Inside Franchise Business - Mar/Apr 2017 by Octomedia Pty Ltd

YOUR ESSENTIAL GUIDE TO BUYING A FRANCHISE WWW.FRANCHISEBUSINESS.COM.AU

MAR/APR 2017 ISSUE 30 VOL 2

COFFEE RUSH: WHY YOUR LATTE IS GOOD FOR BUSINESS

FINANCEFRIENDLY FRANCHISES

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CONTENTS

REGULARS

LEADERSHIP

5 6 10 110 112 113 115

14 FRANCHISES THAT FINANCE

EDITORIAL GLOBAL EYE INSIGHTS GLOSSARY CHECKLIST

Discover 15 franchise brands that offer funding

18 COVER STORY

30 A HEAD FOR BUSINESS

French hairdresser Franck Provost is cutting it in Australia

34 THE EXCITEMENT FACTOR

Korean fried chicken spreads its wings

Showcasing success at 7-Eleven

RESOURCES A-Z LISTINGS

36 TASTE OF SUCCESS

24 YOUNG GUNS TAKE HOME GOLD How two uni friends found success in franchising

28 IN THE FAST LANE

How Jump! Swim Schools became an award-winning franchise

INDUSTRIES

FINDING THE RIGHT FIT

44 DEALING WITH THE RUSH

72 REALITY CHECK

How brands are forging their way in the booming coffee sector

Stan Gordon talks about his multi-brand franchise group

40 THE ACTIVE INGREDIENT

Merger and partnership makes waves in hair and beauty

42 FIVE MINUTES WITH…

Q&A with franchise development manager Sally Nathan

What’s it really like to be a franchisee?

76 A QUESTION OF ENTERPRISE Are franchisees entrepreneurs - and does it matter?

79 MISTAKES FRANCHISEES MAKE... And how to avoid them

54 COMING OF AGE

And the core demographic for the fitness market is … seniors

60 HOME DELIVERY

Building the future - could this be for you?

64 ROLL PLAY

How two sushi brands are making their mark

68 HUNTERS AND GATHERERS

Why you should visit a franchise expo

84 DO YOU HAVE WHAT IT TAKES?

10 signs you’ll make a great franchisee

87 THE BOTTOM LINE: WHAT DO YOU WANT? Work out what you need from your franchise investment

91 HEALTH, THEN MAYBE WEALTH Why you need a check-up before you buy a franchise

92 IT’S A FAMILY AFFAIR

Support from family and friends is crucial for franchisees

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94 A COMPLEX AFFAIR

Relationships are at the heart of any franchise

96 FINDING THE PERFECT FIT What to look for in your search for the ideal business

101 RISKY BUSINESS

No commercial venture comes with guarantees, so how risk averse are you?

102 COMMIT YOURSELF

Dedication and hard work are the basics in franchising

106 A QUESTION OF BUSINESS

What you need to ask the franchisor

108 5 SIGNS

Check if you’re ready to buy

122 FINAL WORD

FCA CEO Damian Paull talks franchise assessment

r o F f n o o i d ? s a P START YOUR BRILLIANT FUTURE NOW AND BUY A BUSINESS WITH HEART

“MY DAUGHTER & I BOUGHT INTO A HEALTHY RELATED FRANCHISE LIKE SUMO BECAUSE WE LOVE THE IDEA OF BEING ABLE TO OFFER PEOPLE HEALTHY DELICIOUS FOOD AND WE SAY ‘YOU CAN MAKE FRIENDS WITH SALAD’ ” ~ Mother & Daughter, Sandy & Sarah

VISIT www . ALL THE IN sumosaladfranch FORMATION ise.com FOR Y O U NE HEALTHY B USINESS CHED TO MAKE A OICE

EDITORIAL

Finding the perfect franchise fit Inside Franchise Business is the must-read guide to buying a franchise in Australia. What does it take to be a successful franchisee? This is so fundamental to the franchising sector, and it’s an important question to consider for any prospective franchisee. So in our second part in the series of Franchise Basics, we’re looking at that topic. To get it right takes some introspection, an honest appraisal of what franchising can deliver, an acknowledgement of what’s needed from you, friends and family, and an understanding of how franchisors and franchisees relate. Are you ready? Turn to page 71 to read this essential 25-page guide to self-assessment and franchise fit. The franchising sector provides diverse opportunities for individuals to take the first step to business ownership. In this edition, the perennial favourite, coffee, is in the spotlight - it continues to shine with a predicted 6.7 per cent revenue rise this year. Healthy eating is on trend, and sushi fits easily into this fast food category. We hear from two brands about their development plans. How fitness franchises are catering for the older Australian, and the value in home-building businesses are also highlighted. Of course nothing inspires quite like a personal success story, and we have a stellar selection. There are the young, ambitious award-winning best friends operating an InXpress outlet; a French superstar hairdresser making his mark in Australia; a franchisor receiving laurels for a swim school business; the latest hot ticket in chicken…these are just some of the leadership stories we’re sharing this issue. Our cover star Theresa Zhou’s tale at 7-Eleven is set against a background of a convenience chain which has had significant problems to overcome and has restructured its franchise model. We look at what’s changed in the business and what it takes to be a high performing franchisee. And if you’re putting your dreams into action and coming along to the Sydney Franchising & Business Opportunies Expo, 25 and 26 March, make a point to come and say hello to the Inside Franchise Business team! Good luck with your search.

EDITOR

SENIOR ACCOUNT MANAGER

JOURNALIST

CLIENT SUCCESS MANAGER

SUB-EDITOR

MARKETING MANAGER

Sarah Stowe P: 02 8224 8371 sarah.stowe@octomedia.com.au

Noha Shaheed P: 02 8224 8372 noha.shaheed@octomedia.com.au

Louis Allen louis@octomedia.com.au

NATIONAL SALES AND MARKETING MANAGER

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Sar a h Sarah Stowe

Editor

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GLOBAL EYE

TIDBITS FROM THE FOOD SECTOR CHICKEN ON WHEELS Food franchise Oporto has launched its version of a traditional Portuguese food cart to take its flame-grilled chicken offering to special events. Its Oporto Sobre Rodas (Oporto on Wheels) catering concept made its official debut at the HSBC Sydney Sevens Rugby. A little like a tuk tuk, the Oporto vehicle is fitted out with a grill, refrigeration and built-in music system, and is decked out with a tile motif proclaiming its Portuguese heritage. Inspiration from Portugal was also evident in the launch a year ago of its Pequino small-format stores, plus a brand campaign filmed on Portugal’s streets. Though this mobile food option is a corporate exercise for now, the company is looking at ways to introduce a similar model to franchisees next year. MATTER OF TASTE Do franchise chains really need to put outlandish desserts on their menus? Well, according to hospitality equipment financer Silver Chef’s latest Hospitality Industry Success Index report, these rank fourth of the hot nine trends in food. So if you are aiming to freshen up your food franchise, here is what is in demand...

1. Food trucks 2. Smoked meats 3. Fermentation 4. Outlandish desserts 5. Multiple coffee roast options 6. Night/street markets 7. Asian pancakes 8. Burgers 9. Local artisan foods MADE IN THE USA... Dining concepts are a big export business for the US. Here are the latest three to escape into the wider world... 1. Frozen custard is a new twist, with the dessert franchise arriving in Australia. The Meadows is opening its first international outlet in Canberra. As well as frozen custard in cups and cones, the yellow treat can be experienced in shakes and sundaes, as frozen yogurt or as custard cakes. 2. Celebrity burgers are heading to Asia, with restaurant franchise Wahlburgers opening up to 100 outlets in the region over the next five years. Behind the business is Hollywood actor Mark Wahlberg and his two brothers. The first three restaurants will be in China, in Hangzhou, Shanghai and Wuhan, with 20 outlets planned for Thailand. 3. Also, the oldest restaurant chain in the US is planning 25 international locations for this year after opening

15 sites in the US and 21 overseas last year. A&W Restaurants, launched in 1919, split five years ago from Yum! Brands, with a group of franchisees buying the brand. They have turned around the chain’s performance under the direction of president/CEO Kevin Bazner. Sales are outpacing the industry, with stand-alone locations up more than 28 per cent from when the venture started. Restaurants co-branded with KFC or Long John Silver’s are up 20 per cent. "From day one our goal was to grow profitable sales, and thanks to our franchise partners’ commitment, perseverance and passion, we have accomplished that,” says Bazner. "Today, our franchisees are more profitable than ever before, which sets the stage for a new phase of growth.” DELAYED LUNCH Eating out or ordering take-away from a restaurant outlet at lunchtime is becoming less prevalent in the US, with more consumers preferring to indulge in a lunchstyle dish later in the afternoon. This trend is putting burgers front and centre, with chicken sandwiches, hot chips, potato chips and biscuits other snacks finding popularity, according to a report by market research company NPD Group.

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GLOBAL EYE

TECH & INNOVATION CHICKEN BRAIN In Beijing, KFC has opened its first restaurant using an artificial intelligence system that recommends food and beverage choices based on a customer's gender, age and mood. Customers place an order at a kiosk using facial recognition software (this can be overridden). The data is stored in the kiosk, Natural News reports, for when customers return. Payment is made by smartphone with items being collected at the counter. There are plans to roll out the technology to 5000 stores in China.

FACEBOOK FOOD Customers of Domino's Pizza in the US can now place orders through Facebook Messenger.

FRANCHISE

FOCUSED While franchising accounts for 3 per cent gross domestic profit (GDP) in the US, it is 8 per cent of GDP in Australia. And while Australians prefer Aussie franchises, overseas brands flock Down Under. Why? Like American businesses in the

Previously, the service was available only for customers who had established a profile with the restaurant, says Domino’s senior VP/chief digital officer Dennis Maloney.

JUST SAY IT Starbucks restaurants in the US are adding a voice ordering option to the chain’s mobile app on iPhone as well as Amazon’s Alexa. An Android version will be launched later this year. Customers can also pay through using the new service, and put in special requests. According to Fortune magazine, mobile ordering and payment accounted for 7 per cent of Starbuck corporate store transactions in the US in the last quarter, a rise of 3 per cent.

sector, Australian franchises tend to be well structured and investors around the world like that, says consultant William Edwards, CEO of global customer-service organisation EGS.

COMPLAINTS DIE AWAY Fewer complaints about the franchising sector have been fielded by the Australian Competition and Consumer Commission (ACCC). Acting chairman Dr Michael Schaper says fewer franchisees have been

CUTTING EDGE A 3D chocolate printer for franchisees? It’s an exciting initiative that will be introduced to Michel’s Patisserie outlets later this year, enabling franchisees to reinvent the celebration cake category. The new tool is the next step on from the current installation of in-store image printers.

LAB LEARNING LJ Hooker has committed $100 million to accelerate digital transformation. The move is part of the company’s 2020 vision. The new LJC-Lab is the vehicle which will introduce digital developments - the first is Real Edge, an education platform that delivers online training that real estate agents can access anywhere anytime.

reporting issues to the ACCC since the new Franchising Code was introduced in January 2015. "After an initial spike averaging 52 franchising complaints in the first six months of that year, complaints had fallen to 32 a month by the end of last year," he says. In the past six months, unfair contract term provisions have been extended to small-business standard form contracts, which attracted 81 complaints. Meanwhile, the ACCC has taken action against Pastacup franchisor Morild for alleged breaches of the code.

MAR / APR 2017 | 8 | WWW.FRANCHISEBUSINESS.COM.AU

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INSIGHTS

E M IT S of

E ANG

Retail markets are in flux as new consumer trends emerge, raising the question of what shoppers will be looking for this year.

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etailers face major challenges as the marketplace changes significantly, especially in Australia where international brands are putting on the pressure, while there is also the ongoing threat of global online businesses.

food, fashion, news, even public services. Inevitably, it is technology that feeds our seemingly insatiable thirst for smart products and new techniques. Digital apps, email alerts and swift deliveries are leading the charge.

GET REAL The allure of authenticity is described by the report as a “standout consumer value’” this year. This search for something real extends to social media, where less-than-slick imagery reflects reality and immediacy. This preference is becoming prevalent in food, with consumers opting for natural and authentic produce and ingredients, as well as traditional techniques. AGEING: Authenticity can also be a counter-trend A CHANGING NARRATIVE to the digital obsession. An instance is the For the first time ever, nearly a travel trade providing opportunities for quarter of the planet’s population will be overwrought consumers to check out of 50 years or older this year, so it could be the online world. time for businesses to swap their focus IDENTITY IN FLUX from millennials to baby boomers. Global versus local, questions of Euromonitor’s report suggests national and/or gender identity and services and products doing well with this audience include companies offering diversity, and altruism among younger home downsizing, specialist gyms, electric consumers is also impacting retail. Avoiding stereotypes and thinking of bikes, family concierge services and meal fresh ways to appeal to diverse consumer kits for those with health conditions. And the middle aged are becoming groups is one way to harness this trend. disruptive - the term “midorexia” is used MAKING IT PERSONAL to label older consumers who act younger Customers are seeking personal, than their years. They are still working and bespoke, emotionally appealing looking for ways to improve their lives. products and services. This ties in with CONSUMERS IN TRAINING the trends for authenticity and non-stereChildren have always been avid otypical identities. consumers, and now their input into Who you are, what you do and what family purchases is welcomed, suggests you buy is personal - it’s all about you, the report. As parents struggle with work/ and franchise brands need to tap into this life balance, children are given more power mood for customisation. and independence in the household. This BEYOND BUYING... makes them ideal wannabe customers, yet Customer service after a purchase targeting them directly is still a controveris increasingly important, and an sial issue, particularly in the food arena. Children’s access to all things online extended relationship with customers is gives tech companies an easy customer the trend. Never before has the customer base. The trend now is to encourage brand services department had such an impact communication with a nod to parental on the performance of a business. So, also, is the idea of gaining maximum involvement. life from a product - recycling, repairing FAR FROM TYPICAL and reusing. Atypical consumers are a category PRIVACY AND SECURITY apart. This means businesses need How can consumers take control to cater for distinctions in height, security, over their lives? Tech tools, organic weight, physical ability, a dominant hand, food, investing in education - these are music taste or food intolerance. These customers are happy to call out some of the areas that give consumers poor service and products, with travel, a feeling of security in an increasingly hotel accommodation, fashion, furniture volatile world. Think home and mobile cocooning. design and medical care attracting particular attention. WELLNESS AS STATUS Niche markets include healthwear that SYMBOL adapts fashion trends and techniques, to the Healthy living is aspirachallenges created by illness and disability. tional and a sign of life well lived. Gyms, SPEED SHOPPING boutique fitness, athleisure, wearable Rapid retail, impatience, bite-sized fitness devices, products that promote products - all these point to the sleep, wellness holidays and healthy diets desire for immediacy and convenience in are top of mind in this trend. Consumer trends are an important indicator of where clever franchisors and retailers are directing their attention and adjusting their offers to suit. Tomorrow’s customer could be of mature age or a savvy ankle biter, or simply different from the mainstream. Here are the possibilities, according to Euromonitor’s top 10 consumer trends for this year...

7 8

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INSIGHTS

Retailers can’t afford to wait and see what Amazon does – they need to be developing strategies and taking action now. CALL TO ACTION AS AMAZON LOOMS “If Amazon isn’t on the agenda at board meetings for Australian retailers, then it should be,” says Deloitte Australia leader David White. With the US online retailer rumoured to be arriving in Australia this year, the potential for major market disruption is huge. “We are already seeing several retailers setting up task forces to assess the potential impact of an Amazon market entry, but it’s not yet clear what exactly the company has planned for Australia," says White. "But we do know that where Amazon has entered new markets, impacts on local retailers have been seismic and across almost all categories and channels. Retailers can’t afford to wait and see what Amazon does – they need to be developing strategies and taking action now.” Deloitte has just released its latest report, Global Powers of Retailing 2017, which says 39 of the world's top 250

retailers are active in Australia, with others likely to follow. Among the newbies to our shores already are UK department stores Debenhams and John Lewis, which have joined forces with Harris Scarfe and Myer. Also, US apparel and home goods company TJX Companies has acquired fashion and homewares brand Trade Secret, which has 35 outlets in Australia. “One of the key differentiators international retailers have brought to Australia is in their store design and customer-experience model, leveraged from larger markets,” says White. "New entrants, coupled with the threat of Amazon, should make this another fascinating year for Australian retail. “However, we are also seeing Australian retailers slowly fighting back, with more investment in store design, concept and flagship stores. This means these new entrants will find Australian retailers better prepared and skilled to take on the challenge compared to five years ago.”

5 KEY TRENDS Professional services firm Deloitte has identified five areas in which retail is changing. Its key trends are: 1. LESS IS MORE Customers are defining themselves less by how many items they own and more by curating these possessions and experiences. 2. PERSONAL ANGLE Customers are seeking experiences and products that reflect their own personal brand as portrayed on social media. 3. RETAIL NOT AS YOU KNOW IT The maker movement, the sharing economy and other factors have made it increasingly hard to define what a retailer is and does. Non-traditional retailers are developing business models to serve customer needs, such as subscription services and flash sales. 4. ON-DEMAND IN DEMAND Relevancy is being determined by the ability of retailers to meet the on-demand mindset of the modern consumer. 5. TECH INFLUENCE Exponential technologies, like artificial intelligence, robotics and virtual reality, are changing how we live and shop. 

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THE LIST

FINANCE-FRIENDLY FRANCHISES

nside Franchise Business rounds up some brands that offer financial support or assistance for the initial costs of a franchise. There are a range options available across brands including:

• Bank accreditation: where lenders provide favourable funding secured against the franchise business. • Manage to own: a program where a candidate can make a financial commitment to a franchise, work within the business toward ownership. • Vendor finance: a loan obtained through the franchisor. Financial support or assistance is always subject to eligibility based on each franchisor/vendor/lender’s selection criteria.

BAKERS DELIGHT

Bakers Delight offers a manage to own Kick Start franchise program which allows for trainees to maintain their full time employment within its network, while completing the program over a longer period, typically between six to 12 months. The program also requires a financial commitment from the Kick Start trainee which is held as a deposit and upon successful completion of the program the deposit goes towards their bakery purchase. However, Bakers Delight does look at a candidate’s financial capabilities before starting the program to ensure that upon completion, they have the minimum finance required for working capital.

