part of the $10 billion safety industry

FCA National Franchisee of the Year 2013

Top Franchisor 2010

BRW Fast Franchises 2009, 2010, 2011, 2012, 2013

For further information visit

appliancetaggingservices.com.au or contact Steve Wren 0401 655 655 steve@ats.com.au

FR1609_098

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OPINION

SHIFTING DEMOGRAPHICS

are changing franchising ANDREW TERRY Professor of Business Regulation in the University of Sydney Business School

he word “demography” is derived from the Greek “demos” – the people. It is the study of the characteristics of a given population and how these change over time. The demographic factors which drive change in the characteristics of our towns and cities and their inhabitants - economic, social, cultural – are, not surprisingly, also driving changes in franchising as they in all aspects of human endeavour. As society changes franchising must also adapt and change to accommodate the changing demographics. In the words of Arthur Kemp, “Demographics is destiny”.

Changing demographics offer both challenges and opportunities. Change is never easy and may be resisted – but it is ultimately inevitable for franchise systems which want to retain their relevance and viability. The world’s most iconic system - McDonald’s – provides an example. Until recently McDonald’s impressive development worldwide has been rolled out with refinements, but little significant change, to the system developed in Southern California in the 1950s. It has been a belated recognition of changing demographics, and a response to competitors who had, which has led to significant menu changes. The challenges of accommodating changing demographics are obvious but the opportunities are exciting and real. The younger reader may find it difficult to believe that until the mid-1970s Australia had a white Australia policy. This drove the post war influx of Italian and Greek migrants who have contributed so much to our cultural diversity but it has nevertheless been the rejection of this policy which has seen Australia develop into arguably the most multicultural nation on earth. Migrants – today primarily from Asian countries – make up a quarter of our population. In Sydney, our most multicultural city (and indeed possibly the

world’s most multicultural city) 40 percent of its five million inhabitants come from overseas and more than 250 languages are spoken. The opportunities for franchise systems which this massive cultural mix offers are reflected in the diversity of our franchise offerings. Australia is the most franchised country in the world in terms of franchise systems per capita and this has been driven in part by the diversity of our consumers and the entrepreneurship of those whose migration to Australia has given us this diversity.

OUR CHANGING POPULATION But demographics are about much more than simply cultural diversity. Our population is ageing which provides real opportunities for aged care and health care. These demands can, and indeed are, being met by franchise systems which take advantage of this significantly changing demographic by providing commensurate services. It is of course a corollary of an ageing population that we have a growing younger population. And this younger population demographic is also driving change, both in the opportunities for new business concepts and in the operation of franchise systems. While the post war baby boomers

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start to think seriously about medical care and aged care, the Gen Xers, the Gen Ys and the Gen Zs are living a different dream and have quite different priorities which franchise systems can service. Gen Z (those born between 1995 and 2009) are the first generation to have never experienced a pre-internet world. They comprise 20 percent of Australia’s population and, in the words of The McCrindle Blog, are “the first fully global generation, shaped in the 21st century, connected through digital devices, and engaged through social media”. Gen Z – as with Gen Y Millenials before them and Gen Alpha which follows – offers distinct and different challenges and opportunities for franchise systems. These extend beyond the particular business concepts developed to service these demographic groups and impact on the manner in which franchise systems accommodate prospective Gen X, Y and Z franchisees. The formulaic uniformity which has served franchising so well for the baby boomer generation may require rethinking to allow a greater level of flexibility on the part of franchisees to accommodate the characteristics of the generations which follow for whom individualism seems to be a much more entrenched characteristic.

NF C1 6 a d Au g u s t _ BL EED 1 2 0 1 6 - 0 8 - 2 2 T1 9 : 3 9 : 2 7 + 1 0 : 0 0 EXport - 1 2016-08-22T19:52:04+10:00

NATIONAL FRANCHISE CONVENTION 2016

NEW HORIZONS 9-11 OCTOBER CANBERRA

Innovation Meets Opportunity Innovation has long been the backbone of the Australian franchise sector and the entrepreneurial men and women who drive its success. And as the National Franchise Convention 2016 heads to Canberra from Sunday 9 to Tuesday 11 October, innovation will form a key theme of this year’s program. Book now to hear insightful, knowledgeable speakers and panellists presenting on topical issues and challenges you can’t afford to miss. Make a real difference in your business – whether it’s recruiting franchisees, omnichannel retailing or how to set up and get the best out of your franchise advisory council, your team will benefit from the invaluable resources at the NFC this October! Whatever your innovation goals and challenges, NFC16 will deliver vital information to assist your franchise to reach its objectives.

