When a company first decides to franchise, they’ll rapidly learn that this decision is only the first in a series of decisions that’ll ultimately affect their success or failure as a franchisor. Even before getting to the crucial issues of fee determination, the questions will fly fast and furious. How fast should I grow? Where should I expand? Should I sell franchises close to my existing company-owned operations? What support should I provide? What will it cost me?
What many neophyte franchisors fail to realise is that the answers to these and other related questions will ultimately determine the success or failure of the franchise company.
It Starts With the Goals
Any new franchisor should begin the process by gaining an understanding of what specific goals you’re hoping to accomplish through franchising. You can get so wound up in the day-to-day operations of the business that you fail to realise the business is there to serve your needs, not the other way around. So you should take a step back and ask yourself where you want to be at some point in the future. Do you want to sell the business or pass it on to your heirs? If you want to hold on to it, do you want to achieve some specific financial goals, and if so, when? If you want to sell it, when, and for how much?
Let’s say you want to sell your company in five years and you know the price. Start by subtracting an estimate of the current value of your existing business from your desired selling price, and that’ll tell you the growth in valuation that you need to achieve your ultimate goal.
Armed with this information, you can then work backward into a game plan. To do this, you divide your required growth in valuation by an assumed multiple of earnings (based on the selling price of ‘comparable’ businesses) to learn the earnings your business will need to generate to achieve that goal. Then, based on a variety of factors, you would make assumptions relative to overall profitability to provide you with an indication of what revenue level will allow you to achieve that selling price. Then look at estimated unit level performance, back out an estimated royalty, and divide royalties per unit into that revenue level to achieve a rough approximation of the number of franchises that’ll need to be operating to achieve your goals.
You then develop a game plan based on staging that number of franchise sales over your five-year planning horizon. And, voila! Everything starts to fall into place. Once you know how many franchises you need to sell each year, you can set your marketing budget based on an assumed marketing cost per franchise sale. You can develop a hiring plan based on staffing ratios relative to franchise sales person effectiveness, field support ratios and other measures of an efficiently run franchise organisation. In fact, this process will tell you virtually everything you need to know in order to develop a successful franchise development programme.
Of course, the process outlined above has been vastly oversimplified for this article. We haven’t made provisions to account for franchise fees, product sales and other sources of revenue. We haven’t discussed the complexities of properly establishing an earnings multiple or estimating franchisor profitability. The truth of the matter is that this process, in practice, requires a substantial amount of forethought, planning and financial analysis – and often in numerous iterations – before a reasonable game plan can be established. But in every instance, it starts with goals and ends with strategy and tactics.
And while goals should drive strategy and strategy should drive tactics, there are some rules of thumb that apply to virtually all new franchisors.
Don’t Try to Eat the Entire Cow With One Bite
You’re generally well advised to get your feet under you as a franchisor before stomping down on the accelerator. The problem is many people get into franchising in the first place as a means of leveraging their assets. They don’t have the people or the capital to develop company-owned units as fast as they would otherwise like, and so franchising provides the magic pill for low-cost growth.
Unfortunately, one of the biggest advantages of franchising – the relatively ‘unfettered’ nature of the franchise growth process itself – can be one of its biggest problems. Without capital constraints, a franchisor can literally sell itself into a position in which it can’t provide adequate support to its new franchisees. This can lead to franchisees who fail, franchisees who don’t open or franchisees who feel disaffected. This initial burst of speed can ultimately be responsible for locking up the brakes a year or two down the road.
My advice: Don’t grow faster than your ability to support your franchisees. And until you know just how much and what type of support they’ll need based on practical experience, you should err on the side of conservatism.
Over-support your initial franchisees. Make sure your first franchises are wildly successful, even at the expense of more rapid growth, because franchise marketing is driven by word of mouth. Remember: If your franchisees fail, you fail. But nothing drives franchise sales as well as wildly successful franchisees. Nothing.
Stay Close to Home
A corollary to this first rule is that the new franchisor should stay as close to home as possible. Getting back to the previous rule urging you to over-support your initial franchisees, I advocate initial marketing efforts that’ll limit franchise growth to within about a three-hour drive time of your franchise’s headquarters. That way, if an initial franchisee is in need of assistance, you (or your staff) can get up in the morning, be at the franchisee’s operation by the start of business, and still be home at the end of the day.
But more important, it means you can respond instantly to a franchisee’s problems or requests. You don’t need to book a flight and a hotel room, and will never have to wait two weeks to get an advance booking discount with an airline.
This local approach will provide you with economies when it comes to the franchise side of the business. Franchise marketing can be done more effectively. Rather than relying on national publications that may be too expensive for the new franchise, you can focus on less costly local media. The support will not only be easier to provide, but it can be provided more economically – not only from a transportation perspective, but from a staffing perspective as well. Clustered support allows fewer field support staff to handle more units, thus producing reduced cost combined with more ‘face time’ with your franchisees.
