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Franchisee Advice

Dangers of Being Franchisee No. 1

Is it wise to become one of the first franchisees in a new franchise system?

Jeff Elgin

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Sure, it’s a thrilling proposition to get in on the ground floor of what is hopefully a superstar concept. And it might be particularly lucrative if start-up costs (compared with those of long-established franchises) are low.
But of course, the downside is that some new franchises don’t survive the journey and are buried in unmarked graves along the way.

Before buying into a young or unproven system, it’s important to weigh the pros and cons. There are typically three types of businesses in this category, including established companies that have finally decided to franchise. The common denominator is that each is asking you to invest when there are few, if any, proven results from other franchisees who have gone before you.

Here’s a look at the most common types of new franchise opportunities – and the questions you should ask before signing up:

1. The mature company that is new to franchising

In this situation, the company typically has many years of experience and has opened a number of company-owned units. The people at the top know the business inside out and have worked out the bugs in the operating methods. The only transition the company needs to make is learning how to work effectively with franchisees rather than employees (and yes – there is a big difference between the two). This is typically the least risky young franchise to invest in, though it can still be a challenge to deal with growing pains.

Questions to ask:

  • How do your training programmes for new franchisees differ from the previous training programmes for new employees?
  • What support systems do you have in place for franchisees, such as manuals, DVDs or online intranets?
  • Are you willing to treat franchisees as business owners?

2. The experienced franchise company that is changing its traditional operating model to something new

Let’s face it, most companies don’t change their business model unless they are in trouble. We’re seeing a lot of this in today’s market, especially with retail and discretionary-service operations, as the continuing recession hammers franchisees’ results. Though the company may have a big name in the marketplace and substantial operating experience, there is little assurance that the ‘new’ operating model will be a success until a group of new franchisees have put it to the test. You really need to consider the risk carefully, because an unproven model is just that.

Questions to ask:

  • What research and testing supports the proposition that this new model will work better than the old one?
  • How many units of the previous model have failed in the past two years?
  • How many do you expect to lose in the next two years?
  • What changes have been made to your marketing programmes to support the new model, and how will you allocate marketing support and money in the future between the new and old models?

3. The fairly young company that’s new to franchising

You’ve got to admire the bravado of entrepreneurs who have the confidence to start a company and then begin franchising with little or no practical experience. That’s how most of the big franchise companies got started – Ray Kroc of McDonald’s or Fred DeLuca of Subway are just two examples. That said, this is by far the riskiest venture to invest in. For every one success story, there are dozens of others that did not succeed.
As a new franchisee in a young system, you’ll have to suffer not only through your own learning curve, but the franchisor’s as well.

In fact, you may wish to find a different franchise with a proven track record or else to wait a year or two to see if the young company can create a reliable success pattern with other new franchisees. If you decide to take the risk anyway, the rewards for being a pioneer – namely, better economic terms and intimate relationships with top executives – can be great if the business succeeds.

Questions to ask:

  • Do the company executives have previous experience growing a franchise company, or are they working with advisors who do?
  • Does the company have sufficient cash reserves to weather any storms during its initial ramp-up period?
  • How many training and support people does the company have and what is their background and experience?
  • What kind of discounts on fees and other expenses are you offering to the initial group of pioneer franchisees?

EXPERT ADVICE
Before buying

What to consider before you invest.

There’s little doubt that the right franchising opportunity can be profitable and satisfying for the right entrepreneur, and the franchise industry appears eager to welcome and guide new owners.
Franchise ownership isn’t for everyone, however, nor is every opportunity a gold mine.

Determining Factors
Here are four factors to think about before you make a decision:

  1. Do your homework on the franchise, including its expansion plans.
  2. Make sure the company provides support in the form of training, construction and marketing.
  3. Pay careful attention to the Franchise Disclosure Document. Carefully review the earnings claim (which franchisors don’t have to provide, although this lack of disclosure might raise questions) and the disclosure of the number of units, closures, and current and former franchisee names and contact info.
  4. Heed the plethora of fees and costs associated with the business, and pay attention to anything that might warn about hidden costs. Owners should determine, for example, whether vendor rebates are allowing franchisors to profit from supplies or equipment that the franchisee purchases. This is particularly important for new franchises – make sure franchisor costs are not being passed on to you.

Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

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Franchisee Advice

3 Ways To Ensure Your Loyalty Programme is Working Hard For You

Plastic cards are making way for app-based loyalty programmes. Is your franchise keeping up with the digitally savvy consumer?

