Is franchising the way to go? That depends, on the way you go about it – Monica Higgins takes a look at some of our most successful models to find out what they’re doing right.
In the 1800s, Governor Lachlan Macquarie started an Aussie trend. Well before chain stores, internet marketing, and the wonders of low interest-rate loans, Australia’s first governor brought the concept of franchising to our shores. Since those days—when Macquarie franchised the export of rum in return for a hospital—franchising has become one of the fastest growing business sectors in Australia.
The franchising arena is no longer the sole property of hamburgers, pizzas or fried chicken. Take a look at two of Australia’s franchise bigwigs: Michel’s Patisserie and Fernwood Women’s Health Clubs. From humble beginnings, both have gone from strength to strength to become household names with unique market edges and insatiable appetites for success.
So, what makes a successful franchise? Is clever marketing the key, or is it all in the implementation of a solid franchise system? Co-founder of Michel’s Patisserie, Noel Carroll, says it all comes down to an old clichÈ: "The harder you work, the luckier you get."
Taking The Cake
Since opening the first store in 1988, Michel’s Patisserie has worked hard for its good fortune. Today this franchise system, that bakes all its pies and cakes off-site, has a total of 330 stores Australia-wide, with an opening rate of 100 stores per year, an achievement Carroll attributes to answering opportunity’s knock.
"Back in the late 1980s and early 90s, patisseries baked all their goods on-site. So to build a cake shop back then cost upwards of $400,000 once you installed the equipment. But the worst part was the exorbitant rent for production areas."
Carroll’s chance came when he met Noel Roberts, the partner of his wife’s best friend. "Noel and I thought it was crazy the way the industry was heading." And decided to revolutionise it with central baking and delivery into retail stores.
With both Noels coming from a food industry background (Carroll was general manager of Sara Lee, Roberts was a pastry chef), they pooled their resources to set up a production site in Sydney’s north, and a smaller, more financially manageable shop front. Although in those days "banks were handing money out like drunken sailors", a later decision to franchise was, serendipitously, born out of financial necessity.
"We didn’t have any money to start with," Carroll says. "We put everything in and mortgaged our houses to the hilt." With money invested in the central bakery and 12 stores in operation, it was smooth sailing until interest rates began to soar, making it increasingly difficult for Carroll and Roberts to service their debts. Striving to reclaim their capital, they decided that franchising their 12 stores was the most viable option. After two years of research into all aspects of the concept, including recipes, distribution, store design, marketing and training, the system was tested under full market conditions before being launched as a complete franchise system in 1989.
In implementing the system, they discovered a tremendous by-product: "Sales began increasing by an average of 20 percent because we were harnessing the motivation of an owner-operator," says Carroll. "Franchising is also a terrific way to get your product into the marketplace. The normal system of marketing a product is that you have a retail outlet with a manager in charge. An owner will always do a lot better than a manager—their motivation to do well is based on the fact that they’ve usually got their life savings on the line."
Healthy Profits
The franchisee’s passion for their business is an element that Dianna Williams, co-founder of the award-winning Fernwood Women’s Health Clubs, believes is crucial to her company’s 16 years of success.
"In considering an expansion program, I was really worried about how I would get my staff to give the same level of commitment to the members as I did. It is not the same (for staff) as owning your own business. Would they come in on the weekend? Would they keep contributing all those special little things that I would do for the members?
"That’s why franchising was an appealing option. You have the owner there, focusing on the business and making sure the high level of service is always present."
Most profitable businesses are born from a desire to explore an untapped market. At the tail end of the 1980s fitness craze, Dianna Williams was a member of a mixed gym. She noticed that while many women joined up, they often never returned, which she put down to being intimidated in the mixed sex situation.
"I thought it would be nice to create a place that was more appealing to women, where they could have fun, network with each other, and work out surrounded by all the nice little touches that women enjoy."
When Williams met a keynote speaker at a fitness convention in 1993, it changed the course of the business that she now shares with John Clow. "He was saying that the Australian fitness industry would soon be inundated with overseas chains. So, I thought, if that’s the case we’d better be one of them," she says of the decision to franchise.