Likewise, this more local approach offers you a number of advantages with your consumers. Consumer advertising can be clustered, as can the operations themselves, leading to a bigger brand presence. A franchisor with units spread across the country can never obtain any brand dominance, whereas a franchisor with units only in Johannesburg will have a significant footprint, and can achieve economies of scale in both purchasing and in advertising. And since you have already built a reputation locally, your franchisees will be better able to take advantage of your existing goodwill.
Rules, Like Thumbs, are Meant to be Broken
Ultimately, however, all the decisions relative to a ‘best practices’ growth plan relate back to goals and the marketplace in which you’re operating. Conservative growth carries its own risk – the risk that while you’re growing slow and steady, you’re possibly losing the race to a more aggressive competitor.
And thus, while the easiest and most reliable growth plans will be conservative and local, risk tolerance and an assessment of your market’s direction must also play a role in the assessment of the most appropriate growth strategy.
Ultimately, it’s a balancing act. You need to provide adequate support to your franchisees to help ensure their success. But the faster you intend to grow, the more people you’ll need to hire in anticipation of providing that support. This leads us back to the basic risk-reward equation – it’ll be the franchisors that best manage this equation that’ll ultimately enjoy the greatest success.
Spur’s Got A Taste For Success
With eight brands across five countries, the Spur Corp’s secret sauce to success has all the best ingredients — most importantly, its franchisees. Sacha du Plessis, Group Marketing Executive at Spur Corporation, explains the company’s 51-year journey in creating some of the most popular places to eat the world over.
What is the biggest contributor to Spur’s success?
Since the beginning, we’ve made an unwavering commitment to run restaurants that are operated by entrepreneurially-minded owners who put the customer first. Customer satisfaction is one of Spur Corporation’s most important value drivers, we partner with people who ensure we retain and grow a loyal customer base. We seek to work with franchisees who take pride in the training of their staff and prepare food with passion.
This mindset has been alive for over 50 years in our staff and franchisees.
Please share some of the challenges Spur encounters as a franchisor?
We have a sizable franchise network and a big priority is to ensure that we meet customers’ expectations in every single franchise they visit. Another challenge is finding the best franchisees to partner with, people who are aligned with our company values and customer orientation.
In terms of growth, it is sometimes challenging to find the correct locations per brand and to ensure the rental is at a level where it’s sustainable for the franchisee. The management of our marketing communication to ensure we remain relevant and distinctive in an ever changing landscape can also be a challenge.
Name a few of the qualities you look for when selecting franchisees?
Our business was built on a highly focused customer orientation and centred on a love for food. Our franchisees need to be focused on the customer: Pleasing the customer, meeting the customers’ needs and being willing to spend large amounts of time in growing a business that essentially is the hospitality industry and is really about people. Our franchisees are people who have an appreciation for, and love, food as well as serving their local community over and above their product.
Why is Spur a solid investment for entrepreneurs seeking to pursue franchising?
We’ve invested greatly in growing our brand over a long period of time. Spur was founded by our Executive Chairman Allen Ambor in the spirit of entrepreneurship. Over the past 51 years, we’ve built a track-record of comprehensive operational, finance, marketing, IT, training, procurement, distribution and development support. Our marketing approach grows sustainable brands in a considered and well researched manner.
Our customer scope is broad, so while our main brands are focused on the wider South African market, we also have niche brands. This track record reassures the franchisee and broader market about Spur Corporation’s credibility.
What kind of support can a franchisee expect when joining Spur?
Franchisees can tap into expertise that’s been built up over five decades. We provide franchisees with the most effective tools to help manage and sustain their businesses successfully. Our operational support is wide-reaching and includes access to procurement, development, logistical as well as IT support. Skills development is one of the most important ways in which Spur Corporation supports its franchisees to run successful businesses.
Marketing support enables franchisees to actively identify opportunities and get assistance in developing and implementing bespoke marketing plans for each restaurant. Most importantly, when a franchisee joins Spur Group he or she gets access to cutting-edge management know-how from an experienced team of people who are passionate about our business.
Why is it important for successful franchises such as yours to have a strong banking partner and how does it benefit the franchisee?
Buying into a brand is a substantial investment for a franchisee, so they need a banking partner that will help with financial planning and running the business. Nedbank has built relationships with franchisees while helping to open and maintain their businesses.
Muscle And Grill Is Your Daily Chef. We Provide Fresh, Nutritional Food At Affordable Prices
It isn’t always easy to stay in tune with both body and mind. We do all the prepping for you so that you can keep up your pursuit of greatness.
- Brand: Muscle and Grill
- Established: 2018
- Website: www.muscleandgrill.co.za
Muscle and Grill is a healthy fast food establishment based in South Africa. In the face of modern South Africa, lives spent on the go require a fuel to match their aspirations while maintaining a delicious, fast and fresh service.
As our lives swirl into life’s vast depths of opportunity, our bodies are often the product of poor health habits, while trying to keep on the move to achieve our goals. Muscle and Grill challenges this. We want to be able to support the South Africa of tomorrow by offering the food your body needs to keep reaching new heights – to keep pushing the boundaries of accomplishment with health food convenience.