MAIL BOXES ETC (MBE)

MBE provides business to business services in design, print, and shipping. Since July 1 2016, the brand has offered finance to buyers with funds available for up to 50 per cent. The initial investment cost of an MBE franchise ranges from $100,000 to $250,000. MAR / APR 2017 | 14 | WWW.FRANCHISEBUSINESS.COM.AU

THE LIST

FIBONACCI COFFEE

Fibonacci Coffee has three models: a kiosk with basic food prep through to full cafe, as well as a cafe and bar. Depending on the model, the investment ranges from $150,000 up to $600,000 depending on the model, with a Pay-As-You-Go program available for qualified candidates. This internal finance provision can offer up to 50 per cent of the hard costs of building a shop to a potential franchisee.

SNOOZE

Snooze specialises in bedroom retailing and has been in business for 40 years. The initial costs are approximately $450,000 to $600,000. The brand offers accreditation with NAB and ANZ vendor finance to approved franchisees and can assist in pairing up the prospective franchise partner with the right contact at the bank. However, if a prospective buyer has been turned down by a bank, Snooze could offer approved candidates the option of receiving vendor finance.

SNAP ON TOOLS

This mobile franchise offers tools and equipment for mechanics, engineers and technicians and requires buyers to pay a $50,000 deposit to access a loan through Snap On finance. This can cover the franchise fee, training, mobile store, stock and working capital.

BEDSHED

This bedding and bedroom furniture franchise has been in operation for 30 years and offers vendor finance for the eligible candidates. Through case-by-case basis, Bedshed can support candidates who are unable to

obtain a bank loan (for example, with cash but fewer assets). The capital investment required to buy a franchise is $500,000 to $750,000.

XPRESSO MOBILE CAFE

This mobile coffee franchise has initial investment costs that range between $100,000 to $250,000. The brand has commercial banking relations with the ANZ, various equipment finance funders and trusted finance brokers.

BUY AUSTRALIAN PROPERTIES

Buy Australian Properties is a professional property investment franchise business. The initial investment is $150,000 + GST, with vendor finance available for approved applicants.

FERGUSON PLARRE

Ferguson Plarre is a 115 year old bakery chain which is celebrating this milestone by offering 10 eligible franchise candidates a $50,000 grant (per candidate). The program is available on a first-come-first-served basis. The initial investment required is $250,000 - $400,000 excluding GST.

ZAMBRERO

Mexican food chain Zambrero requires an investment of $250,000 to $650,000 the following models available: kiosk, food court, strip shop and drive through. The franchise business is accredited with various banks. This can make for a smoother process of obtaining a business loan of up to 50 per cent of the capital required.

TOTAL TOOLS

Retail chain Total Tools services the needs of tradies. The brand has accreditation with banks which helps some franchisees with their finance. Capital required to buy a franchise is at least $500,000.

UNDER WRAPS

Under Wraps, a healthy food franchise offers financial lending packages for a percentage or up to the full cost of a franchise. It includes equipment leases and franchise fees can also be paid in instalments.

MUFFIN BREAK

Muffin Break, part of the Foodco group, is a bakery cafe business accredited with the Big Four Australian banks (Westpac, CBA, ANZ, and NAB). A buyer may be able to borrow more against the perceived value of the business (unsecured lending), as well as against other equity (secured lending). The initial franchise costs range from $250,000 to $500,000.

JAMAICA BLUE

Cafe franchise Jamaica Blue, also a Foodco brand, is also accredited with the ‘Big Four’ Australian banks (Westpac, CBA, ANZ, and NAB). The initial investment is above $500,000.

THE JOLLY MILLER

Buyers will be required to invest upfront a minimum of $400,000 for this cafe franchise and vendor finance may be available to appropriate candidates. 

MAR / APR 2017 | 16 | WWW.FRANCHISEBUSINESS.COM.AU

COVER STORY

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Beyond thE

HEADLINES A

fter 7-Eleven’s tumultuous year in 2016 with workplace and non-compliance scandals followed by reform, profitability within the model is a question on everyone’s lips, writes Noha Shaheed.

It’s the after-school summertime go-to for slurpees, the quick detour for ice or fuel, and the value for money pitstop for espresso coffee. 7-Eleven is the convenience chain determined to ensure customers get what they need, when they need it. The first Australian store was opened in August 1977, and today 7-Eleven Stores Pty Ltd. operates more than 630 stores in Queensland, New South Wales, Victoria, the Australian Capital Territory, and Western Australia. But in 2016, the brand was in the headlines time and time again and for a not-so-good call. Underpayment scandals and non-compliance brought into question the viability of franchisee profitability without compromise.

Clayton Ford, general manager corporate affairs, says the brand’s research has shown there are a number of characteristics that best position someone to be a successful 7-Eleven franchisee: • a real focus on customers; • good leadership and communication skills; • a strong work ethic; • attention to detail; • a willingness to learn and adapt; and • a commitment to following 7-Eleven systems, processes and policies. Ford says, “7-Eleven franchisees make their profit through a combination of a progressive merchandise gross profit share, fuel sale commission for every

litre sold, and a share of other income streams. “The 7-Eleven store agreement provides franchisees with a guaranteed yearly minimum gross income of $316,600 for fuel stores and $347,200 for non-fuel stores. “If a franchise is not making this amount, 7-Eleven will adjust the monthly charge to cover this minimum gross income,” he adds. And there are systems in place, especially implemented over the last year, to ensure this is the case. “Over the past 12 months we have made significant investments in industry-leading initiatives across our franchisee network, including a bio-metric time clock system and centralised payroll system, and a significant increase in field-level investigation and compliance activity, to ensure that all store team members receive the wages and conditions applicable under the relevant award,” explains Ford. “We have also used our experience to propose a range of critical industry reforms to underpin standards and entrench ethical behaviours across Australia’s thriving franchise sector.” He says that under 7-Eleven’s voluntary Wage Repayment Program, almost $53 million has been paid out so far to 1,335 claimants, and “we continue to encourage any legitimate claimants to come forward”. The convenience chain is also in collaboration with the Fair Work Ombudsman and others, to ensure compliance. 7-Eleven plans to grow the network, targeting Western Australia, the outer suburbs of established Melbourne, Sydney and Brisbane markets, and major regional centres. So what then, is the future of the convenience store? “Stores need to meet the ever-changing needs of their customers, save them time in their day, and always give them something new to try,” says Ford. “Supported by a foundation of great in-store standards and excellent service, convenience stores need to continually evolve their offer with new products and services, and new store formats and designs.” 

MAR / APR 2017 | 19 | WWW.FRANCHISEBUSINESS.COM.AU

COVER STORY

O F D A T E HE H A

CURVE D

espite claims that franchisees have struggled to make a profit under the 7-Eleven franchise, the story of star performer Theresa Zhou stands counter to this. Inside Franchise Business goes behind the scenes with 7-Eleven’s stellar franchisee who shares her secrets to success without compromise. Zhou is currently the Port Melbourne franchisee who has owned a number of 7-Eleven stores. Her customers are a mix of families but also busy professionals and tradies.

“I have been a 7-Eleven franchisee for nearly 19 years, first joining in March 1998,” she says. “Since then, I have run a number of different stores in Melbourne. I’m about to sign a new agreement and am looking forward to the next 10 years.” As a newbie franchisee Zhou understood business: she had extensive experience running an interior design firm in China. But like many culturally-diverse 7-Eleven franchisees, she faced the challenge of language barriers and had little experience of retail. “I came to Australia to study, and really enjoyed it here. It is a safe and peaceful country and I wanted to provide that for my family,” she explains.

“(But) it is much easier to do business in a country you are familiar with, where the language is your first language. “When I came to Australia, I had to learn new laws and ways of doing business in a different language, it is very difficult.” This is why she selected the 7-Eleven franchise. “They provided not only a lot of support to help me learn a new business in a different industry, but also managed many elements of the business such as property and leasing, equipment and maintenance, product buying, supply chain and marketing,” says Zhou. The franchisor provided her a system to follow with clear instructions. In her view, if

MAR / APR 2017 | 20 | WWW.FRANCHISEBUSINESS.COM.AU

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COVER STORY you follow the system and policies “it’s easy doing business”. But there were obstacles at the start. “The first few years were a very steep learning curve; learning how to be a retailer, understanding all the laws and regulations and taxes that apply to running a fuel and food business, and building a team and a business in a new country,” she admits. Zhou says at first the role required 10-12 hour days as well as a few hours visiting the store on weekends to get the momentum going. Even with experience, she says it is important to work hard on the business. These days she is clocking in a minimum of eight hour days during the week, and still checks in with her employees on weekends. “7-Eleven’s training and support systems, and the guidance of my district manager, were crucial in helping me through that early learning curve.”

STAFF ARE AN ASSET The retail industry depends on excellence in customer service and franchisees thrive when staff are talented, performing and motivated. 7-Eleven’s underpayment scandals rife in the media last year suggest some franchisees have exploited rather than supported their employees. Zhou says, “Finding and managing staff is also a challenge, particularly given the 24/7 nature of the sector.” This is why in her view, “it’s important to see staff as an asset, rather than a cost”, as they can deliver value to the customer, driving repeat visits and building the business. “So good staff are worth investing in (and) 7-Eleven’s training and support system helps new employees get up to speed quickly,” she explains. But how many employees are needed for effective and profitable operations? Zhou says it depends on the size of the store, having owned a few in the last 19 years. Although she doesn’t quote numbers, she does say that the number of staff she has now is similar to when she started. “I have a range of people who work with me. One of my family members works for me, and he is my second in charge in the store,” she continues. “I have some uni students including some international students, but the restrictions on international students’ number of working hours can make rostering difficult as many can only work 40 hours a fortnight.” But Zhou likes things done a certain way. “I like myself or my second in charge to do the ordering and the key management parts of the business, but otherwise I like my team to take care of the shop and our

customers. “I like investing in people who care about my shop and love what they do too. I provide jobs lists, everything from cleaning to filling stock, and the team also focus on the customers. They help the customers and upsell. “You need to make sure you have enough staff rostered so you can spend your time managing your business, training and coaching, and growing sales.” Zhou says the extended working hours required of the 7-Eleven fuel retail format are easy for her to manage. “I recruit good people, and make it clear that working shifts, including night shift, is part of the job before they start. I pair new people up at first with more experienced people so they can get more experience and get extra coaching before they work shifts on their own,” she explains. “I’m fair, and try and work around people’s schedules where possible, but ultimately my staff need to be prepared to contribute to maintaining the highest standards in-store 24 hours day, seven days a week. “The night shift team and the quality of the work they do is really important to the store, while it usually isn’t as busy at night, that is when much of the work to prepare for successful trade in the busy times is done.”

You need to make sure you have enough staff rostered so you can spend your time managing your business

Despite the allegations of franchisee mistreatment of workers in media reports last year, Zhou has an active approach to managing staff. “You have to have a good relationship with your employees, mutual respect and being fair is important. You’ve got to help them and coach them, if they are busy all the time with no help, they aren’t happy, so you’ve got to support each other. “That’s why you should spend time in your store even when you are not rostered on, it is really important to provide your employees with coaching and support, even if they don’t work the same shifts as you do.”

SAFETY FIRST Zhou says another challenge is maintaining the safety of everyone in store, particularly in the fuel business. “We must always be vigilant to ensure everyone stays safe. Unfortunately, thefts

and fuel drive-offs are an ongoing challenge in the fuel and convenience sector.” This is why she considers training important. There is an eight hour online 7-Eleven training system that provides lots of safety and other training. But that’s not all. Zhou says on-the-job training is also key. “I want to see strong performance and good practices in my store, so with new staff, I provide about nine to 10 days coaching and training in-store to ensure they are confident in what they need to do, including when they might work shifts on their own. “There’s also a new 7-Eleven program I am participating in. The 7-Eleven team help me recruit staff, and they then provide them with a five day training program before they come into my store.”

SECRETS TO SUCCESS “The key to success is having a passion for people and retail, and delivering a good in-store experience and great value for your customers,” says Zhou. “I’m a single-site franchisee by choice as it enables me to really focus on the basics, such as knowing your customers and community and tailoring your offer to meet their needs.” For Zhou, the cornerstone of the business is food service; which includes coffee, sandwiches, hot food and sweet treats such as the Krispy Kreme range. “The quality of this business and the profit I make from this area of the business has grown significantly over the past 10 years,” she says. So what is the most valuable lesson she has learned from 7-Eleven? “How to focus on the whole business, not just the immediate dollars from the business. You need to drive the business by supporting activities that grow the business in the long term and by managing your staff to get the best from people. “You, your staff and your franchisor need to support each other in growing the business, with a positive attitude towards each other, and work together to succeed.” Zhou says being part of a franchisee network also helps, as others are also going through similar challenges. “The 7-Eleven support structure is ideal for people like me unfamiliar with many of the requirements of running a small business in Australia,” she says. “Follow the systems because they work and make running your business a whole lot easier. Use the support that’s available so you can focus on delivering the best experience for your customer. “Be prepared to work hard, and love what you do, and you’ll do a great job!” 

MAR / APR 2017 | 22 | WWW.FRANCHISEBUSINESS.COM.AU

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LEADERSHIP

YOUNG GUNS TAKE HOME GOLD

From beer and baggage to logistics, two university friends find success in franchising - and discover they can still manage a lifestyle. MAR / APR 2017 | 24 | WWW.FRANCHISEBUSINESS.COM.AU

We never positioned ourselves as the owners of the business because we felt that we wouldn’t be taken seriously.

traight out of university, two friends bought an InXpress franchise; four years later they took home gold at the latest Franchise Council of Australia’s (FCA) night of nights.

Sam Orders, who studied teaching, and his best friend Shaun Birley, who was three days out from graduating with a degree in advertising and marketing, bought the global shipping franchise together. “The only experience I had in any type of sales was working in a bar selling beer,” says Orders. “We had zero experience in business ownership, and I think the franchising business model helped us

expel any doubts about that.” Birley had unloaded trucks and handled baggage for DHL, so starting out in the logistics business made perfect sense, especially as his father heads up the Asia-Pacific InXpress business. Orders says their taking of the Single-Unit Franchisee of the Year title (for up to two staff members) at the 2016 MYOB FCA Excellence in Franchising Awards is a great honour. “It cements our belief in InXpress and our franchise.” “It isolates Sam and I as business owners who have really started something from the ground up,” says Birley. “It all results from our hard work.”

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CHALLENGES He says it was very challenging at the start, “especially when your friends are starting with a salary of about $40,000 to $50,000 and you’re effectively in debt to the same amount.” However, he believes this really motivated them as young men with low living expenses. “Like anything, there is always a steep learning curve, but that is what is great about franchising - you have a lot of support and training,” says Orders. Another challenge is how age can work against you as a Gen Y franchisee. “Interacting with customers was difficult.

LEADERSHIP

If we aren’t working the business then no-one is and it won’t grow, so we are strict on our goals for the business and achieving them.

We never positioned ourselves as the owners of the business because we felt that we wouldn’t be taken seriously,” he says. Birley agrees. “It can be challenging as a Gen Y franchisee speaking to a head of shipping or a manager with 20 to 30 years’ experience. There are questions of what a young guy can do or bring to the table. We always put a gap between ourselves and the decisions, and reassure others of the brand backing we have from head office and that all dealings are above board.” Plus there was the challenge of achieving a work/life balance. “As a business owner, your lifestyle is your business too,” says Birley. “We wanted to go out at night, so we attended networking events. That way we had a lifestyle but were working too.” “Our business is very automated which allows us to do the things we want when we want,” says Orders. “However,

we do realise that if we aren’t working the business then no-one is and it won’t grow, so we are strict on our goals for the business and achieving them.”

KEY BENEFIT A key benefit is the support of a franchise model. “The sense of community and camaraderie is second to none,” says Orders. “The business model makes sense: we provide logistics consultancy and solutions to small businesses that often don’t have time, money or staff to focus on that area of their business. Essentially, we are their shipping department or an extension of it.” Birley says the franchise model is “trailing commission and margin,” which benefits franchisees, and that there are margins in every shipment, especially

with regular clients. Their advice for potential franchise buyers? “Treat it like buying a home,” says Orders. Everyone has certain requirements they want in a house, such as pool, garage, number of rooms and so on; buying a business should be exactly the same. “Identify what it is you want, then find the right business. Think about the type of customers you will have, the need for a location/premises, the industry, working hours etcetera. Once you know that, then finding the right business will be much easier.” Birley says a franchise should be regarded as an institution. “Definitely do your due diligence, focus on the headoffice support of the franchisor you’re considering, ask existing franchisees what they are doing and why they have succeeded, and think about business structure and exit strategies.” 

JAN / FEB 2017 | 26 | WWW.FRANCHISEBUSINESS.COM.AU

LEADERSHIP

IN THE FAST LANE Award-winning franchisor “trained” for several years before diving into franchising, and while still making a splash in Australia is starting to go international.

n “aha!” moment sparked a thriving children’s services business, resulting in Jump! Swim Schools MD Ian Campbell being crowned Australian Emerging Franchisor of the Year 2016 at the Franchise Council of Australia (FCA) Excellence in Franchising Awards.

It all started when he noticed a trend in Aussie swim schools. “As a parent and a swim teacher, I noticed swim schools were designed for volume and were very intimidating for young children, which is not ideal as swimming is a confidence-based skill,” he says. This led to him opening the first swim school in Grafton in 2010 and opened the first franchise site in mid-2014. “We pride ourselves on the competency of the children’s swimming skills,” he says. Of his franchising title, he says it is like a validation for franchises that have had an impact on the market. He says his brand is now powering through expansion, on track to open its 100th site this year. Twelve sites had

scheduled January openings, among 60 schools launching in the first six months of this year. Asked about the secret to his successful model, Campbell says he was training “for a good five years” before franchising. “The main strength of our model from a franchising perspective is that it is a simple business.”

