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Researching a Franchise

Investing in a Foreign Franchise

What to know when researching a franchise based outside of South Africa.

Jeff Elgin

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Investing in a foreign-based franchiseposes an exciting business dynamic, as it gives franchisees a fantastic way totake advantage of business concepts that may not exist in the domestic marketor that have a unique twist. That said, this dynamic also raises a number ofquestions in the minds of many prospective franchisees. Some of the most commonquestions one hears in relation to foreign-based franchises include:

1.How safe is investing with a foreign-based franchise?

The same disclosure requirements that applyto a domestic franchise also apply to any foreign company that comes into South Africa tooffer franchise opportunities. The franchise must provide you with a fulldisclosure document containing information on key mandated factors. They arealso subject to the same consumer protection rules in terms of their behaviourduring the process of selling their franchise. Also, you can use the Internetto find out information about any company anywhere in the world. Mostprospective franchisees don’t find any significant difference in the researchprocess of a foreign-based franchise company compared to any other, so the factthat they are foreign-based should not, in and of itself, affect your risk in anegative way.

2.What corporate structure do foreign-based franchises typically use in the newcountry?

Most successful international franchises,in either direction, use a “master licensing” arrangement. In this scenario,the franchisor finds a domestic partner that they contractually agree willdevelop the franchise in the selected country. In the case of foreign-basedfranchises, this is the most typical structure we see. The foreign-basedcompany will research the franchise business in the new country, then interviewand select a master licensee that will own and control the franchise rights inthis market. The foreign-based company may own some percentage of this entityor may simply require the entity to pay it fixed or variable fees in exchangefor the development rights. The most common alternative to this structure isfor the foreign-based company to create a wholly-owned subsidiary in the newcountry and then hire local employees to run the operation.

3.What extra research do I need to undertake?

It’s always a good idea to check out thetrack record of any franchise company in relation to their past results. In thecase of foreign-based franchises, you effectively have two companies you shouldresearch: the local master licensee and the foreign-based main franchisecompany. In relation to the local master, you want to make sure you have atrack record of performance sufficient to demonstrate that they know what theyare doing and can help you to be successful. You also need to know that theyare strong enough financially to last and support your efforts long term. Inrelation to the foreign-based franchise company, you may want to gatheradditional information about the franchisor’s operations in other foreigncountries to see how well they follow the standards and values you’re used toin South Africa.Also check on the financial strength of the parent company in case the masterlicensee in the South Africaencounters difficulty and needs to be supported in some manner by the parentcompany.

The benefits of investing in a foreign-based franchise

Thebenefits are many and in some respects are similar to those associated withbuying into any franchised business. Perhaps most obvious is the fact that thebusiness is established and has a model that has been proven to work.Franchises with an international footprint and the proliferation of branchesthat come with it, generally have systems that have been extremely well tested.In many instances, you will be able to leverage the credibility of aninternationally recognised brand and use it to build partnerships and attractclientele. As a local franchisee, you can draw on the collective strength,experience and expertise of a global group with a track record.

4.What if I am the first South African franchisee?

There’s an old adage used in relation tosmart money investing in franchises: “When in doubt, send a scout.” The simplefact is that being the first franchisee, or even part of the first group offranchisees, in any system under any circumstances always involves far morerisk than waiting until later. No matter how much experience a franchisor haselsewhere, each country they go into is different. Until they are tested in thereal world, the company simply doesn’t know how well their operating systems,marketing, training and brand are going to work. If you do decide to be a testsubject for them in their new South African operation, one advantage you may haverelates to bargaining power. The very least you should do is negotiate for someform of an early bird discount of costs, such as the initial franchise fee (oreven better – a large special marketing test allowance paid for by thefranchisor). This approach will help you, but it still doesn’t change the factthat you will be entering the business with a fair degree of uncertainty.

