There can be little doubt that the right franchise opportunity can be a profitable and satisfying investment for a business owner, and the franchise industry is eager to welcome and guide new franchisees.
Over the course of 2013, Franchise Zone showcased a number of successful brands, delving into their history, how they overcome challenges, their growth, opportunities, innovations and overall success.
Here, we round up the year’s top lessons and best advice to franchisees.
If you’re looking to invest in a franchise in 2014, this is a great place to start your research, understand how different segments operate, get a sneak look into franchisors and how they think, as well as top advice into what you should be focusing on before you make that all-important choice of which franchise is right for you.
Your best foot forward
No matter the sector a franchise operates in, providing the best product or service to the consumer starts at home with brand values. A recurring theme throughout 2013’s features was returning to core values and creating environments that reflected these values.
Esna Colyn, CEO of Imbalie Beauty, is an advocate for updating outlet looks. “I joined the group three years ago when the business was in need of reinvigoration. I implemented a turnaround strategy that was really aimed at injecting new and positive energy into its three brands – Placecol, Dream Nails Beauty and Perfect 10.”
Imbalie Beauty’s values are centred on self-improvement, self-empowerment and creativity, so the look of the stores needed to reflect that — clean, vibrant and fresh. Consequently, since turnaround the brand has grown to over 150 stores and has brought in over R200 million in system-wide sales in 2013.
Another brand focused on aligning with its core values is Panarottis. Perceived by the market as a family-friendly restaurant, COO Tyrone Herdman-Grant realised that the brand wasn’t delivering on this promise.
“You can’t claim to be a family restaurant if you can’t cater for the kids, so while we had popular family specials, one element conspicuously missing was a children’s play area. The lack of amenities frustrated our customers.”
After some analysis he realised that the old way of thinking no longer benefitted the brand: “Traditionally, a play area meant more square metres which amounted to higher rent. But if your target market is families, a play area brings in more families which leads to higher turnover, and consequently justifies the additional rent. Over and above that, it is in line with the way we want to have the brand perceived as a family restaurant.
“When appointed COO of Panarottis, one of the first things I did was launch a roadshow to reconnect with franchisees across the country. If we wanted to experience real brand growth, we needed to get back to our roots and focus on who we are, who our target market is, and understand the franchisees and the challenges they face in meeting core values,” says Herdman-Grant.
What to look for in a brand
- Do your chosen brand’s look and practices align with its values?
- Do the brand values align with your own?
- How do consumers perceive the brand?
South Africa and Africa at large are primed for international franchises to take root. Two such brands enjoying success are business coaching franchise, ActionCoach, and children’s supplementary education franchise, Kumon.
Both, however, experienced the challenge of being internationally respected and established systems, but brand new in the South African landscape. What was needed to make these a success was market education.
Who are you?
Pieter Scholtz and Harry Welby-Cooke, co-master franchisors for ActionCoach SA recall the experience. Introduced in South Africa in 2007, ActionCoach faced three major challenges:
“The global financial crisis of 2007 and 2008 had hit South Africa hard, there was no finance to be had anywhere, and on top of that no one in South Africa really knew what business coaching was. So although ActionCoach was already a global brand, our market hadn’t heard of it,” says Welby-Cooke.
Fortunately they could work off ActionCoach being the world’s number one coaching company. “We tried traditional advertising to sell franchises, but leads were few. It struck us both that educating the market would take time, effort and resources. That’s when we agreed that we needed a public relations plan. We engaged with one in 2009 and haven’t looked back since,” adds Scholtz.
Since then, PR has been the major driver of ActionCoach’s long-term strategy in South Africa. “Five years ago no one knew who we were,” says Welby-Cooke.
“Today, the brand is everywhere. It also means that as competitors arrive on the scene, they see the scale of what we have done in the market and that, as first-movers, we are now synonymous with business coaching.” For four years ActionCoach has enjoyed 25% year-on-year growth and has 29 franchises in southern Africa today.
What to look for in a brand
When a new brand is coming to South Africa, how much has the franchisor invested in marketing to prospective franchisees, but most importantly to the target market? Are you prepared to be a first mover? While it does afford a competitive advantage, consumer uptake can be slow and tough.
Originating in Japan over 50 years ago and spreading across the world with its popular teaching methodology of independent self-learning, the Kumon brand arrived in SA in 1991.