FEEL WELCOME He has found that if a franchise system works in regional towns, it can work in a bigger market. The model is about local families running franchises in their local communities. Bookings are made in advance, and the business has a focus on being invested in the children’s future. From a consumer perspective, children feel welcome as opposed to the situation in public pools where they can feel intimidated. The model is not restricted by seasonal considerations. “We’re fully protected from the seasonal limitations other pool

facilities have,” says Campbell. This is because the target age range is from three months up, meaning the business is not competing with after-school programs. Specialisation is the value-add franchisees provide, he says. “There isn’t a lot out there for babies.” There are no signs of slowing down, with the franchise starting international expansion late last year. It has signed leases signed in Brazil, New Zealand and Singapore. Campbell says the model was adjusted as necessary to meet regulations in each region. 

The main strength of our model from a franchising perspective is that it is a simple business.

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LEADERSHIP

A HEAD FOR BUSINESS Starting as an apprentice hairdresser in Paris, Franck Provost is now cutting it as a franchisor with a network of more than 600 salons in 30 countries.

ight years after launching in

Australia with a salon in Sydney, French hairdressing brand Franck Provost has 15 outlets in the city - the biggest representation of the brand in a single city outside Paris - and another nine around the country. The man himself hit the town in spring 2016, bringing with him a small entourage and plenty of relaxed French style. “I really like the vibe here. For we French, it’s like a dream country,” he says through Australian master franchisor Jean-Philippe Carre, acting as translator. “I’ve been here only three days and feel that the people are relaxed and very different from Paris or New York. I like the pace. I feel I could live here. It’s very aligned with the values of the brand. It is a good fit. “There is still plenty to do because it’s a big country, and we’re very excited.” In its eight years, Franck Provost Australia has launched 24 salons. “We don’t want to rush. We want franchisees who will be true to the brand philosophy,” says Carre. “Parisienne glamour” is at the heart of the brand, with a focus on colouring. Provost loves that blonde is a popular shade in Australia.

BUILT ON BASICS With the digital age dramatically changing the hairdressing scene, it is now much easier

to see the latest look: an image from Paris is instantly available in Australia. But for an image-conscious business, its success is built on good basics. “It’s always a long-term project to build strong foundations for the brand and values. The concept and location are important, but most important in our profession at the end of the day is education and training,” says Provost. “What makes us different is that we are about tailormade and customised. We have fewer challenges in logistics but more challenges in HR,” he says. “This brand has a man behind it, genuine expertise and a close relationship with the team.” It is a family business, with daughter Olivia heading up communication and son Fabien as official artistic director. Provost’s Australian visit is geared to franchisees, whereas in France he has more of a superstar presence. And despite decades in the industry, he is still passionate about the people involved and their personal journeys.

EVERY SEGMENT Gilles Bonnier is director of the international department of Provalliance and leads the portfolio of 12 product brands. “We were the first company in Europe to have 3000 salons stocking Provalliance products worldwide, with 1700 in France. We target every segment of the population, there

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LEADERSHIP are brands for every level,” he says. As well as being in 30 countries, the Provalliance business has 20,000 people in its network globally, with half of the 1000 corporate stores used to trial and test concepts. The company policy is to maintain about a quarter to a third of its salons as company-owned. “For the new franchisee, it shows that the franchisor has invested in the business model, and still owns stores.” Provost has a tendency to become involved in detail, says Carre - right down to the cost of chairs. “The position of our brand - accessible, discreet, luxurious is about quality and selling the Parisian dream. We’re accessible in our approach. We want customers to have a nice experience, and look and feel beautiful.” “We try to do our job in the best possible way, always improving the wellbeing and experience of franchisees, introducing new techniques and products,” says Provost. “We always have to anticipate, because retail changes faster than ever before. You need to be always on the alert, but not too early, just on time. “First of all, I’m a hairdresser. That is important because I understand hairdressers and consumers. I have the eye of a hairdresser. You need to like people. It’s very important to listen, listen to the entire network and partners, stay curious and care about everyone’s wellbeing.”

ONE STEP AT A TIME Asked about the source of his commercial acumen, Provost says he does not know. “It’s important to remain modest. I started as an apprentice and just moved one step at a time.” He says that spotting the right opportunity and recognising good partners makes a significant difference to the success of a business. “The best way to have strong foundations is training and vision. It is collaboration and control.” Provost says his focus is firmly on long-term success and ensuring franchisees are happy. “For success you need a good team and training. You need passion. Franchisees need commitment and attention to detail. “This profession is extraordinary. Everyone needs a hairdresser. There is something special between a hairdresser and the client that doesn’t exist elsewhere. You get to meet everyone and people you never dreamed you would meet. “I started by chance, but I would do it all again. It’s a very scaleable business - you can be happy with one salon and team, or have bigger dreams. It can be fulfilling. Franchising is a fantastic opportunity, but you still need to have the passion. “In life, to receive, first you need to give. The opposite never works.” 

MAR / APR 2017 | 32 | WWW.FRANCHISEBUSINESS.COM.AU

LEADERSHIP

THE E CITEMENT FACTOR Korean fried-chicken brand NeNe Chicken is growing in Australia with the accent on quality, excitement and flavours that come directly from its home country.

ast-tracked to Australia, a Korean fried-chicken brand plans to sizzle across the nation. NeNe Chicken was established in South Korea in 1999 and now has more than 1000 outlets. It launched in Australia in 2015 with a store in Melbourne. It has several outlets there now, as well as stores in Brisbane and Western Australia. The name is simply Korean for “yes, yes”. “Australians have a traditional love affair with fried chicken,” says master franchisor Richard Godwin. But how does an incoming brand compete with established players in Australia such as Chicken Treat and KFC? Godwin says the brand is based on quality, not price. “As a franchise with a smaller national footprint, NeNe cannot compete as a low-cost outlet,” he says. “Instead, NeNe focuses on brand quality and excitement.” For NeNe Chicken the key differences are the marinade, batter mix and sauces, which come directly from Korea. “The chicken is marinated for a minimum of 16 hours before being delivered to the outlet,” says Godwin. “This marinade increases the juiciness of the chicken meat and gives a mild, peppery flavour.

“The Nene batter mix reduces the penetration of oil during the frying process, so the meat is juicy without being oily, and the batter is crispy.” Then there are the sauces - “swicy” (sweet and a little spicy, the brand’s most popular option), “freaking hot”, garlic, and “snowing cheese”. Godwin says NeNe Chicken has plans for growth nationally, with this year’s goal being to expand to 20 outlets. So what makes the NeNe franchise system different? “I believe the key differential to our franchise system is our genuine desire for our franchisees to feel that they are part of the NeNe family, that we all succeed together,” says Godwin. “Our franchise system is not 'corporatised' in so far as there is not a strategic goal to maximise sales at the cost of the franchisees’ businesses. “Our dual focus is on customers enjoying the NeNe experience, and our franchisees running a successful business.” The initial investment of a NeNe Chicken franchise is $500,000 to $700,000, fully inclusive of site selection, training, post-opening on-site help, marketing and ongoing support as required. The construction of outlets is on a cost-plus basis, not a turnkey basis. Godwin says this reduces the end cost to the franchisee as the franchisor does not generate any margins from shopfitters, architects, equipment suppliers and so on. The franchisor also benchmarks key running costs and quality ratios to achieve best practice, technical support, new product development and product launch support. 

MAR / APR 2017 | 34 | WWW.FRANCHISEBUSINESS.COM.AU

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LEADERSHIP

The franchisee has to have local knowledge within the industry: distribution, regulations, customer demand, locations. Weâ&#x20AC;&#x2122;re happy to modify products for local taste.

MAR / APR 2017 | 36 | WWW.FRANCHISEBUSINESS.COM.AU

TASTE OF

SUCCESS Treats, snacks and healthy options are the bread and butter for one Australian multi-brand franchisor which has international expansion and brand redevelopment on its plate.

ne of the more unusual ideas to take flight at Trampoline Gelato, a food brand under the umbrella of Franchised Food Company in Melbourne, was to add alcohol to ice cream.

There was just one problem, as franchisor Stan Gordon points out: “Alcohol is an anti-freeze, so how can you add it to ice cream?” Not to be deterred, the team started testing options and came up with an idea that gave the brand - and franchisees - a unique selling point. As a result, the ice cream will be launched in Bali this year. Nightclubs and restaurants are obvious distribution outlets for the concept, says Gordon. Of course, the alcoholic ice creams, in a small range of flavours, can be sold only in stores with a liquor licence. “We do Whisky, Strawberry Lime

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Cider, Espresso Martini (Kahlua) and Irish Cream (Baileys),” says Gordon. “As an example, the Whisky flavour contains 5 per cent alcohol and premium inclusions such as honey-roasted almonds. “Will it work? Initial trials say yes.” Franchised Food Company has been building its portfolio of brands which includes Cold Rock Ice Creamery, Europa Coffee Drive-Thru, Healthy Habits, Mr Whippy, Nut Shack and Pretzel World.

INTERNATIONAL GROWTH Gordon is seeking international growth this year with a Pretzel World outlet in Dubai as the first overseas store, to be followed by the Balinese opening for the Trampoline range. “Why Dubai? The franchisee approached us, and I did exploratory trips,” he says. “Our target customer is

LEADERSHIP the visitor and the international market in shopping centres.” He has signed up a food-based group as franchisee, and is looking to open between 15 and 30 stores. “The franchisee has to have local knowledge within the industry: distribution, regulations, customer demand, locations. We’re happy to modify products for local taste.” Base ingredients will come from Australia - Allied Mills’ flour mix for the pretzels, for instance - and the pretzels will be served with coffee and shakes. Saudi Arabia may also be a destination this year for the Cold Rock custom ice-cream brand, which is heading to Gordon’s home country, South Africa. “We went to South Africa about three years ago to look at the market, but it wasn’t right. On a recent trip we found the right partner.” Gordon plans to launch four or five stores for each of the Cold Rock, Pretzel World and Trampoline brands in South Africa this year to give the business “the appropriate initial scale”. He says South Africa offers different demographics and different purchasing habits. At least 3 to 4 million of the population of more than 50 million people have high disposable income and are fairly

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sophisticated, which gives huge opportunity. He understands the South African market, having lived there for more than 35 years.

a kiosk format sporting an oven and a coffee machine - “a type of semi-permanent pop-up”.

NEXT ATTRACTION

MORE UPMARKET

In Australia, “churn and mix” is the next big upcoming attraction, thanks to an Italian machine that works in view of the customer. The churns are being trialled initially at Cold Rock Malvern, in Victoria. Franchised Food Company focusses on treat brands, and the ice-cream development continues with the launch of a Mr Whippy tuk-tuk, taking ice cream back to the streets. The concept also serves barista-made espresso coffee. While the Pretzel World business is heading overseas, in Australia the snack business is challenged by a lack of good locations at reasonable cost, says Gordon. “There are unrealistic landlord expectations and, generally, small retailers won’t survive if they have to pay 40 to 50 per cent of turnover on occupancy costs.” Add to this labour costs for up to four people, and the traditional footprint of a Pretzel World store becomes challenging. Gordon has addressed this with

Then there is Healthy Habits, a franchise chain with a Victorian heartland that struggled to find form under the Dymocks Group. “Founder Katharine Sampson took it from zero to stage one. Dymocks did what it could,” says Gordon, who is repositioning the brand as more upmarket and funky. “Healthy Habits has tried to compete with Subway, which has its own market. This is about make your own.” It will become a premium grab-and-go venue, mid to high end, with all menu items made fresh onsite daily. Salads, sandwiches, wraps, juices and smoothies will replace the carvery that features in some of the older stores. The new-look stores have the same logo but recoloured, plus a refreshed design. The offer is based on UK retail success Pret A Manger, which translates to freshly made items and breads baked in store. A major yoghurt supplier has been signed up, and the store will offer yoghurt with healthy toppings such as nuts, seeds and fruits.

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The goal is a modern, healthier menu. “We really understand this sector,” says Gordon. “Healthy for your mind and your soul.”

MORE STAFF The transition will be gradual, with some fine-tuning expected after the first couple of stores are converted. Growth is anticipated to be 25 stores. With all this activity in the pipeline and only about 20 people in the head office, Gordon is facing the need to expand his staff. “We will bring in more people as we need them. We want to do thing the right thing.” Franchisees will have support from business development managers, who will be responsible for about 20 outlets each. “We’re not there to run the franchisees’ business, we’re there to guide them. Franchisees need to follow the suggestions.” While Gordon juggles the development and expansion of these brands, he continues to have an appetite for great food options. “I still think there’s opportunity,” he says. “I’m always on the lookout. We do thinking well in Australia.” 

LEADERSHIP

THE

Active INGREDIENT A merger plus a partnership in the hair and beauty space offers franchise opportunities with the new entity’s full treatment plan for growth, writes Noha Shaheed.

wo key brands in the hair and beauty industry, Australian Skin Clinics and Ella Rouge, merged last year and formed a subsequent partnership with chain Hairhouse Warehouse. Australian Skin Clinics MD Deb FarnworthWood says all three companies share the same target market, which gives them the opportunity to provide enhanced services and offerings. “It is this customer-focussed culture that has aligned the businesses so well," she says. Both the merger and partnership had been easy decisions, with all companies having clear synergies. “Ella Rouge Beauty has been looking after millions of Australian women and their beauty needs for more than 17 years,” says

Farnworth-Wood. “The alignment of the brands will improve trade with common suppliers, improve the ability to negotiate with future retail landlords, and bolster existing support and resources. “It also means new franchise opportunities across both the Hairhouse Warehouse and Australian Skin Clinics brands.”

PERSONAL DEVELOPMENT Furthermore, the merger provides staff members with opportunities for personal development through the new management structures. “We have also been able to reduce franchise fees because of economies of scale, and provide more support to our

network,” says Farnworth-Wood. However, as in any merger, she says there is a period of bedding down and understanding the differences between the organisations. “This can be slightly unsettling for some staff members, which is why it is important to ensure the whole project involves a tightly managed transition strategy.” Farnworth-Wood sees it as a chance to share best practice and find new opportunities for growth. “Other challenges include integration of systems, shared resources and communication, although overall the merger has been a resounding success and all parties are happy with progress so far.” Since launching in 1992, Hairhouse Warehouse has grown to more than 140 outlets across Australia with network sales

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exceeding $200 million. As for expansion, it’s the full treatment... "The rebrand will see Australian Skin Clinics more than double its 25 stores, with further growth plans including more than 20 extra clinics in the current financial year and another four clinics in New Zealand over the next 12 months."

VERTICAL INTEGRATION

uniform qualification across Australia. All states currently regulate individually who can operate a laser machine. In the future, we see a national standard for this. “We believe the industry will continue to grow, and as such will become less price-sensitive and more about quality results. The price war is happening now, but we suspect this will ease over the coming years.”

Since Australian Skin Clinics acquired Balense Skin Care in August, vertical integration may continue to be a theme for the business in the future, says Farnworth-Wood. Hairhouse Warehouse co-founder/MD Joseph Lattouf sees the merger as “a great strategic step forward” with the shared outlooks of the franchise networks being “an absolute strength”. “The Hairhouse Warehouse growth strategy includes a focus on expanding its suite of brands in the hair and beauty sector over the next three to five years, with a firm goal of an IPO or trade sale.” Hairhouse Warehouse franchise development manager Peter Fiasco says he sees the industry consolidating in the future. “We believe national regulation will be introduced whereby there will be one

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Farnworth-Wood agrees. “Our industry is growing every day, and with regards to what the landscape looks like ahead, we can only comment on what we hope for our future. “At Australian Skin Clinics, our current and future focus is not on price, it is on providing effective and credible treatments backed by years of extensive training." 

LEADERSHIP

FIVE MINUTES

WITH CIBO’S

SALLY NATHAN Retail Zoo’s franchise development manager takes our Q&A.

etail Zoo is a food retail holding company that grew out of the Boost Juice bars.

It has since added three other food franchise brands – Boost International, Cibo Espresso and Salsa’s Fresh Mex Grill. Here, IFB talks with Sally Nathan of Cibo Espresso, a cafe and coffee shop franchise founded in Adelaide in 2000 that now has more than 20 locations in Australia...

1. What is your personal strength in business? My role, and that of my team, is to identify the right people to join our franchise networks (Cibo Espresso, Boost Juice and Salsas) both domestically and internationally. Having worked in recruitment and franchising over the past eight years, I pride myself on my ability to identify the people who are right for our business.

2. What have you learned about franchising? That being a part of a franchise network is like being a part of a big professional family. You may not always agree at times, but you have unconditional support at every turn.

3. What makes an efficient franchise model? There must be a clear direction for the brand, a focus and a drive that is shared between the franchisor and the franchisees in the network. It is pivotal that the franchisor and each franchisee have a shared vision as to what needs to be achieved.

4. What do franchisees want from their franchisor support team?

8. What do you look for when interviewing a prospective franchisee?

People are searching for support and an established brand. As a franchisee, you are paying for this in franchise fees and royalties, so you should make the most of the expertise and systems made available to you.

A passion for the brand and a willingness to learn. When it comes to running the business, we are supported by a fantastic learning and development team that can teach you the rest. However, as the team members say, you cannot teach attitude. At Cibo Espresso we also look for owner-operators as opposed to an investor, as we have seen that stores run by owner-operators are more consistent.

5. How does a franchisor foster trust in the relationship with a franchisee? Communication and transparency are key. We invite our franchisees to share feedback, and look to foster open relationships so we can have productive discussions to determine the best way forward for the good of the entire network.

6. What can franchisees do to ensure a good relationship with the franchisor team? Invest time in getting to know the team at the support centre. The more you understand who is in the team and what they are responsible for, the more you are able to lean on them and gain the most from the relationship.

7. In your experience, what is the most common mistake franchisees make? Don’t forget to make hay while the sun shines. Then, managing your cashflow effectively. The first few years in business can be tough, and once you see the rewards (profit) come in, think carefully about how you spend or invest this money. Building a solid foundation and reinvesting in your business will often pay off in the long run.

9. What do you think is the most important quality a franchisee needs? To be a “frantrepreneur” - finding a balance between being entrepreneurial but working within the guidelines of a franchise network. Be prepared to listen and learn, but also understand that the business is your responsibility and throw everything into it. You can be provided with the best tools, systems and support, but ultimately it is you who has the biggest impact on the success or failure of your business.