What are the red flags I should be on thelookout for with a foreign-based franchise company? There is really just one,and that involves the transition of their opportunity into a different culture.There are many examples of U.S.-based franchises that have struggled when theytook their concepts to a foreign country because of cultural or languagebarriers. Make sure you have taken this into consideration prior to making anyinvestment. If the company has not been operating in the domestic South Africanmarket long enough to prove the effectiveness of their concept, you haveexactly the same risk as with any other startup franchise – you don’t know forsure that it’s going to work well and should therefore be cautious.

One final piece of advice: When in doubtabout anything, ask the franchisor. Don’t be bashful about this, since theyhave probably been asked the same thing by many others before you and shouldhave the answers to your tough questions all ready to go. Research thoroughly,take the time to do this right, and you should be fine.

Some Drawbacks

A newbusiness idea may allow you a unique opportunity to establish a foothold in themarket, but it often means educating the consumer about an entirely new productor service category. Word about trends that are well known overseas may nothave reached our shores yet and it will be up to the local representatives ofthe international franchisor to build the brand and increase awareness aboutwhat the new market category has to offer. This typically requires a bigmarketing budget so it’s critical to ask probing questions about the company’splans for marketing and concept roll-out. Is the local franchisorrepresentative committed to educating the market or is that something you asthe franchisee will be expected to do? If so, what kind of marketing materialwill you be provided with and what back-end support systems are in place toassist you? Another factor to consider is fees. If the franchise fees arepayable in foreign currency, you will need to factor a fluctuating exchangerate into your planning, something that can have enormous and ongoingimplications for your business.

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.

Company Posts

Don’t Tread On Toes – Why Investing In A HIQ Franchise Will Offer You More Opportunities

Are you looking at investing in a tyre replacement and service industry? Look no further than the Hi-Q franchise.

HI-Q

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Vital Stats

Established in 1999, Hi-Q is a successful and diverse multi-product, multi-brand leader in the tyre replacement and service industry with a network of over 130 franchisees nationwide.

With the support of international tyre giant Goodyear, Hi-Q has established a solid reputation of ‘the one you can trust’, and the Hi-Q approach and philosophy is embedded in this.  We have the trust of our customers, our network and our suppliers – that’s why you can trust us to take you and your business to the next level.

When you’re working with people’s safety, trust forms the most significant part of the equation

Hi-Q introduced the original and innovative TyreSurance initiative – the only aftermarket tyre damage guarantee product that backs the consumer no matter the brand of tyre. Each Hi-Q Franchise offers a broad range of brands within the different product and service categories that customers know they can trust, and at prices they can afford. Product and services include tyres, exhausts, shocks, batteries or brakes, wheel alignment or balancing, and a 10-point safety check.

We have identified areas of opportunity to extend our Franchise footprint growth. If you are looking to join a new franchise and you share in our values and vision, we would like to hear from you.

For further information on how to become a franchisee, call us on +27 11 394 3150.

tyresurance-visual

Related: We Want To Invite You To Join Us On The Hi-Q Journey And Become A Franchisee

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Researching a Franchise

Be In The Property Business For Yourself, Not By Yourself

Why property franchising makes good business sense in today’s market.

Keith Broadfoote-Brown

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Opening a real estate franchise has been a thriving and successful business model in South Africa for decades. Despite the challenges currently facing the South African economy, property will continue to prosper and provide entrepreneurs with an opportunity to own their own successful businesses and become leading members of their local business communities.

“The residential property market is a dynamic, thriving industry offering substantial career opportunities.

Joining a property franchise business gives entrepreneurs the opportunity to align themselves with reputable, established businesses with a national footprint who have invested in their brands and have access to international networks,” says Russell Berkman, Franchise Director at Jawitz Properties.

While the property industry is competitive there is still great potential for growth. Worldwide, franchising has proven to be one of the most successful business models with failure rates well below those of starting a business from scratch.