General manager for Kumon South Africa, Masaki Tsuda, explains the arrival of the children’s supplementary education franchise: “The Kumon method has helped millions of children around the world achieve, but the challenge Kumon South Africa faced was changing market perceptions of supplementary education being for remedial purposes and assisting struggling students.”
More recently, a shift in perception has seen more and more parents viewing their children’s education as an investment.
“Even though there are now several private after-school programmes, none is as popular or as trusted as Kumon, thanks to our long history internationally and locally, and the fact that it’s not based on any school curriculum.”
Tsuda explains that trust has been built with parents over time with word of mouth and extensive marketing, encouraging them to see Kumon as an investment in their children’s future.
“Sometimes parents come to us wanting a particular problem area addressed, like multiplication or division, but over time they see that we offer much more than a quick fix. Our goal is to enable students to be the best they can be.”
As a result, there are more than 20 000 students at 250 learning centres in South Africa. Franchisor revenue in SA is R40 million and standard expected revenue per franchisee is just under one million per annum.
What to look for in a brand
How has your chosen brand established itself in the market as credible and best in class? Is the market receptive to the concept or does there need to be a change in perception in order for it to take off?
Serial entrepreneur Adriaan van Bergen knew a gap in the market when he saw one, so even though he’d never repaired an appliance before, he had enough technical know-how to conceive how an appliance repair business might work. The result was Bergen’s Appliance Repairs & Spares.
A simple concept of providing branded, professional, good-quality repair service for out of warranty appliances, it proved so successful that van Bergen franchised it in 2004, just two years after starting out.
“I wanted to make sure I got the model 100% right before going into franchising. And because there wasn’t anything of this kind around, I had no model to work from,” he says.
The growth of the Bergen’s brand has been partly due to targeted marketing with radio campaigns creating brand awareness among prospective franchisees and customers.
“The business was also perfectly pitched during the recession when consumers were looking to repair appliances rather than replace them, but it’s done equally well during the property boom.”
Van Bergen’s business model is also suited to retaining technically skilled staff:
“All branches are run on a profit share basis shared between a chief technician, second technician, driver and carrier. It drives productivity once staff understand how the percentages work. In an industry in which good technical skills are scarce, the model plays a key role in helping to retain good staff.”
When the Bergen’s brand was launched it was priced at R95 000, generating little interest. Van Bergen then realised the low price didn’t show the value of the business.
Raising the price to R150 000 then generated much more interest. “Since then the price has increased with inflation and as the business has grown more sophisticated in its offering. Now it is R350 000.”
Today, Bergen’s has 27 Appliance Repairs & Spares branches, 19 of which are franchised.
What to look for in a brand
When a brand is targeting a niche market it’s important to assess how big that market is and how frequently they would require your product or service. Also important is to determine the longevity of a niche market – think video rental – and to have a clear understanding of how the brand is evolving with the market. Thirdly, assess the price point. Does the price belie the true value of the business?
Fishing where the fish are
There will always be fads in franchising, so it’s important to understand markets and know which sectors will remain stable with large growth potential, and which will slowly fizzle out.
Sit-down seafood restaurants are a big area of growth, so Spur Group set about finding a small, dynamic brand that had big growth potential — John Dory’s.
“Outlasting a fad means having superior quality products, consistently good service as a result of continuous training, a stabilised distribution supply chain, constant brand innovation, relevant marketing, as well as the leveraging of operational expertise and support to the franchisee – ensuring best operating practice,” says Leonard Coetzee, John Dory’s COO.
John Dory’s has a national footprint of 30 sit-down seafood restaurants with a menu that appeals primarily to seafood lovers, but also accommodates other tastes, making it popular for families with different tastes.
What to look for in a brand
Does your brand of choice have the necessary infrastructure and head office resources to outlast a fad? Buying into a fad isn’t necessarily a bad thing, but consumers must receive value from the brand that goes beyond a low price point in order for it to last. If you’re the cheapest on the block, your margins will be low and you could find yourself in trouble when competition turns up the heat.
Mergers and acquisitions
Staying on your toes
Christo Calitz, CEO of Taste Holdings food franchise division, describes a brand acquisition as a bit like buying a house:
“You have to inspect it from all sides and get a good feel for what it is, but you also have to be able to see its potential for greatness before deciding to make the commitment.”
So when Taste Holdings weighed and measured the Maxi’s brand for acquisition in 2005, it ticked the box of having great potential with a little bit of work.
In order to differentiate it from its quick-service competitors, that Calitz describes as ‘generic’, a new look and feel was dreamed up.