10. What does it take for a franchisee to be a star performer? Whichever brand you choose to invest in, be sure you have a strong personal alignment with the goals and values of the brand. 

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INDUSTRY SPOTLIGHT

While Australia’s coffee retail sector is booming, competition is pushing down profitability, writes Noha Shaheed.

evenue in the coffee retail industry in Australia is expected to jump by 6.9 per cent this year to a total $5.5 billion, following annualised growth of 7.2 per cent over the past five years. Despite this performance, a report by research company IbisWorld says competitive pressures have pushed profitability down slightly for the period. The strong demand for coffee has led to an influx of new outlets, with many artisan bakeries and patisseries establishing cafes over the past five years, challenging established franchise businesses. Niche companies influence

coffee culture with innovation, catching the attention and curiosity of consumers on social media. So how do scaled franchised brands compete in the innovation game and stand up to quirky independents? How can they respond to social-media sensations such as the turmeric latte, deconstructed coffee and even the pumpkin-spiced latte? Here’s how franchised coffee retail brands are flavouring the sector...

GLORIA JEAN’S COFFEES Under the Retail Food Group (RFG) umbrella, Gloria Jean’s Coffees marks its

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20th anniversary this year. Innovation is at the heart of the business, says chief franchise officer Mike Gilbert. “Our new drive-through concept has let us reach a whole new demographic of customers by responding to their busy lifestyles and need for convenience.” But, he says, with coffee bloggers and Instagrammers starting to shape trends and consumer expectations, coffee franchises need to stay relevant. “Social media plays a significant role in influencing and raising the profile of trends, especially in the competitive coffee retail industry. “Gloria Jean’s Coffees employs a dedicated and experienced drinks innovation team responsible for

researching trends and flavour profiles, both domestically and internationally. Before rolling out any new product or flavour profile, research is conducted to ensure it will meet the needs and wants of guests while also introducing innovation and excitement into the market. “After a product launch, full training is provided to ensure consistency and quality across the entire network.” The franchise system also allows franchisees to access buying power. “Being a part of RFG gives franchise partners within the Gloria Jean’s Coffees network access to strong supply scale and leverage,” says Gilbert. Franchisees have access to Roasting

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The key is to be one step ahead of the market by anticipating trends well ahead of time in order to be first to market.

INDUSTRY SPOTLIGHT have access to the same buying power as Gloria Jean’s Coffees.

ZARRAFFA’S COFFEE

Australia, another RFG subsidiary, which roasts and distributes Gloria Jean’s exclusive blends. This gives franchise partners confidence and control over their core product offering, coffee.

MICHEL’S PATISSERIE A French-inspired patisserie offering food and coffee, Michel’s Patisserie is also an RFG brand. It has grown to become Australia’s largest patisserie chain, with about 230 locations. Lately the business has evolved to include a larger model, Michel’s Patisserie Cafe (MPC), which offers an extended menu including

breakfast and full meal service. “For a large brand, mimicking the innovation and speed-to-market of emerging trends can be difficult. Our very size and working processes make it hard to respond quickly to market demands,” says Gilbert. “However, as we see it, there is an easy solution - the key is to be one step ahead of the market by anticipating trends well ahead of time in order to be first to market.” “Michel’s Patisserie employs worldclass coffee specialists based at Roasting Australia in Sydney. They are responsible for developing the perfect bean roast, flavour profiles and product quality.” As an RFG brand, Michel’s franchisees

Headed by Kenton Campbell, Zarraffa’s Coffee started in 1996 as a coffeeroasting business, opening its first drivethrough franchise in 2009. “We were boutique before boutique was invented,” says Campbell. “We are a specialty coffee quick-service restaurant. We make our cappuccinos, lattes and so on our own way.” Blogs and trends do not dictate the brand, but are influential, he says. However, the brand does adjust for geographical areas, recognising local demands. “We are a training organisation more than anything, so we don’t need to compete with others,” says Campbell. Training is an ongoing process for each new staff member to ensure quality and spread of service, be it takeaway or sit down. Franchisees can upsell on added products such as coffee beans, the roastery, tea, sugar, syrups and sauce. And benefits of joining the network include buying power for products and access to free training a few times a year, ranging from productivity, administration, push margin and general staff training. Campbell says franchisees who have

MAR / APR 2017 | 46 | WWW.FRANCHISEBUSINESS.COM.AU

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INDUSTRY SPOTLIGHT been around for 10 years “have a huge influence on the brand now”.

LAVA COFFEE Established in Mackay, north Queensland,

in 2008 with the goal of providing an affordable entry point for entrepreneurs looking to break into the coffee market, Lava Coffee now has franchises throughout Queensland, New South Wales, Victoria and Western Australia. “We are well aware of the importance

of staying 'on-trend' in the alwaysdeveloping coffee marketplace,” says GM Christine Wadsworth. “Being aware of trends in your industry is certainly important. It is equally important not to be distracted by fads that are here one day and gone the next. “Ultimately, the customer wants a great cup of coffee every time - this is built on having quality and consistency in your blend, baristas, equipment and training.” Wadsworth says Lava Coffee has a strong relationship with its roasters, Seven Miles Coffee, which maintains the blend and ensures equipment and techniques are always at the “cutting edge of coffee evolution”. But, she says, that is only one part of the equation. “When this coffee expertise is combined with the knowhow of a management team that has a wealth of franchising experience, our franchisees have several advantages over independent boutiques.” Managing costs is a big part of the Lava model, ensuring franchisee profit. “Some businesses may have great turnover levels, but if they are burdened by large financing, rental and staffing costs it is very difficult for the business owner to turn a healthy profit,” says Wadsworth.

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“This is something we are very aware of at Lava. We will never sell a franchise if we are not completely comfortable with the cost structure.” Sites are also chosen carefully. While some sections of the coffee industry are becoming congested and expensive, Lava’s focus on non-traditional locations and “out-of-the-box” concepts set it apart from most, says Wadsworth.

FIBONACCI COFFEE Founded in 1999 as independent cafes, kiosks and coffee carts, Fibonacci Coffee targets aspiring entrepreneurs. “Fibonacci Coffee uses the power of the franchise partners to share successful strategies and ideas that benefit all partners,” says director Boaz Keeda. “We provide a coffee expert who travels around the group’s shops and shares the latest trends and techniques.” Creativity from its franchisees is also encouraged, enabling them to try new and innovative ideas to cater for local communities. “Besides having an overarching national marketing campaign, our franchisees are provided with a marketing toolkit,” says Keeda. “Together with our

MAR / APR 2017 | 49 | WWW.FRANCHISEBUSINESS.COM.AU

INDUSTRY SPOTLIGHT

marketing team, franchisees choose and implement the strategies that best suit them and their market.” Fibonacci Coffee offers three models: • A kiosk with basic food prep • Full cafe • Cafe and bar “We also have a pay-as-you-go model for qualified candidates,” says Keeda.

CIBO ESPRESSO Cibo Espresso was founded in Adelaide in 2000 by four Italian friends, and was acquired in 2012 by Retail Zoo, the Boost Juice franchisor. Franchise recruitment manager Sally Nathan says product development is a strong focus at Cibo (an Italian term for a non-pretentious person who enjoys food). “Our team is constantly monitoring trends across the industry and looking into the viability of these, including cold drip, flavoured blends and coffee flights, just to name a few in development and trial at the moment. “While we are always looking to push forward in the product innovation space, we are also mindful these trends need to be commercially viable and that each new product we introduce sits with the ethos of the brand.” Apart from product innovation, the brand has its own distinguishing features. “Each of our stores have distinctive characteristics to reflect their location and the local community,” says Nathan. “You will often find old photos of the franchisee’s family on the walls of

their store, as we have a strong family atmosphere across our brand.” GM Merissa Collins says the idea is to have the group’s stores “look like cousins, not identical twins”. “The branding needs to be strong enough for our customers to identify our stores, yet the ambience needs to be unique in each setting, to reflect the area in which it is located.” While Cibo does not have mapped territories, operations and leasing teams are constantly assessing emerging catchments to ensure growth is considered for the mutual benefit of franchisees and franchisor. As for profitability, the franchisor constantly analyses each store, seeking ways to grow profits each year. “Our operations team meets with franchisees regularly to review their profits and losses, and to identify efficiencies in-store and how these can be improved,” says Nathan. Franchisees also benefit from buying power across the Cibo Espresso supply chain as well as its centralised marketing.

business, and we give them the training and resources to empower them to make genuine connections with their customers.” Jamaica Blue keeps a close eye on developments reported in social media to assess their relevance to its concept and the broader market, “but at the same time we aim to stay true to our strong coffee heritage and track record of serving awardwinning coffee,” says Eide. He says franchisees enjoy the economies of scale and larger buying power generated from both brands under the Foodco banner (it is also the Muffin Break bakery franchisor). All business units are

JAMAICA BLUE Owned by the Foodco Group, Jamaica Blue specialises in coffee and locally sourced food. The brand has a network of more than 170 stores in seven countries. “Our goal is to constantly challenge the norm of typical cafe chains and continually evolve our offer to remain relevant,” says brand manager Drew Eide. “Our franchisees are encouraged to inject their own personality into their MAR / APR 2017 | 50 | WWW.FRANCHISEBUSINESS.COM.AU

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INDUSTRY SPOTLIGHT

FILTERS FOR

SUCCESS According to IbisWorld’s Cafes and Coffee Shops in Australia report in August, there are five markers of success...

HAVING A CLEAR POSITION IN THE MARKET As the coffee industry is highly competitive, it is critical for operators to have an excellent understanding of their market and quickly respond to changing customer tastes and preferences.

HAVING BUSINESS EXPERTISE Business expertise, such as experience in hospitality or retail, is a crucial factor to `success in an industry characterised by high revenue, low profit and high propensity for losses.

committed to negotiating the best value on behalf of franchisees. “Our model allows enough flexibility to ensure our business partners can respond quickly to local conditions and deliver an offering relevant to customers in their area.” Profitability is also paramount. “We have many systems in place to help with profitability, ranging from tactical salesbuilding techniques, careful management of controllable costs and regular workshops as well as one-on-one training sessions to ensure each franchisee is maximising their opportunities,” says Eide.

MUFFIN BREAK Established in 1989, Foodco’s Muffin Break offers coffee as well as baked goods made on site. There are 320 stores in the network. Muffin Break is one-of-a-kind in its offering, says brand manager John Macphail. “Our products are unique to our brand. “We find that boutique coffee shops are often focussed heavily toward coffee but forget about the food offer,” he says. “They tend to offer a similar

HAVING EFFECTIVE COST CONTROLS It is important that industry players minimise costs and waste, especially regarding food. This is particularly true given the industry’s low profit margins.

HAVING EFFECTIVE QUALITY CONTROL Consistent high quality is needed in the preparation, presentation and serving of coffee and food items to meet customer expectations and maintain positive referrals.

HAVING A MULTISKILLED, FLEXIBLE WORKFORCE Operators need access to a high number of skilled, casual and permanent wait staff, cooks, chefs and kitchen hands to maintain quality customer service, especially during periods of peak demand.

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procured ‘out-of-the-box’ product similar to all other independents, and offer little differentiation. “We are the only cafe franchise concept that bakes and prepares all its products in store, a significant differentiator to other franchise brands as well as smaller independent coffee shops.” The franchisor provides a range of support for franchisee profitability... • Detailed reporting and individual costing on all products to improve awareness and allow better decisions on what is displayed and offered in each location • A product-procurement team that guarantees supply and quality of ingredients, and maintains and improves margin for franchisees • Third-party suppliers for raw items and proprietary goods, and direct contact with the manufacturers of key ingredients and packaging. Franchisees are also able to source locally for fresh produce for their stores. While labour and staff productivity is the largest cost to the business, Macphail says the group has labour-management tools to help franchisees, and offers regular benchmarking and workplace training and advice. 

INDUSTRY SPOTLIGHT

AGE

COMING

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As Australia’s fitness industry continues to develop and diversify, the senior age group is becoming a key market for brands to target, writes Noha Shaheed.

verall, rates of participation in fitness and gym activities among Australians have increased over the past decade, but more recently growth has been holding steady. Participation nationwide and state by state is higher among women than men, and 18- to 34-year-olds have the highest rates of engagement in gyms nationwide, according to Fitness Australia’s latest Profile of the Fitness Industry in Australia. People 55 years and older have the lowest rates of participation, particularly those past the age of 65. Their share of participation in fitness activities is disproportionately below their proportion of the population. Projections for the coming decade indicate that the over-65 demographic is increasing. In the franchising space, options include 24-hour, premium, gender-specific and studio models. Franchisees upsell through personal training, nutrition and even merchandise. With the continually transforming and competitive nature of the industry, how are franchised fitness brands tapping into the lucrative senior market?

ANYTIME FITNESS

...

From the US, Anytime Fitness was launched in Australia in 2008 after Justin McDonell, his sister Jacinta McDonell and business partner Richard Peil bought the master franchise rights. It has expanded to more than 440 clubs across the nation. “We understand how important convenience is to our members,” says CEO Arthur McColl. “People want to exercise on their own terms: whenever their busy schedules allow, close to their homes or workplaces, and when they travel.” He says a feature that separates Anytime Fitness from competitors is its integrated use of software, security and surveillance systems that allow owners to run safe and secure clubs without needing more staff. While the brand is most effective for 18- to 24-year-old males and females in their late 20s, it has developed marketing toolkits so clubs can target the over-55 demographic with offers specific to their fitness and health needs. “The fitness industry is constantly changing and you must keep up in order to succeed,” says McColl. “It’s a very competitive business, so staying on top of your competition is a key challenge.” MAR / APR 2017 | 55 | WWW.FRANCHISEBUSINESS.COM.AU

INDUSTRY SPOTLIGHT

PLUS FITNESS Plus Fitness, a 24/7 gym model, started trading 20 years ago as Plus Fitness Health Clubs. In 2011, the brand launched Plus Fitness 24/7 as a franchise model, with more than 220 outlets now. “No lock-in contract memberships have always stood us apart from a number of our competitors,” says Nigel Miller, who heads up the franchise. “This in conjunction with our exercise class offerings, which are not traditionally offered in most 24-hour gyms. “We cross the whole spectrum of age demographics, with members from 14 years old right through to their 90s. However, our strongest is 20-24, closely followed by 25- to 29-year-olds.” Miller says the brand works closely with healthcare providers as well as Seniors Card to ensure it gets its service offering front of mind with the over-55s market. “Retention of the over-55s market remains high, which is testament to the support and programming we provide at no extra charge in our gyms.” Although convenience - accessibility, location and working hours - has been the main buying decision for members, Miller says the quality, presentation and cleanliness of gyms is also critical and

remains a high focus for franchisees on a daily basis. As the model works with low staff levels, once established it provides a high level of flexibility for a franchisee. Miller advises potential buyers to: • choose a fitness franchise model that will suit time availabilities in both the short and long term • choose a franchise that will provide the right level of support • “Shop around” and ask questions about the franchisor • investigate what extra support is provided for multi-unit franchising • speak to other franchisees in the network • always seek advice when reviewing the franchise disclosure document He says it is important that a franchisee “keeps their finger on the pulse of their business and continually invests time into training staff and promoting within their local community”.

CURVES A women’s only club, Curves is uniquely placed to benefit women 55 years and older, says Australia/New Zealand GM

Selina Bridge. “We have found that many 55-plus women have a form of ‘gymphobia’ they’ve never been to a gym and are worried about what happens inside those walls,” she says. “Our equipment is designed specifically for women, and Curves clubs have a coach available to teach and motivate.” While its members are mainly 40 years and older, the demographic ranges between 20 and 90 years. “Convenience and location is key,” says Bridge. “Our target market generally chooses a club for its location, because they either live or work close by.” Exclusive products, such as clothing and nutritional items, are also available for franchisees to buy via an online portal to sell directly to members. “We have equipment and mats that have been specifically designed for Curves. Franchisees buy the product through Curves rather than directly through a retailer,” says Bridge. As the fitness industry is highly competitive, ultimate service is necessary to keep members happy and returning, she says. “Being connected with the customer is key to developing long-term and loyal memberships.”

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UFC GYM UFC Gym Australia is a brand extension of UFC, a global name in the sport of mixed martial arts (MMA). Offering group fitness classes, private MMA training, personal and group dynamic training, plus MMA-style youth programming, UFC Gym endeavours to target all ages and fitness levels. While memberships start from five years old, the core market is from 18 to 39 years. “The great thing with our brand offering is that it can be tailored for any age group,” says CEO Maz Hagemrad. “For instance, we run a Family Daily Ultimate Trainer whereby parents work out with their kids in the same class. “With the ageing population, the over-55 bracket is becoming a key strategic market, and we are aiming to educate this demographic about the key health benefits of our workouts.” Hagemrad says the main challenge is combating the brands that have commoditised the fitness market based on price point. “This has sucked the value out of the industry, and along with this the culture and community that was once in fitness centres has diminished. We are restoring this culture and building the community by championing camaraderie

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INDUSTRY SPOTLIGHT and encouraging friendships.” He views convenience as a key factor in providing member value. This includes ease of access, ease of parking and ease of booking into classes via the new UFC Gym Australia app. “However, we won’t devalue our premium offering for the sake of convenience. Therefore, real-estate selection becomes a key priority in our aggressive rollout.” Benefits of buying a franchise include the brand equity affiliated with the UFC and UFC Gym merchandise, which forms a significant component of a franchisee’s revenue stream. Franchisees can also benefit from vendors being vetted and prices negotiated on group buying, both

We have seen an explosion in people investing into the fitness industry, but many simply want to ride the wave of the 24/7 boom, which has seen many investors be less than successful.

locally and internationally. “Do your research - don’t let the initial capital expenditure be your barrier to entry, and ensure the brand you commit to has a strong history to ensure a stronger future,” Hagemrad advises potential franchisees.