Diana Albertyn

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The average consumer today is a member of at least five of the 100-plus loyalty programmes in South Africa, according to a 2017 study by Nielsen. As the loyalty playing field becomes more cluttered and competitive, what are you doing to ensure each one of your franchisees are catering to customer needs when it comes to loyalty?

Mobility. It’s not the newest buzzword, but it is useful for attracting customers who don’t want to lose loyalty points because their card is lost or not with them. Ailsa Wingfield, Nielsen’s Head of Emerging Markets: Thought Leadership, says that as adoption of non-traditional payment methods increases, loyalty programmes also need to introduce payment type flexibility.

“Mobile payment platforms will increasingly deliver an opportunity for loyalty-programme engagement with consumers, providing a convenient and personalised way for programme members and retailers to engage with one another all along the path to purchase.” – Ailsa Wingfield Nielsen Head of Emerging Markets Thought Leadership.

Related: 11 Ways To Double Your Customers In 4 Weeks

Have you considered what role tech could play in your current loyalty programme? Here are three ways to apply digital enhancements that appeal to present and potential customers: 

1. Offer differentiation through more options

Research has concluded that the loyalty programmes devised by retailers and franchises are not innovative enough to capture the attention of the youth – Millennials and Gen Z. it’s time to diversify your rewards offering. But how?

If your customer base is predominantly younger, being omni-present is key, according to the Truth Loyalty Whitepaper: “An omni-channel approach will not only meet the demands of the younger customer, it will also allow your business to combine intelligence on shopping, search and web behaviour history to assist you in identifying when to offer an in-store promotion, extend a seasonal offer or make a product recommendation through the appropriate channels.”

Implementing a digital loyalty campaign is also a smart way to reduce costs. Coffee shop franchise Mugg & Bean’s Generous Rewards App and partnership with Vitality Active Rewards, means members can earn cash-back rewards to spend on their favourites. Just downloading the app earns you a R25 voucher.

2. Use your tools to engage more

A crucial mistake most franchisors make is not communicating consistently with their loyalty programme members once they’ve signed up and increased numbers. They spend a lot of time recruiting customers to join, but expect them to prompt cashiers for points’ balances and produce their cards independently in their various locations.

“You have gained permission to talk to your customers and created the opportunity to collect enormous amounts of valuable data. Use this to your advantage by creating meaningful and relevant engagement initiatives and communications across your customers’ lifecycle,” advises Truth, a boutique consultancy business specialising in customer centricity and loyalty programme strategy and design.

When enhancing your engagement strategy, Accenture advises that you keep the following in mind:

  • 54% of South African consumers are loyal to brands that actively engage them to help design or co-create products or services.
  • 57% are loyal to organisations that present them with new experiences, products or services.
  • 47% are loyal to brands that engage them in ‘multi-sensory’ experiences, using new technologies such as virtual reality or augmented reality.

Related: 3 Ways To Stop Taking Your Most Loyal Customers For Granted

3. Keep the experience simple

Review your loyalty programme. Honestly. Then ask yourself if you’ve made your programme too complicated for the layman. If your answer is ‘no’ or even ‘maybe’, how can your target consumer ever reap the full rewards of this programme if they don’t understand the rewards on offer and how to redeem them?

Changing rules too often is the first complication to go. No matter which one of your stores they choose to shop at, the redemption and earning process should be simple enough to keep members interested and engaged in the programme. Make sure you keep your programme simple and transparent.

“Clicks made a simple but fundamental change to its redemption process – paper-vouchers were replaced with virtual points that can be redeemed as cash-back when you swipe your card at the till. While Clicks and Dis-Chem are among only a handful of brands that do this, it’s a sure-fire mechanism for increasing redemption,” said Amanda Cromhout, founder and CEO of Truth.

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Franchisee Advice

3 Crucial Considerations For New Multi-unit Franchisees

Your marked success as a single-unit franchisee has led to the choice to multiply your achievement. But do you know what it really takes to move from owner-operator, to multi-outlet operator?

Diana Albertyn

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Multi-unit franchise ownership is a brilliant way to grow your business portfolio, once you’re successfully running your single location. Once you get the hang of being franchise business owner, adding one or a few more units could be the next logical step.

“The risk with having one store is higher than if you have more than one store, as the stores support one another. When the one is down the other one is up,” says multi-unit Montagu franchise owner Pierre Lombard.

You’ve probably already realised this lucrative option and are getting acquainted with multi-unit franchising. As this is new territory, you may want to consider these methods to multiply your success.

1. Make more discerning recruitment choices

When you opened shop at your first location, you were probably warned against hiring a manager, because they may not be as invested in the success of your business as you are. Now that you growing, you have no choice, so you need to be selective in your decision of who’s going to run the show when you’re not around.

