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Asia-Pacific's leading franchise researcher Professor Lorelle Frazer reports on the latest franchise research outcomes on industry growth, trends, changes and topical issues such as conflict resolution, co-branding and more.
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A recent court case highlights the dangers of franchise site and territory selection for both franchisees and franchisors.
Selecting the right franchise unit site or territory can have a huge impact on the success or otherwise of a franchisee, and can be costly for the franchisor if representations made on their behalf relating to a potential location are not accurate.
Earlier this week Billy Baxters franchisor was ordered to pay $1.22 million in damages to franchisees as a result of representations made on their behalf relating to expected income from a proposed Greenfield site.
The franchisees were provided with figures from a similar store to provide insight into projected turnover and reasonableness of rent.
Earnings from the franchise site fell well short of the projections.
When the franchisees couldn’t afford to pay the franchise fees, they terminated the agreement and were then pursued by the franchisor in court to recover the outstanding franchise fees.
The franchisees submitted a counter-claim, with the original case ruled in favour of the franchisor, as the judge found the franchisees hadn’t appropriately sought independent advice from a lawyer, accountant or consultant to verify the figures.
However, the franchisees won on appeal in the Supreme Court of Victoria.
One of the key Court findings was the figures for the existing site provided by the franchisor entity for comparison for projected earnings were not reasonable, were incorrect and below the figure required for the new store to pay the rent and make a profit.
Comparing the two locations apparently lacked qualitative analysis.
You can read the full case and findings here.
Franchise site and territory selection is always a contentious issue.
Some franchisors may provide prospective franchisees with figures of a similar store for their consideration, however many are reluctant to give figures for the risk of the case above.
Prospective franchisees will often want the franchisor to provide them with figures, at least as a guide to help them assess the franchise offer.
If franchisors provide franchisees with projected figures or similar store figures they need to ensure they have accurate and sufficient data to back-up their claims and should strongly encourage franchisees to seek advice and conduct their own analysis.
If a franchisee is provided with figures it is then the responsibility of the franchisee to independently check and verify whether those figures are realistic for the site or territory they are considering.
You can read about a colleague of mine who found themselves in a similar situation to the Billy Baxter franchisees (except in a different franchise system) and the lessons they learnt from the experience in my previous blog, ‘Value of hindsight for a failed franchisee’.
Both cases, my colleague’s and the Billy Baxter case, highlight the need for franchisees to do their own independent analysis of data provided and to seek professional advice from a lawyer, accountant and franchise consultant.
Resources to assist you with your own analysis of a franchise site or territory are included in Module Three of the free, online pre-entry franchise education program developed by the Centre and funded by the Australian Competition and Consumer Commission.
Find out more or register for the Pre-Entry Franchise Education Program here.
| Posted in: Lorelle Frazer |
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Proactive responses to less than ideal situations for franchisees, including listening and improving processes on the franchisor's behalf, may help reduce franchise conflict.
A colleague recently had a less than ideal experience with a private hospital and the speed and manner in which the situation was handled is impressive to say the least.
My colleague hadn’t even got to the point of complaining, let alone speaking to a lawyer or third party and the process towards resolution was already in place.
In fact she doesn’t feel like she needs to speak to a lawyer due to the hospital’s response, which is likely to be saving the hospital money and reputation.
Our franchise conflict research reveals third parties often fuel the flames in conflict situations, so resolving a dispute before it reaches that stage is ideal.
As soon as the issue was identified by a member of staff (who was clearly trained on identifying the early warning signs), it was reported to a Client Liaison Officer, who contacted my colleague the following day.
In the initial meeting the Client Liaison Officer just listened, agreed that the service the client had received wasn’t good enough and said they’d submit a report to the appropriate board for response.
My colleague was impressed at how the Client Liaison Officer just listened to her story without getting defensive or trying to make excuses.
Having someone listen to your problem or your story may sometimes be enough for the person in question (depending on the incident/situation), and is the first step in insuring the same situation won’t happen again.
A few months later following the board meeting the Client Liaison Officer accompanied by the Head of X and Head of X met with my colleague.
They reported processes were being changed to ensure the situation wouldn’t happen again, and offered to pay for the additional medical expenses her family had incurred.
By addressing potential issues early by training key staff to identify the early warning signs that conflict may occur conflict may be avoided altogether.
Should conflict still arise it will be much easier to come to a conclusion before the situation becomes inflamed and third parties get involved.
When a franchisee feels they’re being wronged, just listen to them.
Don’t defend your position.
They just want to be heard and for you to acknowledge what their pain is.
Then a decision needs to be made on what action is going to take place?