SNAP FITNESS Snap Fitness CEO Ty Menzies says the brand’s environment lends itself well to the over-55s by offering low-impact equipment “in less intimidating environments than some of our competitors”. “Many of our competitors offer limited services with simple set-ups of cardio and weights, whereas we have been able to adapt and move quickly with trends. Most of our clubs now have high-intensity interval training spaces where members can vary their training.” Snap Fitness last year launched boutique franchise 9Round in the Australian market, opening six outlets plus two in New Zealand. Also under the banner are Yogafit studios. While the 24/7 sector was born on convenience, great amenities and low cost, Menzies does not see these factors being paramount moving forward. “Our members want service and advice, so we have been working hard on this. We have launched the Australia’s Trusted Workout application and other in-club initiatives to help our members reach their fitness goals and enjoy their experience even more.” Menzies says the brand has preferred supplier agreements, but there is room

for flexibility whereby new suppliers suggested by franchisees may be considered. His advice for franchisees is to invest because they have a passion for the industry and helping people in general. “We have seen an explosion in people investing into the fitness industry, but many simply want to ride the wave of the 24/7 boom, which has seen many investors be less than successful.”

FERNWOOD WOMEN’S GYM Fernwood is a full-service female-only health club that has been around for 28 years. Founder Diana Williams says the main demographic is 25 to 35 years old, “but we have ladies in their 80s and 90s as well”. “The over-55 age bracket is increasingly diverse,” she says. “Previously, those over 70 were more worried about their money, so were likely to go to a councilrun place or do something locally than pay for a gym. We’ve seen that change over the years. People are becoming more and more aware of the need to invest in their health, so now we offer a range of services to suit all demographics. “We have more passive classes, personal training and other activities tailored to older women, so it’s not all about full-on high-intensity exercise.” For Fernwood, offering premium premises is most important, with convenience definitely a factor, says Williams. “Clubs need to be in a location where women feel safe, somewhere they can get to easily and find a park close by.”

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She says franchisees need superior people-management skills. “Think long term,” is her advice for people seeking a franchise. “Look for a mature franchise system that has been around a long time, and is still current and relevant. Do your research and make sure you’re not just getting into a new fad – you need to be in a solid business that is going to be around for the long haul.”

JETTS FITNESS Established in 2007 and now with more than 270 gyms across Australia, New Zealand, the Netherlands and Thailand, Jetts Fitness is a homegrown fitness franchise acquired late last year by private-equity firm Quadrant. Jetts Australia COO Dirk Britz says the brand offers members a low-cost,

high-value membership option so they can work out on their own terms with no lock-in contracts and 24-hour access. Though members fall in the 18 to 35 years bracket, Jetts has just developed and launched a small-group training program built around the seven everyday body movement patterns. “This program appeals to all age brackets, but especially the over-55 group as it doesn’t focus on how fit or strong you are, but on how well you move,” says Britz. “Small-group training will continue to be a focus for Jetts, and the program will be further developed as we collect feedback from members.” He says the Jetts model is built on minimal overheads, which means franchisees are optimised to maintain their day job, invest in other businesses or, as in most cases open a second or third club. “Convenience is very important to the Jetts model, and starts with easily accessible locations that include good parking and visibility, and extends to the gym environment with everything from layout to lockers.” And his words of wisdom for potential buyers? “Never underestimate the importance doing your research – and be sure to invest in a strategy you believe in.” 

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INDUSTRY SPOTLIGHT

HOME DELIVERY While the market continues to be strong for building or buying new dwellings, greater growth lies ahead, as Sarah Stowe reports.

n the heels of a 2.7 per cent increase in loans in November for building or buying new dwellings, Housing Industry Association (HIA) chief economist Dr Harley Dale says new-home growth will support the wider economy this year. On a moving annual basis, the value of lending for construction investment has reached a record level. “The new-home lending cycle has peaked, but the November results confirm that the elevated volumes of lending we have seen over the past three and a half years were still in play as the year neared an end,” says Dale. Compared with 12 months previously, the number of loans for building and buying new homes increased in five out of eight

states and territories in November. The fastest annual growth was in Tasmania (28.4 per cent), followed by Queensland (20 per cent), South Australia (11 per cent), New South Wales (9.9 per cent) and Victoria (9.6 per cent). A drop in the number of loans in November was seen in the Northern Territory (down 57.9 per cent), the Australian Capital Territory ( down 23.3 per cent) and Western Australia (down 9.5 per cent). MORE AHEAD IbisWorld’s report House Construction in Australia (November 2016) indicates greater growth coming up in the next five years, rising from the current 0.9 to 2.4 per cent. As a sector, however, the house-building industry is in decline, IbisWorld suggests, with the trend moving to higher-density

living such as apartments and townhouses, driven by population growth, lower entry costs and the desire for inner-city lifestyles. Driving demand in the short term is mortgage affordability, job security and government policy, with influence from demographics, the age of the existing housing stock, and buyer preference. First-home buyers are expected to account for about a quarter of the market, with two-thirds of private-sector investment by second-, third- and fourth-time home buyers. HOT SPOTS Victoria and Western Australia have been the two growth hot spots over the past five years. “Victoria has accounted for a disproportionately large share of the national

MAR / APR 2017 | 60 | WWW.FRANCHISEBUSINESS.COM.AU

The emergence of franchise arrangements points to a potential revolutionary change in the nature of industry competition.

“The emergence of franchise arrangements points to a potential revolutionary change in the nature of industry competition,” says report author Anthony Kelly. “Hotondo and GJ Gardner Homes have established themselves as the leading home-building franchisors.’ More than half of the industry’s enterprises earn less than $200,000 in revenue, with fewer than 10 per cent generating more than $2 million.

ON THE HOME FRONT

new-housing construction market over the past five years,” says the IbisWorld report. “This reflects several factors, including Victoria’s relatively strong pace of economic growth, a reversal of the trends in net interstate migration outflow, strong trends in international immigration and the strong preference for traditional housing in Melbourne.” The state’s 28.4 per cent share of national single-unit housing construction value outweighs its 25 per cent share of national population, the report says. In terms of home-building businesses, the sector is fragmented, with the top four home builders accounting for less than 10 per cent of the industry’s annual revenue. Metricon leads with a market share of just 2.3 per cent, while franchise chain Hotondo Homes has an estimated market share of 0.8 per cent.

Inside Franchise Business spoke with Robert Stubbs, chief operating officer of Hotondo Homes, to gain an insight into franchising in the home-building industry… HOW DO YOU SEE THE HOUSING MARKET RIGHT NOW? When discussing housing prices, we need to be careful to distinguish the diverse markets in Australia. There is clear evidence to indicate that affordability has become a challenge in some of the major markets of Sydney and Melbourne. Many Hotondo Homes builders, particularly in regional areas, are reporting very strong leads and sales. This supports the data that price issues are not being felt evenly across the country. There is also evidence of a potential oversupply of apartments along the east coast, particularly in capital-city CBDs. Overall, our network of professionals, from Mackay to Hobart, are continuing to have strong sales in nearly every region, with few exceptions.

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WHAT IS THE BRAND’S POTENTIAL? Our network is continuing to grow, with new builders in south-east Queensland and New South Wales. Our marketing has delivered significant growth in sales leads, and our strong message of quality, professionalism and local builders has produced excellent results. The feedback from our customers reflects this. As a result, we have several new franchisees. More importantly, we support them with a robust system, clear processes and strong support throughout their journey. WHAT IS HAPPENING WITH SUPPLY COSTS IN YOUR SECTOR? As a national builder, we work closely with our major supplier partners. The key mantra is to ensure consistent quality at affordable prices. The relationship with our major suppliers is a crucial element in the supply cost discussion. WHY HAS THE EXPANSION OF YOUR NETWORK BEEN SO SUCCESSFUL? Despite all the media reports to the contrary, Hotondo Homes has seen constant, strong demand for affordable, quality detached housing in most areas. The first-home buyer market is continuing to flourish, particularly in outer-metro areas such as Melton and Sunbury in Victoria, Gosford and Newcastle in New South Wales, and Ipswich in Queensland. We have supported this growth with the release of our new Forever Retreat range, offering affordable and stylish homes and ideally suited for first-home buyers. 

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INDUSTRY SPOTLIGHT

T H N E O

L O L R

Australians really love their sushi, which means there are plenty of options and franchises need to be on their mark to survive. Sarah Stowe hears from Sushi Sushi and Tokyo Sushi Kitchen about their models and expansion plans.

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SUSHI SUSHI Sushi Sushi’s aggressive growth plan is to unveil between 15 and 20 stores, and to launch the brand in New South Wales, where it’s time to go head to head with strong competition in Sydney, says GM Gavan Meadows. “Melbourne is pretty much tapped,” he says. The newest store in Chadstone is in the Fresh Look food court alongside other franchises such as Boost Juice, Nando’s, Nene Chicken, Sumo and Thrive. The brand is also embracing new concepts, with its Monash University outlet one of the top 15 performing stores. Next will be the first outlet in Adelaide, at the new Royal Adelaide Hospital, and a new-look corporate store. “Each store needs to tell a story,” says Meadows. Decor is a premium black look with light woods. “The presentation needs to reflect the time and effort it has taken to prepare the food.” It is the food that is the focus for this brand. “Everyone is a foodie,” says Meadows. “If you don’t match the standard expected, you’re dead in the water.” That means freshness and quality exemplified by Tasmanian fish, reiterated with

stickers on packaging saying Made Fresh Today. Founder Anna Kasman works on the principle of “what I serve to family, I’ll serve to customers, ” says Meadows. The brand has just been relaunched with a national advertising campaign focussed on the tradition and mastery of sushi with the new belief statement: “We train for years, prepare for hours, so people can devour in seconds”. Authentic ingredients are a unique selling proposition, such as Japanese vinegar and a gluten-free soy sauce from a 350-year-old company. “People realise if you pay $10.90 for a sandwich, you may as well pay $9 and get the healthy rolls. Sushi Sushi has become really relevant to people’s daily needs,” Meadows says, noting the sushi market is growing exponentially with average transaction values also rising. “Already this year the head-office team has been expanded. There’s a lot of work to do. We have to grow the auditing, operations manual, warehouse. We use 30 tonnes of rice a week and serve on average more than 230,000 customers a week.” Meadows is confident in the brand’s growth potential. “I reckon 350 stores would be quite comfortable,” he says. Company-owned outlets are an integral

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part of the network. “The value of corporate-owned stores is that they give us the ability to formulate new menus, trial products and standardise operating procedures. They complement other stores in the centre, so we secure a site and then franchise if we can. “We have an internal ownership program for staff and managers that gives them an opportunity to grow within our business and become franchise partners.” Multi-unit franchisees are part of the mix, and they are growing, too: one franchisee with eight outlets wants two more. Marketing activity is reflecting the sector’s growth. Meadows says there is constant engagement on social media with Facebook likes jumping in nine months from 2000 to 21,000, and cinema, TV and other campaigns pushing the food franchise. The brand has found a niche with Tennis Australia, which he describes as “a ringing endorsement”. At the Australian Open, the sushi chain runs both a retail outlet and a players’ cafe. At last year’s open 12,000 units were sold, and players have requested the brand again. At store level, a $20 gift card was launched nationally at the end of November. “Franchisees love it,” says Meadows. “They get the money upfront. It’s about

INDUSTRY SPOTLIGHT relevance to the customer, giving them a great experience.” He says catering is a growing part of the business, with platter orders increasing 250 per cent on the previous year, and CBD lunches popular. Sushi orders have also done well with delivery firm Foodora, particularly on Thursday and Friday nights. Sushi Sushi is seeing massive growth in the mothers’ and children’s market, to the point of a kids’ menu being launched. Also new is a deluxe selection. In four months, it has accounted for 5 per cent of sales. Further innovations will follow, and at the end of this year a fresh format will be unveiled. “We’re the market leader, with the most stores, and we’re the most innovative,” says Meadows.

TOKYO SUSHI KITCHEN “We don’t just do sushi,” says Tokyo Sushi Kitchen founder Dennis Lay. “It accounts for 60 per cent of sales, but 40 per cent comes from other items, Bento boxes and ready-to-go meals. We still have a lot of meal options for less than $10.” On one hand, the five-year-old business

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14/02/2017 1:55:17 PM

is working to convert older consumers to sushi, while the other target is children. “Our future is focussed on kids, the concept based around anime cartoons and bright colours.” The idea is to attract little consumers and create as much excitement around an avocado sushi meal as the purchase of a Happy Meal. A $4.95 kids’ meal is being introduced, complete with colouring page, competitions and movie-ticket draws. “We have a great deal, a sushi day at schools. Our ops guys co-ordinate this. We help with geo mapping, the franchisees do the sales pitch. We give them the format. “The more driven and focussed we are on kids, parents will see how appealing our product is, and that drives complementary purchases.” The business is pushing an a la carte menu with all items made fresh to order. “Our sushi is made within the hour, and each store has a dedicated sushi roller who is visible to the customers. This gives them confidence in the freshness of the product and hygiene safety. Providing transparency about what staff are doing is important.” Tokyo Sushi Kitchen’s ingredients are pre-marinated and delivered through a

national distribution network. “We see our brand as an innovator,” says Lay. The latest development addresses a new demographic. “Fully fledged vegan managers are redeveloping our brand so we can appeal to vegetarians and vegans. It gives us a point of difference.” Six outlets will open this year, bringing the chain to 17 stores. About 40 per cent of these are company owned and used for training and menu trials. Outlets sit in sub-regional shopping centres and the fringes of Melbourne, 30 to 40km from the city. There is only one store in the city centre. “It’s important to sustain competitive leases,” says Lay. “Our mission is to dominate wherever we are.” Franchisees are the priority, he says, and that means negotiating with landlords to secure great deals that allow franchisees to trade at a competitive price and retain a good margin. The store footprint is typically 70 to 100 sqm, and new outlets include in-house seating. Expansion to South Australia is coming up, with a Mount Gambier site in the pipeline. It is part of an 18-month expansion plan, with Lay eyeing up the Brisbane market down the track. 

The value of corporate-owned stores is that they give us the ability to formulate new menus, trial products and standardise operating procedures.

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Contact Robert on (03) 9604 9400 or by email at rxt@marshmaher.com.au www.marshmaher.com.au

FRANCHISE LICENSING AND RETAIL GROUP

Marsh & Maher are members of: The Franchise Council of Australia (FCA), International Franchise Lawyers Association (IFLA), US Commercial Service. MAR / APR 2017 | 67 | WWW.FRANCHISEBUSINESS.COM.AU

INDUSTRY SPOTLIGHT

FRANCHISING & BUSINESS OPPORTUNITIES EXPO

HUNTING and gathering

10am-5pm, 25-26 March Hall 7, International Convention Centre Darling Harbour, Sydney

If you are trying to track down a franchise to buy, an expo offers a broad range of familiar brands as well as new concepts you can investigate all in one spot.

hether you are just starting your search or drawing close to finalising your decision, it makes sense to put time and effort into choosing the franchise that is right for you. Attending a franchising expo can give you insights that are hard to gain from online searches. Under one roof you will be able to have contact with recognisable brands as well as investigate new concepts. It is a chance to compare not just franchise offers, but brand presentation and the attitude and approach of franchise teams. You may also meet franchisees who work in the business every day, and you can load up your knowledge bank by attending the free advice seminars at the event. A sensible first stop if you have questions is the Franchise Council of Australia, which will be involved in the Franchising & Business Opportunities Expo in Sydney’s new International Convention Centre at

Darling Harbour in late March. The event promises a diverse line-up of brands. Exhibitors include household name retailers such as Clark Rubber, Godfreys, Lenard’s Chicken and Poolwerx. The Retail Food Group will be showcasing its brands which include Brumby’s, Crust Gourmet Pizza and Michel’s Patisserie. And yet more food options will be available with young names such as Mongrel Joe’s, Love Pollo, the Franchise Retail Brands’ New York Pizza Slice business, and Fogo Brazilian Churrasco Grill. There are services franchises represented including National Drones, Tax Assist and The Graffiti Eaters. And overseas franchises will be present too: Papa Johns International and TapSnap from the US, and for the first time a contingent of Taiwanese companies. A free seminar program includes keynote presentations from high profile franchisors such as award winning John O’Brien, CEO of Poolwerx, the cover star of the Jan/Feb

Get your free ticket at www.franchisingexpo.com.au and use the code FMG.

Inside Franchise Business magazine. Exhibition manager Fiona Stacey says “It’s an incredible opportunity to hear from people at the top of their game, to learn from them and to see what drives them. “It’s a good idea to check the program on our website before you attend, to make sure you’re in time to hear from any speakers who particularly interest you. “We are celebrating our 30th year with a fresh new look and central seminar stage, so there will be a real buzz.” Plan your day so you can gain the most out of the event. Prepare a list of key questions for eych franchise so you can draw comparisons. List key franchise brands you want to find out more about. You can check the exhibitor list when you register online for your ticket. Check out our Franchise Basics section, starting on page 71, for ideas on what to consider as you go about your hunting and gathering. 

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FRANCHISE BASICS

Finding THE right fit Do you have the right attributes to become a successful franchisee? How do you choose the franchise that is right for you? Read our 25-page self-assessment guide to find the answers.

uying into a franchise is a big step, with many factors to influence the choice of business and the available options, plus your suitability to take on such a commitment. This easy guide to franchising can be a useful reference tool if you plan to travel on the path to becoming a franchisee. Inside Franchise Business offers both information and advice from experts that will make the journey to a franchise purchase easier. In this edition, the focus is on match-making: assessing your own capabilities and situation, and considering what you need from a franchise so you can find the perfect fit.

IN THE NEXT ISSUE Money matters: • How to obtain a loan • Do you have the cash? • Avoiding financial pitfalls • What is the true cost of a franchise?

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FRANCHISE BASICS

REALITY CHECK

Business ownership is a dream for thousands of Australians, and franchising can be an easy way to achieve this goal. But what is it really like to be a franchisee?

rofessor Lorelle Frazer, director of Griffith University’s AsiaPacific Centre for Franchising Excellence, has a word of caution for people who may be thinking about entering the world of franchising.

