Consumer Staples

Betting Is A Game, Franchising A Business

<p>When we consider foodservice, there are several drivers for a successful international development, such as expansion strategy, &nbsp;excellence in operations and monitored Business Plan.</p><p>Franchisors and franchisees must dig into these points very carefully to avoid any bad partnership. This paper is about investigating how to reduce risks and maximize success for both parties.</p><p><strong>Franchising a Business is building a long-term partnership</strong></p><ul><li style="list-style-type: none;"><ul><li>Co-development and cooperation (brand + operational system + assistance vs local market knowledge+resources)</li><li>Monitored plan vs opportunistic expansion.</li><li>Limited capex for Franchisor, but Franchising has a cost. Supervision, training, travel costs are often underestimated<strong><br /></strong></li></ul></li></ul><p><strong>&nbsp;</strong></p><p><strong>Winning franchise system for franchisor and franchisees has 3 pillars :</strong></p><ul><li style="list-style-type: none;"><ul><li>Shared ambition and trust: clear understanding of the brand equity + clear success path and requirements + shared and confident business plan.</li><li>Fair value sharing between parties (balanced mutual P&amp;Ls)</li><li>Training and control: Excellence in operations is # 1 brand equity protection &nbsp;and this mindset must be shared between franchisor and franchisees. When you missed the target, the game is over.&nbsp;</li></ul></li></ul><p>&nbsp;</p><h2><span style="font-size: 14pt;">What does International Expansion mean for a franchisor?</span></h2><p><span style="font-size: 12pt;"><strong>Defining your LT International Strategy</strong></span></p><ul><li style="list-style-type: none;"><ul><li><span style="font-size: 12pt;">Where to go and why? &nbsp;Analyze potential markets through demographics, purchasing power, competition, local supply,&hellip;</span></li><li><span style="font-size: 12pt;">Market prioritization based on sales potential and RTM (local regulations/supply/skilled staff)</span></li><li><span style="font-size: 12pt;">Loop strategy vs scattering ! Focus on a region to create optimizations rather than pin flags randomly (no synergies)</span></li><li><span style="font-size: 12pt;">Master Franchise/JV/multi regional franchisees? And why ?</span></li><li><span style="font-size: 12pt;">Rights and duties of franchisees : what freedom do you want to give to your franchisee?</span></li><li><span style="font-size: 12pt;">Forecasted organization and resources (P&amp;L)</span></li><li><span style="font-size: 12pt;">Take time to find the right partner and to make a deal!</span></li></ul></li></ul><p>&nbsp;</p><p><span style="font-size: 12pt;"><strong>Your Expansion Plans</strong></span></p><ul><li style="list-style-type: none;"><ul><li><span style="font-size: 12pt;">Brick &amp; mortar locations or hybrid (Brick&amp;mortar + dark kitchens) ?</span></li><li><span style="font-size: 12pt;">What type of locations and requirements? (catchment area metrics, venue specs and visibility) </span></li><li><span style="font-size: 12pt;">Be realistic in your opening plan : take into account local administrative timeframes to build a sustainable and fair ramp up.</span></li></ul></li></ul><p><span style="font-size: 12pt;"><br />Know your target markets to be successful! Reality vs dreams.</span></p><h2><span style="font-size: 14pt;">Find the Right Partner !</span></h2><p>Finding the right partner requires various processes to be carried out by Franchisor and the Franchisee.</p><p><strong>Franchisors should look into franchisee story and capacity:</strong></p><ul><li style="list-style-type: none;"><ul><li>KYC</li><li>Success tracks</li><li>Current organization</li><li>Resources</li><li>Current partners feedbacks</li><li>Governance</li><li>Finance vs operations : who has the money and who&rsquo;s making the money?