“We needed to tweak the design to communicate comfort and a relaxed environment, while retaining the elements that made it unique, like the pumpkin orange colour and the square burger patty. At the same time, rebranding can get expensive, so it needed to be classical yet easy to freshen up with small, affordable changes,” explains Calitz.
Calitz is an industry veteran and explains that brands can’t be left too long before needing a change in look and feel.
“New stuff must be brought in to keep the brand fresh and relevant — be it a menu item or a picture on the wall. In a competitive industry, it’s the in-store experience that has to be different.”
What to look for in a brand
Brands tend to revamp every five to seven years. To what extent has your chosen brand revamped or added new product offerings in the past and how well was this received by customers and franchisees? How included are franchisees in the revamp and product addition process — does the franchisor explain how the change will enhance the brand as a whole?
Taken under wing
Not all brands start out with the intention of franchising. When Turn ’n Tender was founded in 1977 it was a family run business in Greenside. 35 years later, with a popular and enduring brand, the founding brothers Mervyn and Brian Aaron were approached by Famous Brands for acquisition.
“The dream to significantly grow our business turned into a reality from 2011, and in 2013 we had five stores,” says Brian Aaron.
“We knew we wanted to franchise, but we also knew our strengths lay in the ability to run a restaurant, not a franchise. So when Famous Brands approached us, it was a perfect marriage of franchise expertise and our restaurant experience.”
The product is a joint venture with Famous Brands owning the controlling 51% stake. “The partnership has enabled us to fast-track the roll-out and we’re aiming to have a national footprint of 25 restaurants over the next five years.”
What to look for in a brand
When a brand is acquired by a holding company, does the holding company have the relevant expertise and experience to convert a concept to a franchise or fast-track its roll-out? Do the values of the holding company align with those of the brand? It’s important that holding company and brand are on the same page as conflict will hamper operations, growth and profitabilty.
Advice from the top
“There are many advantages to being part of a franchised group. You get all the benefits of a proven support structure that provides ongoing business and marketing expertise. We also have the buying power to ensure franchisees get products and equipment at competitive prices. Most of all, you get to be your own boss, but you’re not alone.” – Esna Colyn, Imbalie Beauty
Ahead of the pack
“What measures is the brand taking to stay competitive, relevant and fresh? Consumers shop with their eyes and want to be in an environment that is comfortable but not stale, with products that are familiar, but offer change and variety too. A strong brand should make changes when times are good, not panic when the storm has arrived.” – Christo Calitz, Taste Holdings
Coming out on top
“When investigating a brand that is enjoying popularity, ensure that it has the infrastructure, resources and marketing programmes to foster customer loyalty. The role of a franchisor is simple: To protect the brand and provide franchisees with a ROI, and this is achieved through best possible systems, values and relationships.”
– Leonard Coetzee, John Dory’s
“An international brand may be reputable and well received in international markets, but if it is brand new to a country in terms of its offering as well as its name, a lot of time, effort and money need to be spent on marketing it and educating your target market. You need to play the long-game in order to see great results and become synonymous with the market.” – Harry Welby-Cooke, ActionCoach
From the bottom up
“Pay attention to who is steering the brand. Do the people in head office have the relevant skills and experience to drive the brand? And is it being driven in a direction that aligns with the target market? Brand growth is about looking at customers and delivering on their needs.” – Tyrone Herdman-Grant, Panarottis
“It takes time to change perceptions in a market, but once that happens you can expect good growth. Nevertheless, even once a brand takes hold, franchisees should always be passionate about the cause they’re investing in as it takes a lot of hard work and dedication to reap the rewards. A brand’s reputation precedes it, but it’s the franchisee’s responsibility to follow through.” – Masaki Tsuda, Kumon
Targeting the bull’s eye
“When your brand is targeting a niche market, make sure that the market size is sufficiently large and that it isn’t so niche it can’t diversify. At Bergen’s our niche fitted perfectly with the recession and property boom, and we’re also able to diversify to include other homeowner maintenance issues. Diversification while maintaining a core vision is essential.” – Adriaan van Bergen, Bergens Appliance Repairs & Spares
“Part of operating a successful brand is knowing where your strengths lie. We Aaron brothers are well-versed restaurateurs, but needed help to transform into a franchise. Make sure your brand has the right people in the right places, and if it is growing, that there is awareness for more skills and expertise at head office.” – Brian Aaron, Turn ‘n Tender