Are their concerns legitimate? Follow through on any agreed actions.
A franchisee’s concerns may highlight a gap in the franchise or support system you didn’t realise existed and may lead to process improvements.
Acting early also helps to minimise any negative word-of-mouth.
If you’re unhappy with an aspect of the franchise business you need to voice your concerns early, initially through the formal channels.
This may be sharing your concerns with your Field Support Manager, or perhaps direct with the Franchisor depending on the structure of your franchise.
If you feel your issue still isn’t being resolved we recommend you contact the Office of the Franchising Mediation Adviser (link).
Most people don’t say anything, at least to the people who have the potential to rectify the situation until it’s too late.
Change can’t occur if the franchisor doesn’t know what the issue is, so next time there is an issue – act early – whether it’s voicing your concern or identifying the early warning signs that something isn’t right.
A healthy, conflict free franchise relationship is best for everyone involved.
| Posted in: Lorelle Frazer |
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Who better to work on the frontline of your franchise business, than someone with frontline experience – armed forces frontline experience that is.
Defence force personnel are used to following systems and procedures in order to successfully complete a mission and therefore make ideal franchisees.
Ex-defence force men and women also represent a largely untargeted potential franchisee market, at least in the Asia-Pacific, unlike in the United States where hundreds of franchises offer specialist veteran recruitment programs and offers.
The US-based VetFran program was created in 1994 and is now sponsored by the International Franchise Association (IFA). The program has grown to include more than 400 franchise systems that voluntarily offer financial incentives and mentoring to prospective veteran franchisees.
According to IFA Senior Director of Communications Matthew Haller, the franchise sector has committed to recruit, as franchisees or hire as employees, 75,000 veterans and their spouses by 2014.
Franchises involved in the VetFran program include: Midas, Seven Eleven, Arby’s Restaurant, Dunkin Donuts, Zips Dry Cleaning, Camp Bow Wow and many more from hairdressing and spa treatments to adult shops, carpet cleaning and almost anything in between.
The VetFran program was initiated to assist and give something back to military veterans who were struggling to make money for their families after returning from service.
One franchisee, who’s benefited from the VetFran program is Tasti D-Lite franchisee Steven Burnett, who sent out more than 1,000 resumes before deciding to enter franchising to effectively ‘buy himself a job’.
As a veteran Tasti D-Lite offered Steven a 25 percent discount on the $30,000 franchise fee.
Other examples of incentives and benefits US franchises offer veterans, published in First Coast News, include:
The only formal assistance program veterans receive in Australia is from the Australian Defence Force itself, rather than franchises – at least up until now.
To assist veterans to adjust to life after the armed forces the Australian Defence Force (ADF) runs a number of transition seminars around the country.
Australian Competition and Consumer Commission (ACCC) Education Managers are available at a number of the ADF Seminars to provide information and resources on franchising regulations. Dates and locations for seminars attended by ACCC representatives include:
Further information on the ADF Transition Seminars is available here.
Franchisors willing to give a little back to defence force veterans are likely to be rewarded with hard working and methodical franchisees, who are used to following systems.
With ANZAC Day next week, now is the perfect time to consider developing specialist veteran franchisee programs that give back and help attract the right type of franchisee.
| Posted in: Lorelle Frazer |
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Franchisee recruitment is an on-going challenge for the majority of franchisors, so to assist franchisors with the process I've put together five quick tips:
Where appropriate franchisors should consider providing potential franchisees with a work experience trial.
Providing a prospective franchisee with an opportunity to actually work in the franchise before signing the franchise agreement allows both parties to check each other’s capabilities.
Franchisors can see what the franchisee is like in action, get a better feel for their personality and how they handle the pressure, as well as whether they’re going to be a good fit for the franchise.
The franchisee, on the other hand, can get a real taste of what it will be like being part of the franchise.
For example a franchisee might like dogs, however after three days straight of washing dogs they may realise they’re not really the right fit for the franchise – or they may be more passionate than ever!
Franchisors want to ensure franchisees are a good fit for the franchise, that they’re likely to be able to follow the systems and that the franchise is the right fit for the franchisee too.
There’s no point recruiting someone into your franchise who is going to lose interest after a few weeks.
These potential franchisees are not going to have the drive to make their franchise a success and could adversely affect your franchisee recruitment in the future when contacted by other prospective franchisees.
Recruiting franchisees from within the franchise business has worked well for franchisors who’ve adopted this approach.
There are several benefits to this method over recruiting new people into the franchise.
One benefit is the franchisors have had time to get to know the skills and abilities of their staff so they’ll know who the reliable, high performers are that will make good franchisees.