</li></ul></li></ul><p><br /><strong>Once identified</strong></p><ul><li style="list-style-type: none;"><ul><li>Potential shareholders (%) and governance</li><li>Operations organizations : HR, supply, operations, marketing, IT, finance, etc. Who&rsquo;s already on duty and how many to hire ? what profile ?</li><li>Potential locations pipeline : where ? how many ?what is the validation process ?<br />Beware of &ldquo;Brand collectors&rdquo; : the kind of partners with many brands but only few locations by brands!</li></ul></li></ul><p>&nbsp;</p><h2><span style="font-size: 14pt;">Franchisee : search infos on your franchisor !</span></h2><p><strong>Question current franchisees about:</strong></p><ul><li style="list-style-type: none;"><ul><li>Day-to-day relationships and assistance</li><li>Trouble shooting efficiency</li><li>Training and supervision (how much time? Frequency ?</li><li>Possible local adjustments (concepts/menu etc.)</li><li>International supplying partnerships</li><li>IT and tech</li></ul></li></ul><p>&nbsp;</p><p><strong>Ask for data!</strong></p><ul><li style="list-style-type: none;"><ul><li>Sales, ticket count and average ticket</li><li>Standardized P&amp;L</li><li>Data on local operators (know your market : data vs gossips)</li></ul></li></ul><p>&nbsp;</p><h2><span style="font-size: 14pt;">Excellence in Operations</span></h2><h2><span style="font-size: 14pt;"><strong>Franchisor</strong></span></h2><p><strong>No deviation on process!</strong></p><ul><li style="list-style-type: none;"><ul><li>Staffing and training programs (necessary and sufficient)</li><li>Product tasting and validation</li><li>Unannounced visits &nbsp;to get the real operational life vs a theater play.</li><li>Set 3rd party audits in your locations and competition to be able to maintain your competitive edge.</li></ul></li></ul><p>&nbsp;</p><p><strong>Marketing activities</strong></p><ul><li style="list-style-type: none;"><ul><li>Clear guidelines and validation process (who/what/time frame)</li></ul></li></ul><p>&nbsp;</p><p><strong>Operational rules &amp; guidelines in Franchise agreement</strong></p><ul><li style="list-style-type: none;"><ul><li>Clear operational KPIs (figured, ambitious but achievable)</li><li>Curing process and timeframe</li><li>Penalties</li><li>Termination clauses for critical unnegotiable points</li></ul></li></ul><p>&nbsp;</p><h2><span style="font-size: 14pt;"><strong>Franchisee</strong></span></h2><p><strong>Before opening:</strong></p><ul><li style="list-style-type: none;"><ul><li>Efficient operations manual in local language ( local teams will use it!)</li><li>Pre-opening training</li><li>Franchisor&rsquo;s opening team (facilitators/doers vs advisors)</li></ul></li></ul><p>&nbsp;</p><p><strong>Marketing</strong></p><ul><li style="list-style-type: none;"><ul><li>Franchisor MKG plan</li><li>Local activities</li></ul></li></ul><p>&nbsp;</p><p><strong>Roll-out phase</strong></p><ul><li style="list-style-type: none;"><ul><li>Clear contact list : who&rsquo;s the right person I call when I have a problem/question?</li><li>Control plan and visit frequency (who/when/what)</li><li>Assistance in trouble shooting</li></ul></li></ul><p style="padding-left: 40px;">&nbsp;</p><h2><span style="font-size: 14pt;">A shared and monitored Business Plan</span></h2><p><strong>Franchisors should focus on development plan</strong></p><ul><li style="list-style-type: none;"><ul><li>Annual opening plan by format and delivery</li><li>Identification of first locations and assessment of pipeline</li><li>Ban uncertainty</li><li>Beware of flagships : heavy Capex, often poor profitability.</li></ul></li></ul><p>&nbsp;</p><p><strong>Franchisee deep dive in BP and P&amp;L:</strong></p><ul><li style="list-style-type: none;"><ul><li>Deep understanding of competition footprint and performance</li><li>Realistic geographic expansion strategy</li><li>Franchisor&rsquo;s format portfolio</li><li>Pre-opening costs</li><li>Standardized P&amp;L by format</li></ul></li></ul><p>&nbsp;</p><p>The Annual Business Review is the climax of the partnership. The outcome is a comprehensive analysis of the situation, accurate action plans and the certainty that both parties are doing their best to make it happen.