Related: 3 Employment Best Practices To Apply In Your Franchise

The best way to ensure consistency in service and quality in each location is to always put culture fit over ability. While a certain level of skill is required to carry out the tasks required of a manager, attitude trumps aptitude when selecting capability running your locations.

“Place one of your outstanding managers or staff from your current store in the new one and have them train up any new staff,” suggests Francesca Nicasio, Retail Expert at Vend.

“That way the practices and attitude that you’ve cultivated in your business will continue into your new store.”

2. You need tech to help you be everywhere

Not only are Cloud technologies enabling franchise owners to scale quickly, easily and more affordably compared to on-site solutions, but these advancements mean you can remotely optimise inventory across all your locations, get a more accurate assessment each store’s performance and better understand your business – all you need is an Internet connection.

With the variety of Cloud-based solutions available today, you’re also able to connect your sales, staff, and customer information to give customers a seamless experience at all locations. You’re also able to receive alerts on low stock levels and automatically have it.

3. Set and stick to a specific standard

As a franchisee, consistency is standard practice. But that’s easy done as a single-unit owner than when running multiple locations. To make your mini network more manageable, ensure all your store understand brand standards beyond the operation manual.

Related: Multi-Unit Franchising Growing In South Africa

“Naturally, you have your franchise systems’ operations manual and procedures but the way you personally want to stamp your mark on customer experience, for instance, needs to be documented too,” experts at Inside Franchise Business advise.

Doing this reduces the stress of continually keeping tabs on staff, and frees you up to collect and collate the data you need to make smarter decisions faster.

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Franchisee Advice

Effective Ways To Bring Customers To Your Door

Here are a few tips from Local Area Marketing Manager of Cash Converters, Juan Botha, to assist you in bringing customers to knock on your door.

Richard Mukheibir

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Retail, craft, artisan and service businesses can’t rely on only carrying on trade online – you also need people coming through the door and engaging with your product. But how do they find you? Are you the neighbourhood’s “best-kept secret” – and not in a good way?

Your premises, the surrounding area and the audience for your brand are a unique combination. Get to know both inside out so that you can hone your products and your marketing to appeal to potential local customers. With all the pressure to run a website, Facebook page or maintain other online presence, it’s easy to forget the basics and fail to reach your closest customers – those on your doorstep.

Our Local Area Marketing Manager, Juan Botha, previously worked in advertising with local and multinational brands and he taught us how each store needs to make sure its marketing lives up to the pointer, “Act global, think local”.

Related: How Your Fast Food Franchise Can Attract Quality-Conscious Consumers

Here are a few of his tips:

Position yourself

If customers know about you but can’t find you, they’re likely to get frustrated looking for you and give up. If they don’t even know you’re there to find, your chances of using your sales skills with them or getting them to fall in love with your product are zero.

Remember the times you’ve spent searching for a bar or a restaurant hidden in a maze of city streets or a B&B somewhere along a never-ending country road? Those businesses have forgotten that first-time customers can’t be sure where they are. Draw up directions to include on your website or online page. Make sure a friend who doesn’t know the area well test drives them.

Brand yourself

People won’t notice you until they need or want what you are offering so keep reminding them of your existence. Being visible is key. Your fascia signage is part of your marketing mission to attract and influence potential customers.

Nobody walking to work or taking their dog out should think, “I wonder what that new place is about?”

As well as giving your business’s name and contact details, your signage must succinctly indicate what your business offers. If you have a display window, use this second important opportunity to sum up your offering – keep it interesting and updated.

Be a customer magnet

If you wait to build a business on passing trade, you could wait forever. Get on the radar with potential customers in the neighbourhood so they all know you exist and where to find you. Each time they’re reminded that you exist and how to find you, they will be prompted to come and seek you out.

You can achieve this – and help new customers trying to find you – by making a modest investment in lamp-post signage. Check local regulations with your municipality and ensure this signage reflects your brand visually. This is a win-win, reinforcing your brand in a potential customer’s mind and helping them recognise your premises as they approach.

Related: Why Your Franchise Brand Should Be Culturally Relevant

Connect locally

Part of marketing is making people interested in and attracted to your business long before their first direct contact with you. Embed yourself in the community by forming alliances.

If security is an issue, bond with the local SAPS, Community Policing Forum and security companies by offering them free coffee. If you have a huge bargain order of toys to shift, offer a few prizes to the local Moms ‘n Tots group. Plug into local business networks and offer to host a speaker or sponsor the audio equipment for a forthcoming meeting.

You’ll be harnessing the incomparable power of word-of-mouth and setting your business growing in a great direction.

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