Advice From a Master Franchisor

Top tips from a savvy franchisor who has first hand experience in rolling out an international franchise concept in South Africa.


Advice From a Master Franchisor

PostNet entered the South African market in 1994, when Ian Lourens and Chris Wheeler opened the first franchise store at Benmore Gardens in Sandton. The company has grown quickly in this time to over 200 franchise stores nationwide, targeting mainly small to medium businesses.

Entrepreneur spoke to Ian Lourens, CEO of Onelogix, to learn how to turn an international franchise investment opportunity into a winning business.

The Postnet Concept

PostNet originated in the US in 1993 and is headquartered in Denver, Colorado. It was founded by Steven Greenbaum and Brian Spindel, who had over 20 years’ experience in franchised business services and the postal industry. It’s a one-stop business centre that offers digital services, print and copy services,packing and shipping services, and other business services and products tailored to meet the needs of small business owners and busy consumers.

The PostNet International Franchise Corporation has become the fastest growing, largest privately-held company in the postal, business services and copy and print shop industries. Greenbaum and Spindle attribute PostNet’s success to the hard work and efforts of its franchisees and the company’s own culture and values which, they say, can be felt throughout the entire organisation.

The worldwide demand for PostNet’s products and services has propelled dynamic growth in the global marketplace. Today, PostNet business centres can be found on almost every continent, including Europe, Africa, Asia, South America and North America.

PostNet SA is a subsidiary of logistics group Onelogix, which is listed on the Alt-X. The franchise is an accredited member of the Franchise Association of Southern Africa (FASA). It was awarded the title of Franchisor of the Year in 2001, and has won several PostNet International awards, including one for the most successful international development within the PostNet group.

Local vs International Franchises

The only real benefit of an international brand over a local brand, according to Lourens, is that the brand has been tried and tested in various different markets around the world. “The South African market exhibits the characteristics of both an advanced and a developing economy,” he says. “If you can learn appropriately from other operators’ experience, then the franchise opportunity may be quite compelling.”

It’s vital to ensure that the master franchisor is properly capitalised as the ability to perform financially is paramount.

In addition to financial resources, the franchise system must also be sufficiently well structured. “This is a tangible indication that the franchisor is willing and able to assist, to provide guidance on how to test, launch, grow and sustain the particular product,”Lourens adds. “It means that the master franchisor has the ability and propensity to provide support through the entire life cycle of the business.”

If you are considering an international franchise opportunity, it’s a good idea to investigate what support you will get and whether this support is contractually entrenched. “It is of no to use have only promises of assistance; you need a far stronger commitment than this,because when promises need to be translated into action, you are almost always disappointed,” says Lourens.

Check-Points For Success

So you’ve checked the finances and the infrastructure. But before you make any decisions about whether an international franchise has the potential to succeed in the local market, Lourens suggests that you ask the following questions:

  1. Does the master franchisor have a strong and credible pipeline of product development? This is critical because it addresses the long term sustainability of the brand.
  2. Has the master franchisor clearly articulated that you may be able to develop products – as well as advertising, promotions and general communications – that are suited to the local market? If this is allowed, what are the conditions?
  3. If the master franchisor committed to providing strong advertising ideas?
  4. Is the master franchisor sufficiently well resourced with qualified people
    to assist in setting up strong operational procedures?
  5. Are the operational procedures sufficiently well documented – and user-friendly – to be easily translated in the South African market?
  6. What IT support is provided, and are the systems compatible with those available locally?
  7. Obtain a list of all suppliers used by the brand. See whether they have a presence in South Africa and whether compelling international deals are on offer. Find out if there real advantages in terms of international buying power. Speak to the local suppliers and confirm their understanding of the deals on offer.
  8. Does the cost-benefit ratio (the total financial return for each rand invested) of the franchise rights provide real value? Is it possible to attain an acceptable return on investment? This is the most important question of all.

Do The Research

Transparency is the watchword when it comes to exploring any franchise opportunity and it must apply to all aspects of the business. “This is particularly pertinent when it comes to willingness to reveal the full financial position of the company,” Lourens notes. “If themaster franchisor refuses or is reluctant, don’t go near the company.”

Check the financial standing and sustainability of the master franchise carefully. Full access to the financial statements will enable you to determine the viability of the business. Consider issues such as debt, cash flow, assets (type and age), sources of revenue and profitability. If you are not sufficiently skilled in performing this task yourself, call in a specialist. It may cost you, but this will be money well spent.

Lourens says it’s important to interview people other than the franchise sales person. “This may include the CEO and CFO, but it should definitely include the franchise support, advertising and new product staff,” he adds. “Conduct extensive conversations with existing franchisees in the master franchisor’s country. Have even more extensive conversations with existing and past country franchise holders.Check particularly on the credibility of the brand and the support offered. It also helps to speak to ordinary franchisees in countries outside of the host country.”

Lourens says he found that all of these conversations provided some of the most useful insight into the viability of the brand when he was looking into PostNet.

Local Viability

Your research should naturally include an assessment of how receptive the South African market will be to the products or services your franchise will offer. “Help from the master franchisor is very useful, but the responsibility for establishing the viability of the product in your country must remain yours,” advises Lourens. “Again, you may need to call in expert analysts. You cannot expend too much effort on this process.”

A Fair Price

Determining whether the upfront fee you will be required to hand over is reasonable, is critical – it’s one of the most important components of your investigation.

As part of your feasibility study you will determine expected profitability. This comprehensive analysis will obviously incorporate the fee structure of the brand.

“You should have a very good idea as to your expected or required rate of return on investment,” says Lourens. “This analysis will determine the acceptability or otherwise of the proposed fee structure, including the upfront fee and the ongoing monthly royalty fee payable.”

You may also choose to investigate the viability of undertaking the venture without the assistance of the international franchise. “Look at doing the whole thing on your own,” says Lourens. “Compare the returns on offer if you develop your own brand with those you can expect from the international brand. This can be a particularly instructive exercise and should form the basis of your investment decision.”

For more information contact Postnet on +27 860 767 8638 or visit www.postnet.co.za

Monique Verduyn
About the Author
Monique Verdyun is a regular contributor to Franchise Zone. Franchise Zone is published by Entrepreneur Media SA. It offers advice and franchising opportunities in South Africa.

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