“Many people have a dream of one day being their own boss, and buying a franchise can provide the pathway to making this happen,” says Frazer. “However, the reality of life as a franchisee

can be very different to the dream. “Research by the centre has shown that many people go into franchising with unrealistic expectations. An emotional attachment to a franchise brand and a dreamlike vision of what their life as a franchisee will be like often overrides objective information. “People looking to chase their franchise dream need to think hard about what it will actually be like in reality. The time to do this is upfront, before they make the

decision to buy a franchise.” Frazer says there is much to consider... “Are you the right personality for that business? How will it affect your lifestyle? What are the financial implications in the short and long term? This is before you even get to managing staff, cashflow, IT, HR and the hundreds of other issues that come with being your own boss.” We are covering some of these issues over the next few pages, but firstly, what is it like to be a franchisee?

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REALITY CHECK Newbie franchisee Jenny Copper opened her First Class Accounts business in Pacific Pines on the Gold Coast in August. “Starting a new business is hectic and full on, but also really rewarding,” she says. “There are so many new things you are learning all at once, which means the training is intense but nothing you can’t handle. “Although I came from a small-business background, it is always challenging starting a new venture, especially finding new clients, but someone from First Class Accounts has helped me every step of the way.” Copper says her choice of franchise was influenced by family considerations. “What has been reiterated since starting this franchise is that money is not always the driving priority - it is also about family and lifestyle balance. My family lives on the same property as I do, and this business model allows me to work from home so I can help out with my grandchildren, which is very important for me.” As franchisees develop their business, become accustomed to the ups and downs of trading and assimilate into the culture of the franchise network, their outlook can change. This makes it hard to be totally realistic about outcomes when leaping into a new venture.

OPTIMISM BIAS Franchise Relationships Institute founder Greg Nathan says there is a natural tendency for most people to be influenced by what is known as an optimism bias. “This means that when taking risks we believe things will turn out to be better for us than the objective statistics suggest. “So franchisees are full of hope in the early stages of the franchise relationship, despite the cautionary advice they may have received from their advisors. I call this the Glee Stage. You could see it as a honeymoon period. “Once they start to experience the reality of business, which inevitably includes long hours, unreliable staff, rude customers and cashflow pressure, the glee wears off and they move through a period of slight resentment. “This will eventually pass as they come to accept the limitations and the benefits of being part of the highly interdependent franchise relationship.”

NATURAL FLOW Jules Hardie has had time to observe and appreciate the natural flow of a franchise as a First Class Accounts franchisee in

North Lakes, Brisbane, for more than a decade. She has re-signed her contract several times. “I have just signed on for my third-term - my 11th year - but nothing is the same as when I started,” she says. “The industry has changed dramatically every few years, in line with cloud-based technology, but the franchisor has always been two or three years ahead of the market, so we have always been prepared. “The support to help us transition as business owners has been constant. There have been many opportunities to upskill with industry legislation changes, as well as updates to accounting software, all of which the franchisor has provided. “The other major change of note is the size of business a franchisee can now secure in the marketplace. Growth of the business has improved dramatically with the development of cloud computing, so most of the work can be done remotely,

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When taking risks we believe things will turn out to be better for us than the objective statistics suggest.

FRANCHISE BASICS increasing productivity levels.” For relative newcomer Jenny Copper, business has settled into a routine but with new obstacles to overcome. “The daily challenge I face now is knowing how to market the business, but I am confident I will always have the support I need to succeed - something you don’t have as a sole operator.”

CONSTANT CHALLENGE Business challenges are a constant as GJ Gardner Homes franchisees Peter and Caren Leotta can attest. The couple has been running its franchise in Tweed and Ballina, New South Wales, since 2010. “In terms of challenges, we face the same things as anyone in business really: issues regarding growth, staff, remaining profitable. It’s all the same no matter if you are a sole operator or part of a franchise. The key difference for a franchisee is access to advice and solutions to overcome the challenges. “As a franchisee, you have a further tier of support you can access at all times drawing on the knowledge and experience of like-minded business owners in a non-competitive environment.” Having other franchisees as in-built

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

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mentors and confidantes is a real advantage. To fully benefit from this, and to be appreciated as someone who gives back to the brand, a franchisee needs to avail themselves of as many opportunities as possible to meet and share information. “I guess that is what we have found most surprising, the sheer value of continued camaraderie and sharing your business journey with others,” say the Leottas. “If you are working the system right, you create powerful networks and friendships that have a direct impact on your success. It makes you stronger and ultimately builds a better brand.”

BENCHMARKING Everyday as a franchisee you are dealing with other people - your customers, any staff you may employ, your franchisor head office, suppliers and other service providers, neighbourhood business owners, and sometimes legal and financial advisers and your financial institution. How will you know you are performing well compared to other franchisees? It is common for franchisors to use benchmarking across the network, which requires franchisees to be open and transparent - at least with the franchisor

- about their financial figures. For many franchisees the goal is to create a lifestyle that gives them flexibility to control their working hours, to take holidays and to provide a secure income for the family. Yet at the start of the franchise term these might seem like distant hopes. It is not uncommon for newbie franchisees to spend 60 hours a week or more establishing their business. As well as dealing with long hours, there is minimal income and the challenge of working within new systems and processes. However, there is the advantage of help on hand from other franchisees and the franchisor, and the knowledge that you, and your partners if you have any, are responsible for the performance and success of the business.

13 years,” they say. “From nothing to two stores and eight service vans has involved considerable personal growth. “While there are certainly more rewards running a business at this level, it would be remiss not to acknowledge there are also more challenges to handle. “The two things that take up most of our time are managing staff and maintaining business performance and development. These are expressly linked as you have to rely on your team to help grow the business, which means trying to instil in them the same vision and passion you have for the business, while accepting it will never be at the same intensity as your own. “Another key lesson we have learnt is the value of defining the roles in the partnership to ensure we are working to our strengths. We split the roles very well in our business, which balances out the partnership and makes the business run a lot smoother. Probably the most surprising thing we have experienced is our own ability to step up and manage the business. “In the beginning you never imagine your business could grow so big, but as your skills develop and you gain more confidence, things don’t stay the same and you start thinking, ‘What’s next?’.” 

PERSONAL GROWTH Multi-unit franchisees Steve Burn and Brett Jorgensen have been PoolWerx franchise partners since 2004. They own the Applecross and East Fremantle stores in Western Australia, along with eight service vehicles. “Becoming a multi-unit franchise partner has been a big journey, but it really feels like we’ve achieved a lot over the past

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FRANCHISE BASICS

F O N O I T S E U Q A ENTERPRISE described as an ly u tr e b e e is ch n Can a fra it really matter? s e o d d n a r u e entrepren

ANDREW TERRY Professor of Business Regulation in the University of Sydney Business School, and member of the FCA Hall of Fame.

here is regular debate about whether a franchisee is an entrepreneur, the argument being that the person who has the vision, comes up with the concept and builds a system around it – namely, the franchisor – is the true entrepreneur. It is argued that franchisees simply buy themselves a job so are not really entrepreneurs, despite being responsible for managing a business, which entails creativity and assuming risk. Subscribing to a wider concept of entrepreneurship, I don’t find the debate particularly helpful. Whether or not franchisees can be categorised as entrepreneurs is hardly important - the main issue is that they have the characteristics and skills appropriate for successful franchising. While it probably can be generally agreed that the franchisor is an entrepreneur, opinion is likely to be divided on the

status of the franchisee. But it is actually not that simple. Many readers will have seen The Founder, the biographical movie about Ray Kroc’s acquisition of Dick and Mac McDonald’s hamburger outlet. It poses the question about who is the true entrepreneur – the McDonald brothers who developed the innovative retail concept, Ray Kroc who recognised its potential and exploited it so successfully, or franchisee Jim Delligatti who invented the iconic Big Mac product? All three parties, as well as the thousands of other franchisees who invested their own resources, finances and time to open and manage outlets, had the entrepreneurial gene and contributed in various ways to the system’s success.

NOT CONVINCING It is not convincing to say that franchisors, the business builders, are entrepreneurs

while franchisees, who implement the franchisor’s system, are not. It may well have been the case in the early days of franchising where “mom and pop” franchisees rolled out cloned outlets, but it does not reflect the real world of today. Master franchising and area-development franchising and multiple-unit franchising have radically changed the dynamics. The master franchisee, who builds the franchisor’s business in a new market, is surely as much an entrepreneur as the franchisor, and just so the multi-unit franchisee. Like the franchisor, these people take on a venture that involves risk, creativity, initiative and independence - the key characteristics of entrepreneurship. However, franchisors might not be warm to such an idea. In Franchising for Dummies, author Michael Seid says most new franchisees see themselves as entrepreneurs, “which poses a problem for franchisors”.

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True entrepreneurs have trouble following anyone’s direction except their own, which does not sit well with the prescriptive nature of franchising. Energy, drive, ambition and focus are entrepreneurial characteristics that franchisors seek in prospective franchisees, yet the entrepreneurial characteristic of tinkering and making changes is not compatible with franchising. “If you allow that to happen, each franchisee will do their own thing, and your system will never be able to achieve the consistency the public expects when they shop at a brand,” writes Seid. “To create a brand in franchising requires people who will follow your lead and understand that consistency throughout the network of locations is

essential for their success as well as yours and the other franchisees in the system”.

IDEAL FRANCHISEE The term “intrapreneur”, an entrepreneur within an already established system, is often used to describe the ideal franchisee: self-sufficient, proactive, action-oriented but working within the prescription of another’s system. Seid uses the term “entrepreneur lite”, meaning people who understand that their first obligation is to “follow the system and execute the franchisor’s business strategy flawlessly”, yet “still have the burn to own their own business”. For this reason, many franchisors regard those leaving the armed forces as

Whether or not franchisees can be categorised as entrepreneurs is hardly important - the main issue is that they have the characteristics and skills appropriate for successful franchising

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ideal franchisees. They are accustomed to working within a system and a hierarchy with a prescribed protocol for system change. In an earlier column I wrote about a close school friend from New Zealand who, on facing growing frustration with the higher echelons in the organisation for which he worked, decided to buy a franchise. He was surprised by my strong admonition that he should never do so. In the context of entrepreneurial traits, he was self-sufficient, proactive and action-oriented, but there was no indication he would be comfortable working within someone else’s system. Woody Allen’s comment that 80 per cent of success in business is “just showing up” may be true in his line of business, but this attitude would not work in franchising irrespective of whether you are a franchisor or a franchisee. Showing up is a necessary starting point, but it is hardly the quintessential entrepreneurial trait. Nevertheless, different types of entrepreneurs bring different forms of entrepreneurial spirit to their particular role in franchising. It is not rocket science to suggest that the most effective dynamics will result from both parties – franchisor and franchisee – clearly understanding the nature of their relationship and the role of both parties. 

Join Become a Franchise Council of Australia Member Membership of the FCA is voluntary, and open to any organisation or individual involved in the franchise sector, including franchisors, franchisees, lawyers, accountants, banks, consultants, academics, publishers - plus many others. Benefits of Membership Representation of franchising sector perspectives to government A voice in your association Franchising public relations Excellence in Franchising Awards Education National Franchise Convention Regular industry events FCA branding Website directory advertising Enquiries and Further Information E info@franchise.org.au W www.franchise.org.au

FRANCHISE BASICS

5 COMMON

FRANCHISING MISTAKES DR MICHAEL SCHAPER Deputy Chairman, ACCC

Take a note of the slip ups other franchisees have made and ensure you set yourself up for success.

uying a franchise can prove to be a good way to run a business. But although thereâ&#x20AC;&#x2122;s the back up of a tried and tested system, franchisees are never guaranteed success. Getting it right comes down to a combination of brand, location, investment, operating costs and franchisee commitment.

So what are some of the mistakes franchisees commonly make before they buy that you could avoid to give yourself a head start?

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FRANCHISE BASICS UNDERSTANDING 1.NOT WHAT’S INVOLVED Franchisees who buy a business without really understanding the many demands of running a franchise business, and how it differs from other small businesses, can find themselves floundering. Being prepared is the best way to avoid this. You could undertake pre-entry training (Griffith University runs a free program supported by the ACCC) that will introduce you to the mandatory Franchising Code of Conduct and explain: • how the Code affects the rights and obligations of both franchisors and franchisees • what information franchisors must disclose to potential and existing franchisees • the framework under the Code for helping franchisees and franchisors to resolve disputes.

ON 2.SKIMPING RESEARCH You wouldn’t buy a house without researching the area and the market value. Buying a business requires a similar level of research and investigation – even when it’s a franchise. The franchise system you’re considering buying into will help you to evaluate its

likely success, including its short-term and long-term prospects. The franchisor will provide essential information laid out in documents prescribed by the Franchising Code of Conduct, which governs the franchise community. It’s crucial when you’re buying a franchise to review the documents provided to you and give them some weighty consideration. Your research should involve verifying any information the franchisor has provided, including the disclosure document and other legal documentation. These documents outline your rights and obligations and are the source of details about the business that you should follow up on. They form the basis of your agreement, your legal contract with the franchisor and the guidelines under which you’ll operate. So skipping this vital part of the research process can prove disadvantageous once you’re in business. Misunderstandings between franchisee and franchisor, and misconceptions about roles and responsibilities, are common causes of complaints to the ACCC. And according to Griffith University’s Franchising Australia Survey 2016, a quarter of franchisors in the last year were in dispute with franchisees; lack of franchisee compliance and communication problems were the key causes.

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• • •

FRANCHISE BASICS ASKING THE 3.NOT RIGHT QUESTIONS Avoiding the tough questions upfront just sets you up for disappointment later. Are you confident about probing the franchisor about the franchise territory, online sales, the level of support provided, lease arrangements and what will happen when the franchise term ends? You’ll need to trust your franchisor and be able to put your faith in the system, so go back to the franchisor with queries if the information provided doesn’t match what you find in your research or what franchisees tell you. Get clarity on the key points you need to understand before you commit your finances to a franchise purchase.

OTHER FRANCHISEES AS A 4.IGNORING SOURCE OF INFORMATION Before you commit to buy a franchise, the franchisor must give you a disclosure document which includes the contact details of existing and former franchisees. If you skip this part of your research and don’t speak to as many current and ex-franchisees as possible, you’ll be missing the opportunity to get a different perspective on the franchise. These franchisees can provide insights into how the franchise really operates, the franchisor and franchisee relationship, and any concerns they might have about the system. Some franchise buyers choose to spend one or two days, even longer, with a franchisee to get a real sense of what the role involves on a daily basis. Once you’re in your business, issues of training, franchisor support, and the supply of products or services will be crucial. Ask franchisees about their experiences. Find out if they would consider purchasing another outlet and whether or not they’ve had disputes with the franchisor (and if so, how these were resolved). Former franchisees can give insights into why they left.

TO GET PROFESSIONAL LEGAL, 5.FAILING ACCOUNTING OR BUSINESS ADVICE Things like earnings figures and projections can get complicated but they are fundamental to your business, so it is important to seek legal, accounting or business advice from franchiseexperienced professionals. The franchisor may provide you with earnings information, which could be historical financial figures or a forecast. If the franchisor has provided you with

projected earnings, it must also provide you with information about how these projections were constructed. Making a mistake on the numbers can set you back in business, so ensure you understand what the figures entail and how viable they are. An accountant or business adviser can help you compare and verify any figures or projections provided.

This is such an important part of the buying process that the Franchising Code requires you to provide a statement that you’ve sought professional advice, or that you’ve been advised to do so but have decided against it. You can subscribe to the ACCC’s Franchising information network to stay up to date on the latest franchising news: www.accc.gov.au/fin. 

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WHAT IT TAKES? Before moving too far down the path to buying a business, check out these 10 attributes that make a great franchisee...

any Australians regard franchises as an easy route into running their own business.

While this may be true, you still need to have business nous if you are to succeed in running a franchise. Test yourself against these 10 attributes that make for a great franchisee...

1. YOU ARE SELF-MOTIVATED

Buying and running a business is called an investment for a reason. For most franchise systems, an initial investment, ongoing royalties and a regular marketing fund are needed from the buyer. This means you need to ensure you have enough funds for the initial cost plus working capital to meet your other financial obligations to the franchisor for their support and expertise.

industry. A key staff member could leave or you may lose an important client. The franchisor could make a decision that negatively impacts your business, or a competitor could open up next door. It is important to be resilient to withstand these possibilities. Being a franchisee is more of a roller- coaster ride than a smooth, silent journey, and the dedication to grit your teeth and see through the hard times will stand you in good stead.

3. YOU ARE FINANCIALLY PREPARED

Businesses can take time to get up and running before moving into a position of profit, so the journey can be hard at times. It can stretch you thin and take up a lot of your time to get a business on its feet, which is why it is so important to be selfmotivated. Having a long-term vision and goals can help keep you motivated in the early stages. You should be able to drive yourself and not need to be pushed - you are investing your own time and money, after all.

4. YOU CAN FOLLOW A SYSTEM

6. YOU ARE WILLING TO LISTEN AND LEARN

A franchise is far different from starting up your own business. While a franchise system provides you with backing from a reputable brand and the franchisorâ&#x20AC;&#x2122;s experience and connections, it does not necessarily mean you can be an entrepreneur. A franchise model comes with a proven system designed to be followed.

2. YOU KNOW YOURSELF

5. YOU ARE RESILIENT

Franchisees typically invest in an existing business because it is tried and tested, so it makes sense to take advantage of the knowledge on hand, be it from the franchisor head-office team or other franchisees. A willingness to understand and embrace new ideas and processes is part of being a franchisee. Learning from the experience of those around you will help you avoid mistakes.

To succeed as a franchisee, you need to understand your strengths and limitations. Running a business is hard work, and while the franchisor will support you they cannot do it for you.

In your franchise career you will face setbacks, challenges and tough times. These can be caused by many factors including keeping up with the costs of a business, or even downtime for the

7. YOU HAVE GREAT COMMUNICATION SKILLS In many ways, the franchisor/franchisee relationship is like a marriage. Good communication and a strong relationship

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A competitive streak will help keep you focussed and ensure you stay on track when it comes to business performance and achieving your goals.

between the two is needed for success. It is also important for franchisees to communicate well in order to nurture relationships with suppliers and staff members, as they also play a part in your success.