Existing staff will already know the franchise business operations so will require less start-up training.
They also have loyalty towards the brand.
This approach also provides the staff with an opportunity to grow with the brand, rather than having to look outside the business for further growth opportunities.
This way franchisors can expand their franchise while also retaining the talent within the business.
Rather than looking to recruit new franchisees it may be appropriate for franchisors to consider offering some of their most successful franchisees additional territories or units, if appropriate for the franchise model.
Again, there are several benefits to this approach:
This can be a very effective method for franchisee recruitment and franchise growth, however franchisors need to cater for multiple-unit franchisee field support needs.
Multi-unit franchisees require different types of field support to single unit operators, with a greater focus on HR and other areas required.
Our research shows that franchisees with small business ownership experience often make superior franchise operators.
They already have a good understanding of business so there’s less for them to have to learn.
Becoming a franchisee can also make it easier for independent operators as they can access support from the franchise head office including marketing, economies of scale for any products used, environmental scanning and opportunities analysis.
This may involve conversion franchising, where a franchisor approaches existing independent operators in their industry to become franchisees.
Suggestions on how to make a franchise offer more attractive to existing independent operators are available here.
Strong personal drive is one of the top personal characteristics you can look for in a franchisee.
Our research shows people with strong personal drive make superior franchise operators, so during franchisee recruitment processes franchisors should select people who can demonstrate this trait.
One way to assess strong personal drive may be through psychological testing, such as using the Myer Briggs or another personality test system.
People with strong personal drive are those who set goals and achieve or even over-achieve them. They are also the type of people who don’t get despondent when something goes wrong, rather seeing the situation as a challenge which motivates them to perform better.
Franchisors will really benefit from identifying these people during their franchisee recruitment processes.
| Posted in: Lorelle Frazer |
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With the boom of gym and fitness franchises in the last few years the market may be meeting saturation, particularly with the rapid expansion of newer players like Anytime Fitness.
Adopting the innovative new trend of 24 hour gyms, newer fitness franchises have been stealing some market share from the traditional industry leaders, while also appealing to new segments of the market.
This leaves little room for new players to enter the industry.
Anytime Fitness, as reported in Smart Company last week, has already sold virtually every territory in Australia for the brand (with 315 territories sold and 137 clubs opened).
Launched in just 2008, Anytime fitness had already grown to 73 outlets and 164 territories sold by March last year, before virtually doubling there size again in the last 12 months.
While rapid growth can be a risk if not managed correctly, franchisors (brother and sister duo), Justin McDonell and Jacinta McDonell Jimenez, have laid good foundations for growth (providing they can find suitable sites for the new territories sold).
With all Australian territories now sold, they should also have plenty of capital to further strengthen franchise operations.
Three of the good foundations for growth are:
Having bought out the licensing rights for Australia from the US parent franchise Justin and Jacinta were blessed with having good systems, including technology, in place from the start. This, coupled wit their extensive experience in the fitness sector, gave them a very strong starting base from which to grow the franchise.
Recent findings from the Franchise Performance Metrics research shows the rate of growth of a franchise in the first few years generally sets the trajectory for growth in future years. The stronger the franchise growth rate means the quicker the franchise is likely to reach breakeven (or critical mass) where royalties cover operating expenses. While there are dangers of rapid growth if not managed correctly, it appears from the outside looking in that Anytime Fitness are managing their growth well. This is helped in part by the approach of offering franchisees multiple territories, rather than focusing solely on new franchisee recruitment.
Although Anytime Fitness is expanding rapidly, rather than relying purely on new franchisees for growth they offer multiple unit opportunities to existing franchisees. Despite having sold virtually every territory in Australia, they still have less than 100 franchisees currently in the system.
This has several benefits including:
This is not to say a multiple-unit franchisee strategy isn’t without challenges, however for rapid growth and expansion it can be highly effective, and is a strategy being used more and more by franchisors.
Even more important than franchisee recruitment though is ensuring there’s a large enough market to support your franchise concept and provide enough market penetration for franchise success.
In my opinion, if you’re planning on opening a new fitness franchise concept in the Australian market I suggest investigating an alternative industry/franchise concept in a less competitive market, which may prove much more lucrative.
If your heart is still set on launching a fitness franchise concept in the Australian market you need to conduct thorough due diligence, ensure you have a strong point of difference and plenty of capital to enable rapid market penetration to take on the competition.
Share your views below now – do you agree or disagree this market is nearing saturation? And are there any other markets you feel are reaching saturation too?
| Posted in: Lorelle Frazer |
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