</p><p>&nbsp;</p><p><strong>For Franchisor</strong></p><ul><li style="list-style-type: none;"><ul><li>Franchisee performance management</li><li>Rolling 3YP forecast (coming year + 2)</li><li>Current and future key issues</li><li>Franchisee actions plan</li></ul></li></ul><p>&nbsp;</p><p><strong>For Franchisee</strong></p><ul><li style="list-style-type: none;"><ul><li>Results analysis</li><li>Gaps vs plan</li><li>Innovations from Franchisor</li><li>Franchisor Action plan</li><li>Other countries&rsquo; best practices and innovation</li></ul></li></ul><p>&nbsp;</p><h2><span style="font-size: 14pt;">Few pieces of experienced Advice</span></h2><ul><li>Imagine the worst to be ready!</li><li>Plow data from World bank, embassies, local franchise experts, Euromonitor surveys</li><li>Stick to the franchise agreement (shared and signed common law)</li><li>Organize permanent relationships on different organizational levels (peer-to-peer)</li><li>On time management of weak signals to avoid dead-end situations</li><li>Clear communication (no sugar coating and celebrate successes)</li><li>Don&rsquo;t try to build wall between franchisees, they will break them</li><li>Share best practices and initiatives</li></ul><p>&nbsp;</p><p><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href="">Fran&ccedil;ois Charpy</a></em></span></p><p>&nbsp;</p><h3><span style="font-size: 18pt;">Frequently Asked Questions Answered by Fran&ccedil;ois Charpy</span></h3><h2><span style="font-size: 12pt;">1. What is a good example of a franchise?</span></h2><p>Regardless of the business you run, a good franchise system has 3 essential pillars :</p><ul><li style="list-style-type: none;"><ul><li>a clear commitment on strategy and business plan,</li><li>a fair shared profit between franchisor and franchisee,</li><li>the certitude that excellence in operations is the only sustainable path to success.</li></ul></li></ul><p>&nbsp;</p><p>It&rsquo;s all about ambition, trust, training, transparent communication, control, based on a win/win approach.</p><p>The franchisee brings his local comprehensive knowledge and invests in the Franchisor&rsquo;s brand, operating model, assistance. The franchisor inks with a fair partner with financial, operational and people resources to spread his brand. Any doubt or black hole on each side always leads to failure. Partnership mean transparency!</p><p>Development plans need to be realistic based on local constraints (regulations/Go-to-market timeframe) and current environment (competition footprint/market maturity/white spaces)</p><h2><span style="font-size: 12pt;">2. What is the importance of franchising to the restaurant industry?</span></h2><p>Franchising in the restaurant industry is a very long story started 50+ years ago. Franchising is the fastest and cost-efficient way for a franchisor to grow a network domestically or abroad. It&rsquo;s mainly capex free but has a cost (international team, supervision, communication, etc.).</p><p>Key global QSR players have &gt;75 % of franchised network. Specifically in the foodservice business, key critical points are the consistency in supply and robustness in operations. Success will come along with a strongly structured operational model and go-to-market infrastructure.&nbsp;</p><h2><span style="font-size: 12pt;">3. What mode of franchising is most popular when expanding internationally?</span></h2><p>Many franchise systems coexist . Mac Donald&rsquo;s for examples in different countries operates company-owned locations alongside local franchisees (e.g. Europe)ou master franchisees (e.g. India). Master franchise give you the right to sub-franchise within a delimited territory. In Russia, Yum! used to have several local master franchisees.</p><p>But few operators created Joint Ventures with their local partners like Krispy Kreme in France, Five Guys in UK/France, Toridoll (Morugame Udon) for Europe.</p><p>There isn&rsquo;t a best franchising model because it depends on the Franchisor&rsquo; strategy, ROCE, market size.</p><p>&nbsp;</p>
KR Expert - François Charpy