8. YOU FIT IN WITH THE CULTURE Most franchisors regard fitting in with the culture as an important attribute in a franchisee. From fast food to business services, most systems require a franchisee to have superior customerservice skills. These include the ability to

relate to people as well as exude passion for the industry. You really should have an interest in the field in which you are looking to invest as this will make for a more natural fit within the culture of the business. In some cases this is more desirable than experience and technical skills, which can be taught during the initial training period. Franchisees need to have the right attitude and value the business they intend to buy into.

9. YOU ARE COMPETITIVE Not every franchise system will demand certain benchmarks are met, but if you

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are in business for yourself, you want to make money, right? You donâ&#x20AC;&#x2122;t need to be Mr or Ms Ambitious, but a competitive streak will help keep you focussed and ensure you stay on track when it comes to business performance and achieving your goals.

10. YOU CAN WORK REALLY, REALLY HARD Starting out in business, be it an independent start-up or a franchise, entails immense amounts of energy and commitment. Even with the support of a franchisor team and the branding, marketing and processes to help you run the business, there is no substitute for hard work to get yourself established. This means you will need to put the business first - above the demands of family and friends - until you can afford to step back a little from the front line. ď&#x20AC;ź

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FRANCHISE BASICS

THE BOTTOM LINE:

WHAT DO YOU WANT? You may be keen, capable and clamouring to buy a franchise, but step back and work out exactly what you are expecting from your investment.

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efore advancing to the stage of making a choice of a franchise that fits in with your lifestyle, you need to define your goals.

You also need to take into account your experience and education, family situation, how much you can afford to invest, and the expected return on investment (ROI) you are seeking. To put it in basic terms: what do you want your franchise business to give you?

FRANCHISE BASICS Common responses are lifestyle, flexibility, financial security, independence, a family business, kudos, dream fulfillment, career satisfaction, a job. For some people a franchise is a stepping stone to buying another business, for others it’s an extra income stream alongside property investments and shares. What are your personal requirements? Consider what success looks like to you and how achievable it is for you in a franchise. You’ll need to be confident that buying a franchise is the most suitable option. Evaluate how you can best harness your personality and skills to a business, and whether you are someone who would benefit from a franchise that is

You are likely to need to devote more time to the business and less to friends and family; will that be a good move at this point in your life?

prescriptive or one with more freedom in the running of the business. Remember that running a franchise is about more than turning up to do the job: as a franchisee you take full responsibility for the business and will need to deal with all kinds of issues that will be new to you. Does the franchise mean a change of industry for you, or are you continuing in a sector in which you have experience? If it is familiar territory, are you prepared to change the way you do things? It is important to think through how many hours you are willing to put into the business. Franchise opportunities can be passive investments, part time, full-time weekdays, 24/7 retail, earlymorning mobile services… and there may well be extra hours of bookkeeping or other admin involved beyond trading hours. Have you thought how your lifestyle will change when you are focussed 110 per cent on the business? Are you prepared to forego holidays until your business is established with an appropriate profit level and can withstand your absence for a week or more? You are likely to need to devote more time to the business and less to friends and family; will that be a good

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move at this point in your life? Your particular family situation will influence how realistic it is to take on a franchise commitment. Young children, teenagers, elderly or ailing parents and family crises will all demand attention in different ways. Decide if the timing is right and, if so, how a business can best work for you. Are you someone who likes to spend money? Think about the amount of money you want to take out of the franchise, and be realistic about the time it might take to have excess funds to indulge in non-essential purchases. If the lifestyle you have now allows you to spend freely, putting all your funds into a franchise investment might be an unacceptable constraint. Of course, taking a long, hard look at your financial situation is a fundamental step in the assessment process. We’ll be looking in depth at the financial issues around franchising in an upcoming issue, but for now consider that honesty and transparency in your monetary analysis will pay off. Quite simply, can you afford to buy a franchise? Your financial goals and current position will play a significant role in deciding if franchising is for you, and if so, which type. 

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FRANCHISE BASICS

HEALTH, THEN

MAYBE WEALTH Arranging a check-up with your GP could be a wise step before you commit to buying a franchise.

f you are considering investing in a franchise, first ask yourself first how healthy you are.

While health is a matter of concern for anyone, it becomes particularly pertinent when you are considering investing in a business opportunity. It might not be a question your potential franchisor will ask, but it is definitely wise to consider it as a factor before you head too far down the track of buying a franchise. It is easy to handle busy days, long hours and difficult situations when you have energy and good health; decisionmaking and efficiency become diminished if you are feeling less than 100 per cent, so consider how much harder it will be to manage a business when the mind or body has its own battle to fight. A franchise can unravel with major life challenges such as ill health and divorce. If these are possibilities on your life horizon, adding the strain of setting up in business might be just too much. Serious health concerns can impact the performance of the business. It is a personal decision of course whether or not you have the capacity to manage significant life changes. For instance, some women can juggle a franchise start-up with childbirth and caring for a newborn, but for many others that would be too much.

DAY-TO-DAY DEMANDS Also consider whether you have the energy and strength - both physical and mental - to take on the role of being a business owner. The daily demands of the business will vary according to the type of franchise: a desk-bound role will be less tiring on the body than one in retail, though sitting down all day has its own negative outcomes; a mobile franchise could involve significant time spent driving and working in all weathers, and might entail heavy lifting. It is worthwhile chatting to your GP about a health check to give you confidence that you can manage the upcoming challenges. Once you have the all-clear and are searching for a franchise opportunity, be sure to speak with current franchisees about the hard graft required in the role and how they deal with it.

QUESTION TO ASK YOURSELF Before signing on the dotted line for that franchise, there are several points that should be clarified relative to health... • Do any family members have health

A franchise can unravel with major life challenges such as ill health and divorce. If these are possibilities on your life horizon, adding the strain of setting up in business might be just too much.

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issues that will impact on your running the business? • Will you need to take time out for regular medical appointments? • Will there be significant financial implications from any health issues? • Will you be able to maintain or improve your fitness levels while starting up in business? • What can you do to improve your diet? Analysing your personal wellbeing is a crucial yet often overlooked part of assessing your suitability for franchising. And it isn’t just what your body can cope with, but how you can manage the challenges mentally... • How well do you handle stress? • Do you have trouble sleeping? • Will you be able to separate work and home? • How will you find time to relax? • Do you have a support network to fall back on? It is important to consider what elements of your private life will affect your performance as a franchisee before you sign up to a new future.

FRANCHISE BASICS

hile franchisees may be sole traders, they may be in partnership with a sibling or spouse, but whatever the set-up, family and friends are a crucial element in the success of a franchise.

This does not necessarily mean advice offered from the sidelines. Over-enthusiastic advisors can be like back-seat drivers, and commentary from friends and family who lack business experience can be particularly unwelcome. Remember that you can seek advice from the franchisor and other franchisees, even neighbouring business owners. Keep your family and friends at a safe distance. What friends and family can add is emotional support - an appreciation of the demands of the business, an outside perspective, a commitment to the business being a success. Encourage your nearest and dearest to be your most vocal cheerleaders.

NETWORK OF SUPPORT

IT’S A FAMILY

AFFAIR

When it comes to working as a franchisee, involving family and friends from the outset can really pave the way to success.

One of the great values of a franchise is access to a network of support at many levels, plus there may be mentoring opportunities, regular conferences and regional meetings. And, as franchisee Meridee Cartledge found in the Wild Cards & Gifts chain, franchisees can become friends, too. “My best friends are in every state of Australia and we meet at gift fairs. I’ve been on holiday with some of them,” she says. Such a level of sociability is a bonus to the support available daily from franchisee families. “Family support is crucial to success in any venture that requires someone to devote significant time, energy and money to master something new,” says Franchise Relationships Institute founder Greg Nathan. “That goes for sport, art or business. “While the franchisee is getting his or her head around the business they may be working 60 to 80 hours a week, and this is likely to create resentment if the family is not on board. And even if the franchisees are physically home they may still be worrying about the business. “Positive family support means a franchisee will get the encouragement and nurturing they need when they are feeling tired and vulnerable, which is vital to self-confidence and success. It’s not just the family that is important, social support from friends and colleagues can be just as vital.”

DISINCENTIVE On the other side of the coin, lack of support can be a real downer for a franchisee. No-one needs undue pressure at home because a family member is

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negative and not prepared to be on the support team. Even without direct conflict, continued disinterest in the business and its challenges is wearing, dispiriting and a disincentive for the franchisee. At the outset, of course, your family and friends will have questions about your franchising venture, and it is important to take their concerns seriously. Kate Groom of SmartFranchise suggests it is critical to have a conversation that unpicks the pros and cons of being a franchisee, and what a particular franchise might offer. “Running any small business will have consequences for your family,” she says. “For instance, you'll find yourself working long hours, including weekends, at least for a while. This will affect family life, so you'll need to make plans to accommodate work while still having family time.

How these issues are discussed will have an impact on the outcome: accepting different viewpoints and addressing any issues is likely to be a more successful approach than being combative and at loggerheads. Transparency outsmarts surprise here, so including the family in the process to find a franchise shows an appreciation of their vital role in your success, and is far

more effective than presenting them with a finished deal. Good franchisors understand the need for familial support, and will often ask to meet a spouse or partner as part of the approval process. Every franchisee needs to be sustained by people outside their business. If you are considering a franchise, start the process by involving those closest to you. 

LESS CERTAINTY “There is also the financial side. You might have less income than before, at least at the start, and will have to cope with less certainty of income. It is vital to talk this through, and agree how you'll deal with it as a family. That might involve taking a close look at your family budget.”

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FRANCHISE BASICS

A COMPLEX

AFFAIR

Franchisees are closely bound to the franchisor and fellow franchisees in the network, echoing the famous quote “One for all and all for one”.

hat does it mean to be in a franchise relationship? “Franchise partners” is a term often used by franchisors to indicate the involvement of franchisees in their network.

Some franchisors run a loose organisation with individual franchisees having freedom to manage processes; others bind franchisees to their procedures. Whatever the set-up, franchise success is indivisible from the relationship at its core. There are three elements to a franchise relationship - legal, commercial and psychological, says Franchise Relationships Institute (FRI) founder Greg Nathan. “While the parties are bound by a legal agreement and motivated by commercial gains, if they don’t trust each other and commit to doing the right thing by each other, the relationship will become dysfunctional. This could be referred to as

a psychological contract, which is all about the subtle expectations the parties have of each other. “In our experience at FRI, most problems in the franchise relationship occur at the psychological level, where franchisees or franchisors can feel let down by the other party’s behaviour or attitudes. Expectations need to be regularly discussed and realigned.” Misunderstanding or misconceptions about the business, processes, responsibilities or other elements of the franchise relationship are a common cause of discontent across franchise networks. A recent study from the Asia-Pacific Centre for Franchising Excellence reveals where the problems lie. Interviews with franchisors showed that 63 per cent of disputes were about compliance issues, dissatisfaction over fees caused 25 per cent of disputes, and communication problems were the cause of 23 per cent of disputes.

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FEWER DISPUTES However, there has been a drop in the number of disputes across the sector, according to the Australian Competition and Consumer Commission. “Fewer franchisees have been reporting issues to the ACCC since the introduction of the Franchising Code in January 2015. After an initial spike averaging 52 franchising complaints in the first six months of that year, complaints had fallen to 32 a month by the end of last year,” says acting chairperson Dr Michael Schaper. However, disputes are still a factor in the franchise relationship, so it is important to consider what it is about the set-up that allows this. Irrespective of the details that frame each instance of contention, there is likely to be a bigger issue. We all have a tendency to hear what we want to hear, and to block out information we don’t understand or don’t want to consider. That alone can contribute to misunderstandings and miscommunication for franchisees. Good communication starts before franchisees sign up to a business model. This is the best time to sort out any misconceptions, discrepancies or worries about something in the franchise model.

And once in the relationship, franchisees who take action to resolve concerns are more likely to be satisfied, and successful. Wasting energy and time on negative attributes and actions takes a franchisee’s focus away from the real issue - running the business. That is not to say there may not be legitimate concerns that need addressing, but letting things fester is not productive.

HOW THE RELATIONSHIP WORKS Franchising is successful when it is effective for all parties, but it depends on transparency, honesty and good faith. The Franchising Code of Conduct that governs the sector has been revised to give greater prominence to franchisees, and to add clarity. The code outlines timings and documents crucial to the franchise purchase process. The franchise agreement outlines exactly what is expected of a franchisee. As the culture and connections between franchisees and franchisors are the emotional heart of the franchise, so the franchise agreement is at the core of the relationship. While compliance rules the business, human interactions and personalities play

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a part in how franchisees and the franchisor respond to issues and concerns, and how the relationship develops. Very much like a marriage, to which franchising is often compared, the franchise relationship faces highs and lows as partners manage their own lives in balance with their other half. Unlike a marriage however, there are specific guidelines for franchisees, and a precise time frame to which they commit. And it is important to remember that franchisees are not equal partners with franchisors. While not a dictatorship, a franchise is rarely a true democracy. Franchisees may be encouraged to provide feedback on strategy, to suggest ideas, to share through local groups or the Franchise Advisory Council some of the concerns from the frontline, but the franchisor has the final say. What defines a franchise relationship is a commitment to a common cause. Fellow franchisees in the network are also part of the greater franchise relationship, and it’s worth remembering the motto from the swashbuckling story The Three Musketeers: “One for all and all for one”. And as the catchcry continues, “united we stand, divided we fall”. That surely sums up the franchise relationship. 

FRANCHISE BASICS

FINDING A

PERFECT FIT

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You need to do a little star spotting if you are ready to start searching for the stellar franchise that will set you on your path to success.

t can be easy to fall in love with a brand, and franchisors love passion, but don’t rely on emotions when it comes to choosing a franchise.

If you have been reading these Franchise Basics articles from the start, by now you have had the chance to review your motives for investing in a franchise, and to undergo an honest personal assessment. This sets you up well for a critical approach to buying a business. Franchises are available in just about every sector imaginable, with costs to match budgets. Work you way through the opportunities by defining ground rules for your search. Consider... • Business sector • Investment level • Type of business • Hours of work • Location BUSINESS SECTOR Your personal assessment should have indicated whether or not you want to stay in your current area of expertise or try something new. Choose one or two business sectors you believe you can happily spend time in - remembering that a franchise agreement lasts for several years - and that have the growth potential you seek. Rate of growth is a personal choice, depending on what you want from a franchise. Someone looking for a passive investment or regular income for the next three years will have different requirements from a potential franchisee with ambitions to grow their business to a multi-unit operation. Use Inside Franchise Business and www.franchisebusiness.com. au to research areas of interest. Our regular sector reviews give an indication of which industries are growing apace, and the challenges that face businesses in the sector. Macro-economic factors, government strategy and changes to regulations, population growth and demographic changes all have an influence on small business. Research online to find out as much as you can about key industries so you can make an informed choice. Think about such factors as whether you want to be in a customer-facing role, whether you work well in a busy or quiet environment, whether you want to employ staff, whether being outdoors and on the move is important to you. INVESTMENT LEVEL How much can you afford? We will look in detail at this question in a later edition as part of our financial focus, but for now you need clarity about your budget. A careful review of your finances will ensure you do not overcommit. You might see the potential in a fast-food chain, but if you’re short of the cash needed for that, you would do better to look at a less capital-intensive option. Start to work out what you can afford by listing your assets and liabilities. You will need equity behind you for a bank or other financial institution to consider a loan. A bank may lend up to 80 per cent of what it considers the value of your property to be: that would be $480,000 if your house is valued at $600,000 and is unencumbered by a mortgage. However, if you have a mortgage debt of $150,000, the bank will lend you only $330,000. A few franchise businesses have bank accreditation, which means you may obtain a loan on the basis of the brand and its performance. Think about how risk-averse you are, and how much of your assets you are willing to risk in the franchise. A lower level of investment may equate to a reduced return on investment - you need to consider if that works for you.

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FRANCHISE BASICS TYPE OF BUSINESS Risk plays a part in business choice as well. The more established the franchise, the lower the risk (although well-established businesses can and do end up in financial difficulties). However, with lower risk it is likely there will also be a lower return on investment. While that might suit your circumstances, if you have an ambitious growth plan a younger brand with less trading experience may be more appropriate. A mature franchise will have its procedures well established and have a network of experienced franchisees, which has both advantages and disadvantages. There will be clear proof the business model works in different locations through the dips and troughs of economic change. You will have tried-and-tested techniques and best practice tips at your fingertips. However, it is important for franchise models to stay current and open to change - you donâ&#x20AC;&#x2122;t want to join a stagnant business model. At the other end of the risk spectrum, you will be sacrificing greater security for a lower entry fee and less-evolved systems and procedures. Becoming involved with a fledgling franchise can result in swift growth and stronger return on investment, but there are no guarantees. The risk you take may not pay off. On the other hand, joining a newbie franchise can also give you a greater opportunity to help shape the future of the business as you and the franchisor learn and grow together. You might want to consider the ultimate ownership of the franchise. Many are small businesses owned by the founder, a handful are franchisee-owned, some are run by a small team led by a managing director but with family interests behind the scenes, others are more corporate - multi-brand groups with a board, perhaps answerable to shareholders. It is a personal decision whether you want the family feel, want to connect with an identity at the helm, want a business that is investing in overseas expansion, or want to align yourself with a corporate enterprise.

might be able to find a compromise: if your heart is set on a food franchise but you want to work shorter hours, consider a mobile coffee van. If you want an investment where you can have a manager handle the day-to-day work, but you have substantial funds to commit, think about the gym market. If you are passionate about one industry, remember to evaluate its potential as a business investment as well. Be clear about what you are prepared to commit to, and stick to it - no matter how appealing a franchise is that does not fit your constraints. A few months into your new initiative and you might be regretting the decision to extend yourself to an all-hours option.

It is important not to rely solely on the information the franchisor supplies, but to be independently confident in issues like traffic and customer flow, any upcoming centre developments, neighbourhood roadworks, number of relevant households or businesses in a territory, how a territory has been drawn up, and development plans for the area. A good business can flounder in a poor location. You have probably had a look online or in your local paper to see what franchise opportunities are around. The next step is to set up your parameters before you start seriously hunting. Once you are clear about what you are looking for, start by contacting the franchisor for more information.

