44 Business Franchise Australia and New Zealand

experT Advice

deAliNG WiTHEMERGING FRANCHISE

SYSTEMSThere is a view that sometimes

new is better than old, but is that true when looking at emerging

or mature franchise networks? The Griffith University’s Franchising Australia 2012 survey has shown that Australia is developing three new franchise systems every two weeks.

With over 1180 systems, it’s no wonder that franchising in Australia and the world is becoming more and more competitive as each system is working harder to compete for each dollar spent by your everyday consumer. More importantly, mature franchise networks must continue to evolve and be in touch with its market to remain competitive with the emerging networks. The emerging systems

are invigorating the sector by introducing new and exciting products and services and meeting consumer demands not only dictated by technology but the ever growing global market.

Franchisees have and continue to experience enormous success across the globe and it would not have been but for brands such as McDonald’s, Pizza Hut, Subway, 7-Eleven, Australia Post, Dymocks and many more which have over many years proven their ability to evolve and keep up with the pace required by todays’ consumer. In addition, the importance of having emerging systems allows the sector to further thrive and to keep other systems honest. Some of these brands have changed the Australian climate in

franchising, which have included brands such as Gloria Jean’s, Boost Juice Bars, Anytime Fitness, Sign-A-Rama, Snap-on Tools and many more.

There is no doubt that there is a risk to take, what may appear to be a safer bet is with a mature/established system. The fact is there is risk in both scenarios, but if it were not for the risk takers in the words of Neil Armstrong “there can be no great accomplishment” and each of the brands noted above and many more have in fact taken such risks.

dUe diliGeNceWhether it’s an emerging system or mature/established system, your due diligence should not be any different. At law, both systems are required to comply with the Franchising Code of Conduct (Code). The Code does not discriminate between both and was established to ensure that prospective franchisees receive enough information from the system to allow the franchisee to make an informed decision. This includes:

• The requirement to provide a Disclosure Document, which must include information relating to the system, its’ officeholders, the intellectual property offered and protected, the establishment costs associated with the business, financial information of the franchisor and the obligations of the respective parties;

• Cooling-off period – The franchisee has seven days from signing a franchise agreement or making any payment under the agreement to terminate the agreement

Business Franchise Australia and New Zealand 45

“The importance of having emerging systems allows the sector to further thrive and to keep

other systems honest.”Marwan Kojok, Founder,

Baybridge lawyers.

without penalty except for reasonable costs of the franchisor;

• Dispute Resolution procedure – a strict process must be adopted by the parties during a dispute; and

• A franchise agreement that complies with the Code.

The above are fundamental requirements and must be adhered to by either an emerging or mature/established franchise system.

The success of a franchise system is based on good and responsible franchising. This means that the franchisor has proven its concept or idea and systems, developed the required documents to allow a franchisee the best opportunity for success including legal documents and manuals, a developed support program and an ability to provide sufficient marketing.

GeTTiNG iNvolved eArlYAlthough some would say that a history of operating is critical, we should not forget that all systems originally started out with no franchisees and there are without question some real benefits in getting involved early. If done well, franchisees can excel in their business and in some cases become franchisors themselves, having learnt many lessons along the journey and willing to offer a new experience to those willing to try.

Don’t let failure of franchisees in a system be a deal-breaker. Failure is normal, even in franchising. It is estimated that less than 20 per cent of franchisees were involved in a franchise dispute with the franchisor in the past 15 months, many of which had not proceeded to any form of court action.

Anyone who expects that by joining a franchise system they eliminate the risk of failure is being unrealistic. There is a lot to be learned from examining the lessons behind a franchisee’s failure in a network.

Clearly, in a mature/established network, franchisee failure may go unnoticed however in an emerging system, failure may prove to be paralysing. Understanding the franchisors’ ability to deal with such circumstances is very important as it is inevitable and must be mitigated.

Franchising is not the strategy for every company and I have personally seen many companies that chose to franchise, now wish they had not. Your due diligence in any system is critical and when it comes to an emerging system, consider the team they have supporting them, including their advisors, the investment they have made in the systems and documentation, their ability to deal with tough situations (being a dispute with a landlord or franchisee), their strengths in marketing their brand and the network and most importantly proven ability to ensure a good return on investment.

There is ample evidence to suggest that an emerging system requires time to fine tune its system, processes and head office support.

As the network grows, employing the right field support, creating stronger supplier arrangements, in turn increasing its buying power, enhancing its marketing and creating economies of scale and efficiencies are all challenges faced by mature/established systems but more so by emerging systems. Accordingly, a franchisee must be prepared that if it chooses to go ‘new’ then it must be cognizant and accepting of the challenges. More importantly, it should also be looking to supporting the networks’ growth to ensure the success of the overall system including its franchisees.