Creating a feasible franchise model was a case of "one foot in front of the other" for Williams and Clow. The assistance of an adviser was essential in discerning whether the concept was viable, as well as helping to set up franchise agreements, disclosure documents, and choosing the right franchisees. A wise move, Williams says, "because, had we not done that, we would have made a lot of mistakes. Learning from a consultant about what to say to people, and how not to promise projections, steered us away from a lot of hot water."
Hot Tips
As a concept, Australians have embraced franchising as an effective model for promoting and expanding business. The Franchising Australia 2004 Survey found that of an average of 850 businesses that fall under the franchise umbrella in Australia, 92 percent are Australian-based.
But does this mean that franchising is the best option for everyone who wants to expand their business? Associate Professor Lorelle Frazer, of Griffith University, says we should err on the side of caution when it comes to franchising, as only unique and ‘hot’ industries are experiencing rapid growth.
It is point-of-difference that provides market strength and stability. The current obsession for fresh juice bars, for example, has seen the rapid expansion of several such franchises. On the flip side, this particular market has become saturated by too much of a good thing, and has resulted in some business closures.
As franchises, Michel’s Patisserie and Fernwood were unique concepts from the outset, and while there are now copycats, both companies have stable market positions developed through trust.
"Keep it simple," says Carroll of the decision-making process. "Have a unique selling point and be selective with your franchisees. You want quality franchisees who will build testimonials for your business. There is no point in being the fourth business out there. If someone wanted to start a lawn mowing franchise, I’d say don’t do it, there are already too many. You have to be first or second into the market."
Williams believes that her main point of difference—one that gave Fernwood an edge in the beginning and now provides present strength—is the focus on exceptional customer service.
In the beginning, it wasn’t easy convincing banks of her distinct offering, and the legacy from the 1980s fi
tness craze meant that to the banks Fernwood was a risk. "There were a lot of gym chains that grew rapidly in the 1980s and then went broke," says Williams. "When I went to get finance, the bank laughed at me and said, ‘there’s no way we’d lend money to the fitness industry, they just go broke.’ The same thing happened when we started to franchise. The franchisees would get all excited but then their accountants would tell them to stay away from the fitness industry."
Rather than using profit to saturate the market before it was time, a mistake made by many businesses, particularly those in the fitness industry, Williams and Clow first established credibility by focusing on customer service and maintaining a consistent brand identity. Williams says that ‘compliance’ is now a buzz-word within the Fernwood family, where consistency in both appearance and the operational models used by all 65 franchises helps to maintain their 90 percent brand recall.
Celebrity endorsement in the shape of Lisa Curry-Kenny has been another key factor in Fernwood’s appeal to both consumers and prospective franchisees, as well as a cause for subsequent expansion around Australia and, by the end of 2006, within New Zealand and South Africa.
"We bit the bullet and contacted Lisa Curry-Kenny way back when we couldn’t really afford her. We needed to give ourselves some credibility outside that ‘don’t go near the fitness industry’ perception. She has been with us for nine years, and she has been a great ambassador."
Similarly, Michel’s Patisserie reined in their overseas expansion program until the franchise system was mature. "We just wanted to get our business right, and the franchise model well and truly tested in Australia before we went overseas." Now operating in Shanghai, China, with views to expand into North America and Europe, Carroll says the move was only made once they had a business partner they trusted. "Even though exporting was a risk," he says, "we did it because we knew and trusted our overseas partners."
Seventeen years is a long time to be in the game—an achievement Noel Carroll stresses is all about doing your homework. "Test the system under franchise conditions with your own money. Make sure it will work for the franchisee because, if it doesn’t, the business will not last for a very long time."
Mirroring the longevity of Michel’s Patisserie and Fernwood Women’s Health Clubs, the Franchising Australia 2004 Survey shows that franchisors in Australia have been operating for an average of 11 years. Such maturity in the sector indicates that in many cases, franchising is the way of the future for Australian business.
