Westpac - What makes a franchise A QUALITY FRANCHISE?

According to the new survey of franchising (see page 36), many franchise companies have weathered the economic storm of the last few years rather better than most SME businesses. While some industries, particularly retail and real estate, have found sales tough, quality franchises operating in many other sectors thrived – or at least put themselves in a stronger position for the recovery.

The interesting thing is that the fundamental qualities that made many franchise systems successful in the first place were also what differentiated the best ones in how they fared during the recession. It is therefore instructive to look at some of the aspects that seem to have been particularly important in differentiating the top performers from the also-rans.

Reinvestment In The Concept

Like any business, franchise systems that did not reinvest and keep updating their product or service offering during the downturn now find themselves in an unenviable position. They need to catch up with their competitors but have fewer resources to help them do so. This basically means that the market has moved away from them, their share has dropped (and may still be dropping) and the profitability of individual franchisees has probably reduced as well. That puts more strain on resources, relationships and brand presence.

However, franchises that were willing and able to reinvest in the system through the down cycle are, in general, the ones that now find themselves in a very strong position. They have increased market share, improved relationships with both customers and franchisees and, in many cases, established the foundations for new growth. Their sales did not dip as much (if at all), so the franchisor was able to maintain support and new or ambitious franchisees found funding easier to obtain.

A good example of a star performer is McDonald’s, which has kept investing in the upgrade of its corporate and franchised stores throughout the country in the last few years. Investment was matched by increased effort from their operators, to great effect. Recently, franchisees from the group have won a number of business excellence awards around the country: McDonald’s Rotorua, owned and operated by Rob and Linley Parry, won the supreme award at the recent Westpac Rotorua Business Excellence Awards while Dinesh Mani, who owns and operates a couple of McDonald’s restaurants in Waitakere, won the training and development award at the Westpac Waitakere Business Awards. Dinesh then went on to win the Best Restaurant Business category at the Indian Business Awards in November.

Other major systems that have invested heavily in re-imaging include KFC (owned by Restaurant Brands) with excellent results and Paper Plus, which last year commenced a $22 million refurbishment of its entire network.

But it’s not just about money. Franchise systems that recognise that their success is directly linked to the profitability of their individual franchisees in the group are the ones that come out on top in the long run. It was notable during the last few years that franchises with good management information systems were the ones able to adjust more quickly, control costs better and adapt to the new realities. This made the difference between survival or failure for many businesses and rewarded those franchises and franchisees who had embraced new technologies, regular auditing of standards and performance and the constant measurement and management of performance against established benchmarks before the downturn even started.

As Mark Hawes, Development Agent North Island for Subway Developments said, ‘Good systems reinvest because they can [they have the money to do so]. These are the systems that survive well through the recession.’

What To Look For

So if you can see the better times ahead and are looking to invest in a franchise, what are the hallmarks of a good franchise system that will give you a competitive edge? In general, I believe quality franchises display some or all of the following characteristics:

- A proven product or service.

- A strong brand or accepted trade name, including registered trademarks and other intellectual property.

- A tried, tested and documented way of doing business that amounts to a proven business model. This means you’ll be directing your valuable energies into a business that has already succeeded elsewhere.

- Good management information systems and benchmarking information, with helpful analysis from the franchisor team.

- Ongoing development of the product or concept (especially important to maintain competitiveness in mature franchises).

- Initial and ongoing training and support, from systems documentation to manuals, operations and management.

- Increased purchasing power offering better deals than rivals for sourcing equipment, stock and better quality materials.

- Greater marketplace presence and awareness from coordinated advertising.

Value for Money?

If the franchise you are interested in shares these characteristics, you may pay more in dollars to be part of the system but get such good value that it is really a bargain. You are lowering your risk and increasing the chances of getting a profitable business with a sustainable model well into the future. This recession may be over, but when the next one comes – as it inevitably will one day ­­– what sort of business do you want to be part of?

It’s also worth noting that if your bank is a franchise specialist, they will put a significant value on the benefits offered by and the proven track record of a good franchise system. This will make getting business finance much easier, and may also give you access to better transactional packages.

Remember, franchising itself is no guarantee of success and you need to apply the same consideration and research that you would to any business decision. You still need to do a proper assessment with the help of legal and financial professionals, but all these factors add up. Choose the right quality franchise and you will find it well worth the apparent extra money you pay.

This advertorial is taken from Franchise New Zealand magazine Volume 19 Issue 4 

Contact details for Westpac

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