Marwan Kojok is the Managing Partner and Founder of Baybridge Lawyers and a leading authority on franchise related matters. They are seen as trusted advisors to many brands nationally and internationally.

Phone: 02 9232 3511 Email: info@baybridge.com.au Web: www.baybridge.com.au

46 Business Franchise Australia and New Zealand

experT Advice

Shingle inn – operating since 1930s, Brisbane-based coffee, cake and high tea1. How many stores do you currently have and what is the

projection for 2013?

30 stores and our projection is that we will have 42 stores at the end of 2013.

2. Moving from setting up a franchise to your current network size what three key learning’s have you experienced?

i) The varying desire and drive once franchisees get into their business, although we undertake an extremely thorough recruitment process including profiling key characteristics of the prospective franchisees, it is difficult to foresee with absolute certainty how someone will react when the responsibility of being a business owner (ie. franchisee) is placed in their hands.

ii) To maintain original company values becomes increasingly difficult as the network expands beyond 30 stores unless great focus is directed towards keeping these values at the core of business decisions

iii) Balancing when to extend the support network and infrastructure of the business to ensure that the network is being best supported

3. In your opinion what distinguishes you from a mature franchise network?

A key feature of our network compared to a mature network is that we maintain a more personal approach with our franchisees, as ‘family values’ is a founding value of the business we take great care so as not to become a network that is highly impersonal whereby the franchisees simply feel like they are just a number on a long list of stores.

4. Long term vision for your business?

We are seeking to be recognised by customers as the most-loved café business in the world and this does not mean that we will have the biggest network but instead we will maintain our boutique appeal in both local and international markets by delivering an outstanding experience in a relaxing and luxurious environment. We believe that this direction will allow us to build a strong Australian network and be able to successfully enter international markets, with our sights set on Asia and beyond.

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coco cubano – Five cuban inspired café/bars1. As an emerging franchisor what three key criteria do you look

for in a franchisee?

People who have a revolutionary attitude – that are positive, motivated and outgoing.

We look for people who want to grow with the brand and contribute to the development of the system.

2. In your opinion what distinguishes you from a mature franchise network?

We are a unique Cuban inspired café/bar experience. We are

innovative as a brand and we are passionate about our business. Whilst mature franchise groups may take themselves very seriously, Coco Cubano is in the business of making people feel good. We think it’s important that we provide our guests and franchisees with a bit of fun. We have been very successful award winning franchisees so we know what it is like to be a franchisee starting on their new journey.

3. Long term vision for your business?

We want to be the most revolutionary café/bar experience. We plan to have successful and growing outlets across Australia and are looking to partner with like-minded people.

Top Juice – 15 fresh fruit salads, yoghurt and smoothie stores 1. As an emerging franchisor what three

key criteria you look for in a franchisee?

• A ‘product evangelist’ – not only someone that will run a great franchise and follow the system, but who is also passionate about the product, and who is going to help promote and grow the brand.

• A ‘hands-on leader’ – an owner/operator who is going to commit to their franchise and be in the business on a full-time basis. Their enthusiasm, energy, and hands-on approach will not only ensure the success of their own store, the experience that they develop will be a useful source of knowledge that will benefit new franchisees and even help refine the franchise system as the brand grows.

• Great business skills – someone who is

well rounded with strong people skills, marketing savvy, and the ability to manage the day to day tasks of running the business. Their ability to handle this well is essential in enabling the emerging franchise system to have a solid foundation of successful well managed stores from which to develop and expand.

2. In your opinion what distinguishes you from a mature franchise network?

• Besides having a fresh concept that brings something new and exciting to the customer, being an emerging system our focus has to be on doing everything we can to ensure that our franchisees are successful. This means selecting the best possible franchisees, keeping total investment low and operating costs down, and investing in training and first class systems.

• Open and direct communication – the ability to build effective working

relationships between the franchisor and franchisees, ensuring franchisees are engaged with the franchisor, where they can ask for help if they need it and openly discuss any challenges that they are facing. This helps the emerging franchisor identify areas that may require additional focus that will benefit everyone as the system grows and develops.

3. Long term vision for your business?

• It’s not about expansion at any cost. We have a great concept and our customers identify very strongly with our brand and products; we’re taking a measured approach to ensure the long term sustainability of the brand, that we do everything we can to ensure our franchisees are successful, and ultimately that we can deliver a great customer experience in very store every day whether we have 20 stores or 200 stores.