- Set-up costs: 500m2 – 650m2, R4 million of which 50% is stock and R1 million is working capital 250m2 – 450m2, R3 million of which 50% is stock and R1 million working capital
- Unencumbered: 40% negotiable
- Franchise fees: Year 1 and R500 000 to R1 million, 0%; Thereafter 3% that falls by 0,5% for each R500 000 increment in excess of R2 million.
- Break-even: Eight months on average
- ROI: Typically two to three years
- Areas for development: Gauteng with capacity for 60 stores nationwide
- Franchise stores: Eleven
- Company owned stores: Four
In 2007, Mario Maio, founder of ACDC Dynamics launched its franchised retail concept ACDC Express to generate additional revenue streams and grow the business. MD of ACDC Express, Ricardo Maio, talks us through the development and subsequent success of the franchise.
Give us a snapshot of your industry and history
My father Mario Maio founded ACDC Dynamics, the parent company of ACDC Express, 15 years ago, but had been in low voltage and medium voltage electrics for 15 years prior to that in the wholesale environment.
When ACDC was formed, it was predominantly a manufacturer and distributor, but the model changed to include importing.
What gave ACDC Dynamics a competitive edge was its ability to balance price sensitive products imported from China with sole agency agreements from a number of big, quality international brands like Gewiss, Terasaki, Datalogic, C&S Electric, Rhomberg, Weicon, Moël, Orbis and Oérre, to name some.
But as the recession was starting to take hold in 2007 we became increasingly aware of fickle wholesaler buying behaviour – they were exceptionally price conscious and would move elsewhere for one rand. This got Mario questioning the business model. After all, the best way to grow is to sell more products, but that can be problematic when you’re competing on price.
What opportunity did you identify during the economic crunch?
We realised that ACDC Dynamics didn’t feature in the retail market and it was a great opportunity to shore up our value chain and create another revenue stream: We’d look after a group of people who’d look after us by being dedicated buyers.
My uncle’s need for a new venture was a catalyst that pushed the idea into practice. I was studying marketing and Mario approached me to help promote my uncle’s business of selling ACDC Dynamics products to the general public. And so ACDC Express was born.
How was the franchise concept unique?
When my uncle opened his shop there was nothing like it on the market and ACDC Express was the first specialist electrical retail store aimed at the household, contractor, industrial, agricultural, mining and manufacturing sectors.
We also made available a massive product range of over 60 000 items that include security, hygiene, automation, telemetry systems, pumps, switchgear and instrumentation, energy management and power factor control, solar, tools, wiring and cable management, as well as a wide range of lighting products.
But what really made us stand out was the unique retail store concept that mirrors the convenient and versatile shopping experience customers have become accustomed to in supermarkets.
Having stock on display is a strong selling point because many of our customers are technical and hands-on people who like to touch, feel, and compare products.
We’ve also highlighted the value of having highly experienced technical staff who are able to offer advice and solutions to customers. This, combined with sole agency of certain brands and franchisees buying from ACDC Dynamics directly, created a price competitive concept.
What makes ACDC Express a favourable investment?
We’re the only electrical franchise store in the world, not just South Africa.
The advantage of this concept is that even though we’re electrical specialists, you’re not limited to one kind of customer – we serve everyone from DIY enthusiasts, contractors and large corporates. But over and above the concept, it’s not your typical franchise like fast food. It’s a technical industry that’s continually changing and advancing so you won’t get the same repetitiveness you would with food, for example.
Lighting changes from filament to compact to LED and even LEDs are getting more updates, which means there’s always something to be interested in.
From a financial perspective, because of the relationship with ACDC Dynamics, a franchisee can expect good margins of 30%, with the ability to achieve as high as 45% to 50% gross profit when focusing on a mixture of industrial and retail customers.
As an example our Nelspruit franchisee supplied to the contractors building Carole Boyes’ new factory facility in Cape Town. That was a several million rand tender. Another franchisee has set up contracts to export to Mozambique.
How are you able to support franchisees?
One of the claims to fame is ACDC Dynamic’s industry catalogue that has come to be referred to as ‘the electrical bible.’ Everyone from contractors to architects have this catalogue to reference price and specs.
Because of this in-depth, specialist knowledge, we’re able to train franchisees and their staff to become experts in their own right – they needn’t have industry experience.
This support and regular training doesn’t just help franchisees run their businesses well, it creates great customer service. And because the head office team looks after marketing, systems and keeping up to date with electrical developments, franchisees are able to focus on sales and staff.
ACDC Express has also developed a standardised and user-friendly IT infrastructure. The business model requires three key positions that can run the business when you’re not there: A bookkeeper, technical sales person, and a store man.
We provide information on what to look for in a key hire, but we ultimately give the franchisee the freedom to hire someone they gel with from their own networks in their area.
Before opening we also get our franchisees to pack their stores after two weeks of training. It’s part of the process of getting to know their store and benefits them when helping customers.
Who is your ideal franchisee?
We like owner-operators as they’re 100% committed to the store and drive its growth better. A prospective franchisee needn’t have industry knowledge – in fact some of our franchisees come from IT, fuel, and printing backgrounds – but must be willing to learn about products, procedures and systems for the store and staff.