LOCATION The site of your franchise will play an enormous part in its success or failure. Each franchise will have its own checklist for site selection, and good franchisors will help you identify the right spot, but there are some generic concerns that need to be highlighted before you even choose a franchise model. Start by considering whether you would relocate for the right opportunity. If so, would you move interstate or to a more rural region? Will the franchise be part of a new lifestyle for you - a tree or sea change? Think about the time you want to spend travelling each day to and from your business, or as a mobile operator how much you like being on the road. If your business is territory based, do you want a location that is exclusive? Do you want to buy an existing business from a franchisee or work from what is known as a greenfield or brand-new site? There are pros and cons to each, and you will need to get to grips with these [watch for more details in our Franchise Basics location issue]. Be prepared to do plenty of homework once you have settled on a franchise model.

MATTER OF TRUST Buying a franchise means more than a commitment of time, energy, and money - it requires belief in the opportunity. That does not just mean a passion for the service or product; it is equally important there is trust between the franchisor and franchisee. You need to feel confident that the franchisor acts in good faith, and that you can trust the individual or the management team. This is crucial to a healthy ongoing relationship. There will be plenty of questions for your proposed franchisor, and as you progress with your research, or due diligence, it is important to turn to franchisees (current and former) for insights into the business, to seek opinions about the brand from friends and family, to search online for negative press, and to obtain third-party advice. Best practice in the franchise buying process would be to seek independent advice on both legal and financial issues, and it is worth spending the time and money to obtain the views of experts within the franchise sector who understand the nuances of a franchise agreement. ď&#x20AC;ź

HOURS OF WORK Will this be a full-time role? Are you looking to invest in a business that gives you passive income? Do you need to work part time? Can you imagine committing your weekends and evenings to building your business? There are certain unavoidable truths in business: if you want to work in retail, itâ&#x20AC;&#x2122;s a seven-day-a-week trade; if you want to invest in a food franchise, it is generally not just seven days, it might also be late nights and early starts; if you want to have weekends to yourself, a business-to-business enterprise is ideal. Look at your lifestyle and work out what you are willing to change. Match these hours with the industries that interest you. You MAR / APR 2017 | 98 | WWW.FRANCHISEBUSINESS.COM.AU

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FRANCHISE BASICS

RISKY BUSINESS Starting any enterprise means taking a step into the unknown, but just how tricky this will be depends on your choice, and your aversion to risk.

oolhardy, courageous, perilous, enterprising...investing in a franchise could be described in any one of these terms.

The goal is to avoid rushing headlong into the unknown on a passionate whim instead of ensuring the choice of franchise matches your lifestyle, financial situation, personality and stage of life. Avoiding risk is impossible - how we incorporate risk into our lives is the key. Buying a business might be more risky than staying an employee, but that is the challenge. Breaking out into a new field of endeavour is riskier than continuing in an arena in which we feel at ease, but who needs to be comfortable? How you approach the prospect of franchising depends on how safe, or daring, you like to be. A risk-averse individual will view a franchise opportunity differently to someone who is neutral about risk, or who likes a ride on the wild side. Before assessing the pros and cons of a particular business, you really need to scrutinise your own capacity for risk. SIGNS YOU ARE RISK AVERSE • You rely on other people’s opinions • You focus on negatives • If there are two options with similar outcomes, you take the one with lower risk • You avoid confrontation • You like guarantees and insurance policies SIGNS YOU ARE RISK NEUTRAL • You are concerned only with the gains, not the risks • You disregard competition • You view investment in mathematical terms only SIGNS YOU ARE A RISK SEEKER • You thrive on uncertainty • You like to take on a bigger risk for a bigger reward • You are combative in business • You believe yourself to be always right • You are confident you’ll succeed at whatever you do Reviewing your personality and your situation will help you understand what you need to look for in a franchise. Take into account your age and experience, consider

any damages that might occur to family relationships with the financial and personal demands of the business, and, of course, face the fact that the franchise might not turn out to be everything you were hoping for. But control is not all on your side - franchisors may make a poor decision about strategy, pricing or a marketing campaign; they may have no territory selection process; they may even be poor selectors of franchisees. It is also possible fellow franchisees may damage the brand, and the franchisor may fail to provide the training, support or brand development expected.

WHAT TO CONSIDER Putting all this in perspective, you need to strike a balance between acceptable and unacceptable risk, and decide how you can mitigate any serious risks to your franchise. Think ahead and consider the downsides of your investment: How will you manage if you don’t hit the goals you set in the first term of the agreement? What would be the consequences for you and your family if the venture failed? Would all your savings be tied up in the franchise? Do you have an alternative or supplementary income? Also, how does your risk personality fit with your stage of life? • Are you young and ambitious with few commitments? • Do you have a young family and a mortgage? • Do you have life savings? • Do you have something to prove? • Do you own your own house outright? • Do you need this venture to provide for your retirement? • Are you entirely dependent on this income? • Can you afford to lose the investment? A younger, carefree individual will more likely be better placed to take a greater risk than someone with more obligations and less time to recoup any losses. Of course it is important to recognise that despite an existing business model, franchising is not always successful. Understanding your perception of risk allows you to better manage your opportunities. 

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FRANCHISE BASICS

COMMIT YOURSELF How committed are you to running a franchise? You need to plumb the depths of your dedication if you want to become an ace franchisee.

he Cambridge English Dictionary defines commitment as “a willingness to give your time and energy to something you believe in, or a promise or firm decision to do something”.

That sums up perfectly what is needed to take on a franchisee role, and is one of the core values for success in a franchise system, says Bill Lockett of Franchise Systems Group. “Running any business takes tremendous commitment, time and energy; franchising is no different. While you might not have to test and trial new ideas as do independent operators, the franchise will be a success only if you work at making it so. “Branding, operational support, point-of-sale and IT systems, back-office support, marketing and lead generation

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are all usually included in a franchise package, but the franchisor is not there to build your business - that’s your job.” Buying a franchise is like buying a house: there are certain financial obligations, there are legal consequences, and it is a long-term commitment. Franchisees need to understand what legal requirements they need to meet and how failing to fulfil these obligations can be costly [see Introduction to Franchising in the last issue for an overview of requirements, and watch for the upcoming legal issue for in-depth information]. There are also financial obligations: for many franchisees, a bank will help fund the purchase so there is the need to meet loan repayments; you will have rent and bills to pay, and will need to ensure that all mandatory fees and royalties are paid to the franchisor.

Essentially, a franchisee commits to a brand, to a way of doing business, and to fellow franchisees who have a vested interest in the success of the franchise. “Both you and the franchisor need to understand what success means to each

of you, and you should both commit to the success of each other. The franchisor has developed a system that works, and you must commit to following that system, especially at the beginning,” says Lockett. “At this time of your new franchise,

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FRANCHISE BASICS goals; there is a commitment to put every effort into the initiative so it is worth the sacrifice; there is a commitment to trust the franchisor and to act in good faith. A franchisor will seek commitment, application and diligence, but it works both ways. Lockett suggests looking for the same level of commitment from your franchisor. “Make sure they listen to you and provide the necessary support when you need it.”

CAN YOU BE FAITHFUL? It will be important to stay focussed on business performance. It is not unusual for franchisees to find new interests

and distractions once their franchise is on track, and that can have unfortunate consequences as standards slip, resulting in customers falling away. When the business slides, it has an impact on the brand, suppliers and, of course, any employees you may have. Your commitment to the business will rub off on team members, but do not expect them to match your level of attentiveness. “As a franchisee, you have invested in your business and know you will benefit directly from its success,” says Lockett. “Therefore your commitment should be much greater than that of employees, who have no financial investment and are guaranteed a regular wage, regardless of

Commitment will also reflect in your loyalty to the franchisor’s brand, because it is also your brand, and you will benefit by building up a business that can be sold at a profit at a future date.

performance,” he says. “As the business is your own, you will take real pride in the service you provide and should aim to continually strive to exceed the expectations of your customers. “This commitment will also reflect in your loyalty to the franchisor’s brand, because it is also your brand, and you will benefit by building up a business that can be sold at a profit at a future date.” Believing in the brand and what it delivers customers is fundamental for a franchisee. It is important to have confidence in the working of the business, the vision of the franchisor and the marketing team’s capacity to produce campaigns that bring in customers. As Lockett says, “The brand itself is critical to your success. You would not want any other franchisee to do anything that would be detrimental to the brand, as it will affect all franchisees in the system. By the same token, you should ensure that whatever difficulties may eventuate, you stay faithful to the brand and continue to follow the system to the best of your ability. The rewards will follow.” However you view it - loyalty, allegiance, responsibility, adherence, duty, obligation - commitment is an integral part of a franchise relationship. 

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FRANCHISE BASICS

A QUESTION OF BUSINESS You’re committed, you understand the risks, you know what you want from a franchise. So what questions should you be asking the franchisor before you buy a franchise? ABOUT THE BUSINESS

ABOUT THE AGREEMENT

Dig deep and find out as much as you can about the business and its franchisor team. • How long has the business been operating and how long has it been franchised? • What is your financial investment in the business? • What’s your vision for the business? • When was the last brand refresh? • How does the business test new ideas or products? • What training is included in the initial cost of the franchise? • What marketing support is provided? • Is your business a member of an industry association and the Franchise Council of Australia? • Has your business signed up to The Franchise Registry?

You will need to ask the franchisor about the franchise agreement - the length of the franchise term, about restraints of trade, whether there is any exclusivity, how frequently updates to a store or equipment are required, how online sales are managed.

ABOUT THE SELECTION PROCESS • What are the criteria you use to select franchisees? • What time does it normally take for a franchisee to purchase a business? • What do you expect from me in the process? • What do you think are my strengths and weaknesses as a franchise candidate?

ABOUT FRANCHISEES • How experienced is the franchisor team and who will be my point of contact? • How is communication handled between the franchisor and franchisees, and franchisees with their peers? • What demonstrates your capacity for ongoing franchisee support? • How do you help underperforming franchises? • What’s the franchisee turnover rate and how many franchisees fail? • How many franchisees renew their agreements?

ABOUT OPERATIONS Once you’re in business the operations manual will be your guide. Find out when it was last updated. If your business is lead-driven, ask if there is a call centre and how any leads are distributed. Other questions to consider about the operation of the business: • How much control will I have over any ordering and choice of supplier? • Will I get any help with staff recruitment and training? • What minimum orders or benchmarks do I have to meet? • How is marketing material made available?

ABOUT THE LOCATION 1. Who finds the site and how are locations evaluated? 2. Do you negotiate the lease with the landlord? 3. Who will hold the head lease? Of course there will also be legal and financial questions to ask your advisers and we will cover these in upcoming editions. Conducting thorough research or due diligence is an important part of the buying process - and now you’re armed with plenty of information to take your search to the next stage. 

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FRANCHISE BASICS

SIGNS YOU'RE READY TO ROLL

Buying into a franchise involves responsibility and the right attitude. Check these indicators to see if you have what it takes...

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efore you invest your hard-earned money in buying a franchise, are you really ready to take on the responsibility? There is more than meets the eye in franchising. While it may seem it is just a matter of stepping into a retail- or service-ready set-up, just like an independent business it requires hard work and some expertise. Check off these five points to see if you are really ready to buy a franchise...

expected to adhere to brand standards. The level of compliance will vary according to the franchise model - some foster independent thinking; others are stringent in their rule of law. Some franchises see their future in providing key elements of branding/supplies/procedures but leaving the personality of the franchise to the individual owner. Whichever the system you choose, be prepared to accept the constraints and play by the rules.

ARE READY TO TAKE RESPONSIBILITY 1.YOU

ARE WILLING TO LEARN 3.YOU

You have a burning desire to prove yourself and are all fired up to run your own business, but also understand that as a franchisee you will be responsible for its success. The franchisor provides the basics for you to establish and run your business, but is not there to do it for you. That is the challenge, and why all your hard work will make success all the sweeter.

You will benefit from industry and brand knowledge when you join a franchise, starting from your first training day. That can continue if you embrace all the opportunities available to you to soak up information from formal situations such as online training modules, regular franchisee meetings and annual conferences, and informally through the area manager and fellow franchisees. An open mind and eagerness to discover more about managing business, and about yourself - don’t forget personal improvement - can pay dividends. While franchise systems depend on structure, there is always something to learn and some way to contribute. Franchises are

CAN FOLLOW RULES 2.YOU Compliance to the franchise’s processes and procedures is fundamental to the success of the network, and every franchisee is

Franchises are not static, but develop and improve over time. You can be part of that process.

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not static, but develop and improve over time. You can be part of that process.

SEE THE ADVANTAGES OF A 4.YOU FRANCHISE Sometimes people are put off by the conditions of franchising: royalties and fees need to be paid on top of the initial investment of buying a franchise, and there may be other ongoing costs. But all this enables you to trade under a brand name, have access to successful working modes, and gain the advantages of marketing campaigns. If you can easily answer the question “Why would I buy a franchise and pay royalties when I can set up in business myself?”, then you have the mindset to make the most of a franchise.

HAVE 5.YOU THE FUNDS The most enthusiastic potential franchisee matched to the perfect franchise will be a successful combination only if financing is in place. That means access to funding for the purchase (whether that is cash, family savings, remortgaging the house or a loan) plus enough working capital to keep the business and family afloat in the early days. Lack of cashflow is the undoing of many a promising business. If you have been honest with yourself about your budget and have a realistic business plan based on your own research - not just the franchisor’s figures - then you are ready to approach a bank for funding if necessary, and get your franchise up and running. 

GLOSSARY

LEARNING THE

BUZZWORDS

Like any area of endeavour, the franchise sector has its own particular terminology that new franchisees need to understand.

ACCREDITATION: a banking

loan scheme that provides franchisees with some of the finance they may need when buying the franchise. It is based on a bankâ&#x20AC;&#x2122;s understanding of the brand and its business methods. While this funding option is popular, it is not common across the sector.

ASSIGNMENT: when a franchisee sells their business to a new franchisee, it is referred to as assignment. It is common for the franchisor to retain the right to interview and accept or reject any proposed buyer. The franchisor may also have the right to buy back the franchise. The vendor franchisee can set the value of the franchise. BUSINESS-FORMAT FRANCHISE: a business

COMPANY-OWNED UNITS:

locations run by the franchisor rather than a franchisee. CONVERSION: an existing

independent business that joins a franchise network. 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: the process of conducting in-depth research on a business before purchase.

model with four criteria â&#x20AC;&#x201C; 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.

FIELD MANAGER: an individual tasked with managing a group of franchisees, with a focus on relationships, brand alignment, and sales and profit. This role might also be called business development manager or area manager. FIXED SERVICE FEE:

franchisees may pay their franchisor a weekly or monthly fixed-amount payment, or a service fee calculated as a percentage of turnover

(above a minimum payment). FRANCHISE AGREEMENT:

this is the legally binding business between the franchisor and the franchisee. FRANCHISEE: an individual

who runs a franchised business using the intellectual property of the franchisor.

FRANCHISEE ADVISORY COUNCIL: a structure for

franchisors to seek and receive feedback from their franchisees. Participating franchisees may be elected or chosen by the franchisor.

FRANCHISE FEE: an up-front cost paid to the franchisor. It covers the use of the brand name and business system. FRANCHISING CODE OF CONDUCT: a mandatory

code that governs franchising in Australia. It 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). FRANCHISE TERM: this

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GLOSSARY

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. Franchisors often refer to a term with two options to renew as 5 + 5 + 5, for instance. FRANCHISOR: the franchisor

grants permission to the franchisee to conduct business using its intellectual property, brand name, working methods and marketing.

GREENFIELD SITE: a

brand new site.

GOODWILL: this is a

calculation of the value of trade in an existing business that is likely to continue and benefit the incoming business owner.

INFORMATION STATEMENT:

this is a two-page standard document that outlines what franchise buyers need to know about franchising.

INTELLECTUAL PROPERTY:

this term refers to the trademarks, copyright, know-how, trade secrets, designs, patents, branding, operational manuals, methodologies and/ or recipes franchisors license to franchisees.

LICENSE: the right to use

the same as a franchise. LOCAL AREA MARKETING:

often abbreviated to LAM, this is marketing the franchisee is responsible in their territory or designated marketing area. MARKETING & ADVERTISING LEVY: a regular flat or

percentage-based-fee paid into a centralised advertising or marketing fund.

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.

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.

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.

MULTI-UNIT FRANCHISEE:

TERRITORY: is the area

MASTER FRANCHISEE: a

a franchisee who has been granted the rights to run 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:

intellectual property in business, such as sales rights in a territory, manufacturing technology or access to a trademark. A license is not

for a further term. This process is bound by the Franchising Code of Conduct. There is no automatic right of renewal.

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

assigned to franchisees for their business. Territories can be exclusive or nonexclusive.

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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CHECKLIST

THINGS TO CHECK BEFORE YOU INVEST GET SET PRIOR TO YOUR PURCHASE WITH OUR EASY CHECKLIST. JUST TICK OFF THE MUST-DO ITEMS.

Are you confident in the franchisor?

Have you worked out your operating costs?

What are the franchisee and franchisor obligations?

Have you seen a disclosure document?

Do you know the term of the agreement?

What training is available and who pays for it?

Is the franchisor compliant with the Franchising Code of Conduct?

Do you need a permit or license to operate the business?

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

Have you run a credit check on the franchisor?

Is the business operating from fixed or mobile premises?

What marketing will the franchisor implement?

Does the franchisor have a history of litigation? Are there any cases coming up?

Have you checked the lease? Is there a right to renew?

What marketing is your responsibility?

If you are buying an existing business, have you seen current financial statements (balance sheets, profit and loss, tax returns)?

Does the length of the lease match the franchise term?

What is the dispute resolution process?

Have you evaluated the financial returns?

What are the store fit-out costs?

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

If you are buying a greenfield (brand new) site, do you have sales and profit examples and know the method behind the calculations?

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

Do you have an exit plan?

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

Are you restricted in your product purchase?

Have you spoken to former and current franchisees about the business?

What royalties are there and how are they calculated?

Are you required to reach a minimum performance level?

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

MAR / APR 2017 | 112 | WWW.FRANCHISEBUSINESS.COM.AU

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