At Muscle and Grill we’ve got you covered. We provide nutritional fast food that is fresh and affordable. We have your health at heart. You could start your day off with some free-range scrambled eggs or fresh oats – for lunch a mixed bowl of rice, protein and fresh vegetables – or to round off your day, replenish your mind and body with a hearty health-infused burger and all its wholesome goodness. We have not forgotten that home constitutes a hungry family who have all been active, so grab a lean beef pasta salad with some greens on the side to go.
Related: SA Fast Food Franchising On The Rise
It isn’t always easy to stay in tune with both body and mind. We do all the prepping for you so that you can keep up your pursuit of greatness.
It was once said that great ideas are born from ones’ frustrations. That is exactly how Muscle and Grill came about. Having no real on-the-go option to stay healthy, or having the time to prepare to be healthy, became a huge frustration for us. We struggled to find enough hours in the day to keep up with a busy lifestyle and still eat healthy while on the move. Our work came first and our lifestyles suffered.
The vision for Muscle and Grill is to make it possible to stay healthy on the go. We want healthy food to be easily accessible for all walks of life.
Our mission is to provide quality, healthy fast-food. The food we provide is delicious and will keep you coming back for more.
Muscle and Grill works on an almost self-service basis. The point of sale system is customer operated where you can select what meal you would like to have. Once payment has been processed electronically the kitchen staff will receive the order and prepare it to spec. Muscle and Grill will be a completely cashless business, making it super-efficient for consumers and business owners.
The concept of Muscle and Grill is partnered with Puré Frooty. Puré Frooty is a self-service smoothie bar which prepares smoothies for you at the touch of a button. You can have a store with or without a machine – the choice is yours. Both concepts look to promote the idea of healthy living on the go.
We’ve looked to compliment our values by looking after that which grounds us. Our packaging and utensils are all eco-friendly, as we believe ‘going-green’ is not just a choice of eating but of the environment too.
So, when you are ready to join the next revolution in the fast food industry contact Muscle and Grill at email@example.com or visit the website at www.muscleandgrill.co.za to inquire on our franchise options today. Achieve your goals, stay on the move and look after yourself through Muscle and Grill.
Nando’s Is Firing Up The East
Carlos Duarte has been part of the Nando’s brand since inception. When his brother Fernando co-founded the flamed grilled chicken brand in 1987, Carlos soon participated in its success and today owns four highly successful franchises in Johannesburg — three in the east and one in the south. Here’s how it all began.
- Player: Carlos Duarte
- Franchise: Nando’s
- Position: Franchisee
- Visit: www.nandos.co.za
What were you doing before becoming a franchisee?
I was in the audio visual technology field, as an employee. Then I joined Nando’s as an assistant manager in the Savoy and Rosettenville corporate stores. Franchising was my first experience of entrepreneurship.
Why did you decide to become a franchisee?
When my brother, Fernando Duarte, launched Nando’s in 1987, I noticed its quick growth and wanted in on the action. Being assistant store manager prepared me for when the opportunity to run my own store came along soon after.
What prompted you to partner with Nando’s?
I joined Nando’s in 1991 as a joint venture partner. At the time, Nando’s hadn’t yet franchised its operations, and the JV partnership meant the brand owned 51% of the business, while I owned 49%. My first franchise store was in Edenglen in 2001.
Describe some of the challenges of running not one, but four franchise locations
At the Edenglen store, we initially battled with sales and getting feet into the store. To be honest, I think the area was overtraded at the time, so it wasn’t the best location. Since acquiring the store in Lambton, Germiston, another in Greenstone and a third in Comaro, I’ve learnt to be cleverer in how I do things — and how I handle some of the same challenges — and learn every day from the brand itself.
Name some of the benefits you’ve experienced as a Nando’s franchisee
Nando’s is 31 years old this year. We’re in 30-odd countries worldwide with thousands of stores across the globe. As franchisees, we leverage off the dynamism of an operational business that’s known for its marketing — customers talk about our ads and they love our food.
What kind of support do you receive from Nando’s as a multi-unit franchisee?
Besides the popular marketing campaigns that attract customers, Nando’s has an extensive training manual along with a skills development training consultant who comes to the store for two days to help staff understand and implement it. The training is really effective — it has to be as this industry involves a very high turnover of staff and new skills need to be taught often.
Why is it important for a franchisee to have a good banking partner?
As a franchisee, your bank should understand your business — from operating costs, to overdraft needs and revamping expenses — so it has cash available for loans that can be approved quickly, with minimal hassle. On the technical side, a reliable mPOS device is imperative, especially for us, because 30% of our sales volumes are from home and office deliveries. It’s a fundamental method of payment every bank should provide its customers of a similar nature.
What advice do you have for budding franchisees on seeking out a good franchise brand and banking partner for their business?
- Do your research to ensure you’re partnering with a brand that is established, well-known and expect to pay a fair price for that franchise.
- Be aware of how the franchise brand is perceived in the market and what location opportunities are available to you as a franchisee.
- Choose a banking facility that always has the funds available to grow your business.
- Ensure the bank understands the brand’s business model and where you’re falling short.
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