Related: How to Become a Property Franchisee

For the franchisee, it is one of the most intelligent ways of starting and growing a business and by combining the proven business formula of the franchisor with the entrepreneurial drive of the owner-franchisee, the likelihood of a successful business venture for both parties is increased significantly.

According to Keith Broadfoote-Brown, the owner and Principal of the Jawitz Properties Ballito franchise in KwaZulu-Natal, property franchise still makes good business sense in today’s market.

The benefits of being a property franchise owner

Becoming a property franchisee gives a businessperson unlimited potential to succeed in the property industry as the success achieved is a direct result of the effort, commitment and drive put in. It means being self-employed within an organisational structure and offers the same structure and benefits to sales and rental consultants.

“It gives you the opportunity to leverage your business’ success off the intellectual capital, brand, expertise and know-how of an established business that has a proven business model, IT platforms, marketing expertise, training and self-development programmes as well as having access to years of experience in these fields.  My mantra is ‘be in business for yourself, not by yourself’,” says Brown.

Skills needed to succeed as a property franchisee

The most important competencies would be to have an entrepreneurial character and business skills such as financial literacy, HR/people skills and marketing acumen; a people’s person with a resilient and driven personality. Experience in real estate is always beneficial but not required as it is all about using business skills, marketing acumen and entrepreneurial tenacity to make your mark.

Related: How Brigid Prinsloo Made (A Lot Of) Money On Airbnb

Brown explains, “Absolute professionalism and integrity and a fierce determination to exceed your client’s service expectations are essential. And you must be able to develop a highly competent sales team, explore new opportunities for your business and operate as a team player within a franchise structure”.

Current state of the property market

The property market in SA currently reflects the economy and is weighted in favour of buyers, so sellers need to be very realistic with their price expectations. Buyers are buying where they perceive good value and value is indeed the key driver in the market today.

The opportunities are strong for buyers to invest in this ‘down’ market and conditions are also ideal to upgrade one’s home. In every region and in every suburb there are homes offering good value and these are selling well, despite the tougher trading conditions.

Opportunities outweigh the challenges

“The opportunity for real estate professionals is to find and secure the well-priced, good value, properties as they are selling!

It is also an opportune time to enter the market as a franchisee or new agent/intern as I am firmly of the view that great estate agents learn their profession well in a tough market and when the market improves, as it surely will, these sales professionals will have a solid grounding and strong foundation on which to build their real estate careers.

Challenges are to manage costs in these tough trading conditions. To keep motivated and continue to consistently drive the very basic activities needed to succeed in real estate,” says Brown.

Top 3 things to consider before entering the industry

According to Brown, his top 3 considerations are as follows:   

  1. You need sufficient start-up capital as the initial investment in starting the business and the monthly expenses to run the business can be substantial. The income from sales and rentals may be slow in the early years, hence the need for good planning and sufficient start-up funds.
  2. Owning one’s own business means the buck stops with you! A well thought out and well implemented business plan is key. The first 2-3 years consist of long hours and could potentially be financially strained, as in any start-up business, but the rewards of owning your franchise and being ‘master of your own destiny’ are worth it!
  3. This is a tough business for tough-minded people. Having an initial mindset of ‘it is harder than I think’ rather than ‘it will be smooth sailing’ is a better approach and will prepare the franchisee for the hiccups that will surely come along.

Property franchising makes good business sense

The end result of being a successful property franchisee is financial security. Owning a brand office assures the owner of having an asset and the credibility, back-up and brand promise assures clients they are in safe and professional hands.

“I would definitely recommend being part of a major brand rather than a being a small real estate entity, especially in this competitive industry. Property is a challenging industry that, like everything else, goes through cycles, influenced by factors like inflation and interest rates, among others.

Drive, initiative and resilience are therefore essential qualities for a successful property franchisee. Absolute professionalism and integrity and a fierce determination to exceed your client’s service expectations are essential,” Brown concludes.