NFC16 Program Highlights

Keynote Speakers

n Keynote speakers sharing their expert knowledge and motivational stories n Concurrent panel sessions featuring franchising case studies

David Morrison AO Australian of the Year

n Certified Franchise Executive endorsed sessions n The Sunday Legal Symposium n MYOB FCA Excellence in Franchising Awards Gala Dinner recognising the best and brightest in the industry n Abundant networking opportunities

Alex Malley The Naked CEO

n Bustling trade exhibition

Megan Quinn Net-A-Porter For sponsorship and exhibition opportunities, call Angie Cooksey on 1300 669 030, email angie.cooksey@franchise.org.au or go to franchise.org.au

For more information and to register, visit nationalfranchiseconvention.org.au

The FCA gratefully acknowledges the contribution of the NFC16 sponsors

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LEADERSHIP

Can you be an ENTREPRENEUR AND A FRANCHISEE? BY KARLI FURMAGE Karli Furmage is a trainer, coach and writer.

e have this great expression in Australia. Yeah, Na. Yeah, I get what you're saying but naaa, I don't share your view.

In our house, a requested cleaning task is often followed with ‘yeah, na’. The kid in question understands the task perfectly but doesn’t want to do it. My answer to the question of whether you can be an entrepreneur and a franchisee is summed up perfectly with… Yeah, na. Yeah, I understand why some people would say that but, I don’t agree. Let me explain.

ENTREPRENEURS BREAK RULES, FRANCHISEES FOLLOW THEM When I think of entrepreneurs some of the big players immediately come to mind: Richard Branson, Bill Gates or closer to home Lisa Messenger or Janine Allis. Entrepreneurs see an opportunity, take advantage of it, they are the decision maker, they take risks. Ultimately responsible for their business, the entrepreneur is the initiator, the driver. Franchisees work a proven system in their business, they conform. Can’t change the marketing plan if they don’t agree with it, can’t change the offer if the product isn’t working in their market. In good franchise systems, franchisees are encouraged to regularly contribute ideas to the

system, take an active role in the betterment of the business. But the franchisor wears the pants.

entrepreneurial brain kicked in and he had an idea on how everything in the network could be improved.

ENTREPRENEURS EMBRACE RISK, FRANCHISEES MINIMISE THEM

From the way the marketing was done, to the products, to the training to the leadership of the franchisor. Nothing escaped his critical, analytical and ideas-driven brain.

There is still considerable risk involved in buying a franchise, no question. But the risk is smaller than branching out on a brand new idea, industry shaking innovation or concept. Most franchisees buy in because the security of a proven system and the support of a franchisor and peer network is a huge plus.

MOTIVATED BY THE CHALLENGE OR THE KA-CHING? Rarely does an entrepreneur list money as their motivator. I’m sure they are pretty happy when their hard work parks a Porsche in the drive way, but it’s not the motivator that sets them on the path of entrepreneurship. But the main reason a franchisee becomes a franchisee according to a study the Franchise Relationship Institute did, was ‘to build wealth’.

MY ENTREPRENEURIAL MATE JEFF Jeff (not his real name) joined a franchise network and everything went well for the first six months. He worked incredibly hard, wrapping his head around the business and was motivated to run a successful franchise. Which he did. Jeff built a great motivated committed team, delivered high standards of service and product, and profit followed quickly. As the business hit its straps, Jeff’s

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Jeff’s time and attention was consumed by the betterment of the system and his business operations quickly showed signs of neglect. As you can imagine the franchise relationship deteriorated into frustration and angst on both sides. Jeff sold his franchise just 12 months after starting it. Moral of Jeff’s story: if you have the independent, risk taking, status quo challenging soul of an entrepreneur, franchising is not for you.

CAN YOU COLOUR IN THE LINES? An entrepreneur is going to attack a colouring-in page with gusto, adding different horns to the dragon, replacing the prince’s armour with a ball gown, and colouring over the bits they don’t like. A franchisee needs to attack a colouring-in page with the same gusto, but they have to stay in the lines, and in many cases use the exact colours the franchisor tells them to use. Being a franchisee is executing a proven system and doing it better each day. There isn’t much room for entrepreneurial skills or flair. You’re an entrepreneur thinking about joining a franchise network? Yeah, na mate, have another think, the confines of a franchise systemwill likely drive you batty.

FranExpo-FP-201609

2016-08-17T14:22:45+10:00

FR1609_102

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CHECKLIST

THINGS TO CHECK BEFORE YOU INVEST BEFORE YOU PURCHASE YOUR FRANCHISE YOU NEED TO TICK OFF ALL THE MUST-DO ITEMS. CHECK THE FOLLOWING:

Are you confident in the franchisor?

What are the franchiseeÂ and franchisor obligations?

Have you seen a disclosure document?

What training is available and who pays for it?

Have you evaluated the financial returns?

Who owns the intellectual property andÂ what is licensed to the franchisee?

Do you know all the expenses franchisees are required to pay?

What marketing will the franchisor implement?

Have you worked out your operating costs?

Who pays for the marketing?

Do you know the term of the agreement?

What is the dispute resolution process?

Is the business operating from fixed or mobile premises?

Do you know what it is like to be a franchisee?

Are you working within a territory? If so, is the area exclusive?

Can you assign the franchised business?

Are you restricted in your product purchase?

How can the franchisor or franchisee terminate the Franchise Agreement?

Are you required to reach a minimum performance level?

What restrictions are there on the franchisee and guarantor operating a similar business?

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FR1609_103

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GLOSSARY

DISCLOSURE DOCUMENT: this document provides information about a franchise system, the franchisor and the franchised business. It must be supplied to a prospective franchisee, in accordance with the Franchising Code of Conduct. DUE DILIGENCE: a thorough examination of the franchise business before purchase. FRANCHISE: a business model with four criteria – a franchise agreement, a trademark or symbol, payment of a fee, and a system or marketing plan. A franchise business falls under the jurisdiction of the Franchising Code of Conduct and franchisors have certain obligations to fulfil. FRANCHISE AGREEMENT: the business contract between the franchisor and franchisee. FRANCHISEE: an individual who runs the franchised business using the intellectual property of the franchisor. FRANCHISE FEE: this is an up-front cost paid to the franchisor and covers the use of the brand name and operating system required to operate the business. FRANCHISOR: grants permission to the franchisee to conduct business using its intellectual property; brand name, methods of operation and marketing. FRANCHISE TERM: this is the period granted for trading under the franchise agreement. Most franchise terms are on a renewable three or five year term but they can vary from one year to perpetuity. GREENFIELD new site.

SITE: a brand

LICENSE: the right to use intellectual property in business, such as sales rights in a territory, manufacturing technology or access to a trademark. A license is not the same as a franchise. LOCAL AREA MARKETING: [LAM] this is marketing the franchisee is responsible for conducting in the franchise territory or designated marketing area. MARKETING AND ADVERTISING LEVY: a regular flat or percentage based fee paid into a centralised advertising or marketing fund. MASTER FRANCHISEE: a franchisee who is responsible for a large territory, appointing other franchisees within the territory with direct agreements, and ensuring that the franchisor’s systems and methods are applied. MULTI-UNIT FRANCHISEE: a franchisee granted the rights to operate more than one franchise outlet. Not every franchise system allows for franchisees to be multiple operators. OPERATIONS MANUAL: the franchisee’s guide to operating the franchise business. The franchisor may produce several manuals for different areas of the business, and should regularly update the information. REGIONAL FRANCHISEE: similar to master franchisees, regional franchisees operate a large territory and appoints franchisees within the area. RENEWAL: once a franchise term nears its end, franchisees may or may not be given a right to renew their agreement for a further

term. This process is bound by the Franchising Code of Conduct and there is no automatic right of renewal. ROYALTY: fee paid by the franchisee to the franchisor for the ongoing use of the brand and systems, management and technical support. It may be a flat fee or a percentage of sales or profit. TERMINATION: the ending of the franchise contract between franchisee and franchisor, usually for breach of contract. Some franchise agreements allow the franchisor to terminate the agreement even if the franchisee has not breached the agreement. THE FRANCHISING CODE OF CONDUCT: a mandatory Code that governs franchising in Australia and is designed to guide the behaviour of franchisors and provide certain protections to franchisees. It is administered through the Australian Competition and Consumer Commission (ACCC). TOTAL INVESTMENT: the total amount of money a franchisee requires to set up in business. This includes the franchise fee, working capital and any equipment purchases required. TURNKEY FRANCHISE: a franchise package that includes all the equipment, information and systems required for a franchisee to open up the business and start trading. WORKING CAPITAL: the funds required by any business to pay its costs before it starts making a profit, and as ongoing cash flow to counter any dips in business activity.

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FR1609_104

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