Related: Want To Start A Property Business That Buys Property And Rents It Out?

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Researching a Franchise

Col’Cacchio – Benefits Of The Franchise Model

Six key benefits of the restaurant franchise model – and what to look out for when considering a franchise.

Russell Otty

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For investors looking to the restaurant industry and considering a franchise knowing it has a proven track record and is therefore possibly a lower risk, there are a few key things to be aware of about the benefits of the franchise model, which if investigated, can also point to a franchise that is not for you.

Russell Otty, Chief Operating Officer of the Col’Cacchio Group, shares some of these key benefits and indicators of whether a franchise is for you:

1. Making the cut as a franchisee gives you the confidence that you are making the right decision

You may think psychometric testing, three days in a restaurant following a franchisee around, and a panel interview with the senior management of the franchisor, is a bit over the top, but the franchisor that puts you through your paces and assesses your ability and commitment to running the business, is doing you a huge favour and may even help you see this is not for you. It goes both ways, and after an intense courtship, you should know if you want to try a long-term relationship.

Related: Col’ Cacchio: A Passion For Pizza

2. Assistance with location selection and negotiation of the terms of your lease

One thing you can do to limit your risk is to not open a restaurant in the first place if your rent is not going to be reasonable or you simply won’t get customers through the door. The franchisor will vet and approve the site – they will have extensive insight into what has worked or not worked location-wise for their brand, and can assist you to weigh up the area and it’s potential to attract customers.

The commercial terms of a lease is very important – you can’t be too ambitious about turnover targets, and having the backing of a franchisor can be beneficial if a landlord becomes unreasonable.

3. Staff training and development tools on hand

Consistency is important with restaurant franchises, as a customer visiting a brand anywhere in the country, goes there knowing exactly what they are going to get. This is best achieved with solid training, perhaps access to resources such as training videos, and regular visits from franchise managers.

You should check with your franchisor what level of training and franchise support you will have on an ongoing basis. Ask about the ratio of field trainers and operations managers to the number of franchisees in the group. You want the franchisor in your restaurant in some shape or form, two or three times a month, whether it be the training manager, the regional franchise manager or the national operations manager.

4. Access to supplier networks to manage your input costs

Negotiating basket pricing with distributors regionally and nationally, the franchisor will leverage their buying power on your behalf. They should assist to manage your suppliers and make sure deliveries happen on time, and ensure that product quality remains consistent. They can also negotiate to ensure your input costs do not increase before the next menu launch – so you can ensure your margins remain intact.

5. Brand loyalty and locality marketing

When you buy a restaurant franchise, you gain a group of customers who know who you are, the food you serve and the way you make them feel. The money you will pay towards marketing each month gives you insight into the broader restaurant market, the experience of what is working across a number of sites, and how best to keep the attention of new and existing customers.

Some franchisors offer locality marketing assistance – your site and area has specific needs that other outlets may not have, or there may be events in the area that can be leveraged to run special offers. Ask if the franchisor offers this as a service, as it can assist you greatly to have an advantage over other restaurants in your area.

Related: Beginners Guide To Digital Marketing In South Africa

6. Business development insights

The franchisor has access to insights gained across the group, and the systems that they have in place to track costs and increase profit margins, can be of huge assistance. If you are looking for business support, a franchise manager can be the one sitting with you telling you that you spent R2 000 too much on cleaning this month or saying you need to wait till next month to make that purchase. The level of business support you will have access to, is an important factor to consider, depending on the level of support you may require.

Recipe for success

Nine times out of ten, a restaurant franchise that fails, fails because the franchisee loses interest or lacks the commitment to make it work. Selecting the best franchise for you as the investor, or as a restaurant entrepreneur, is the most important first step you can take towards success, so do the homework.

Don’t assume that because you are buying into a successful brand that it will be a success – business is not an exact science – you need to do your own due diligence and take responsibility for your business, because it is after all your own investment.

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