Is it the Right Time to Franchise?
Global franchising is very lucrative for many Indian companies. But this can be a challenging task, therefore, some consultants help you understand the market and get things done for you.
In an exclusive conversation with Venus Barak, CEO, FranGlobal, at Global Leaders Forum, Dan Rowe, CEO of Fransmart, US, discusses the best practices of global franchising.
Fransmart is one of the top service companies in America, and invests in emerging concepts primarily to scale. Dan Rowe has experience of 30 years, as a franchisor as well as a franchisee.
Dan Rowe is very experienced in the field of franchising and is known for his concept evaluation. In his opinion, it is always right to keep the end in mind and work backward.
For concept evaluation, he ensures that the following things will work:
Consider to look at the busiest mass gathering areas: He says that you should always look at the busiest mass gathering areas of the top 40 or 50 medium markets in North America and check if your business will work there.
Questioning the concept is the next best thing to do: Can this concept grow into hundreds of locations and how can that be done? Looking at the specific concept is there any room in this category?
The specific brand has to be checked on the right unit economics: The right unit economics is probably the biggest right anybody is looking at. Customers board with their wallets and there is no point if they do not board at all.
The top line and bottom-line opportunities to be looked upon: The cost of opening a location, what will be the profit, whether or not the franchisee is going to choose to reinvest the profit to open more stores.
The right management matters: The management has to be smart enough. We need to get the right people at the right place and do it the right way.
Moving from Scale to sale
America has perfected in moving from scale to sale which means a brand can move from 300 and above franchisees. A franchisor should not look at the franchisee for the franchise fee. It is a long-term value. Franchisee is prepaid to come to a brand’s business, take the risks, lease building, hire, operate on company’s terms, and also re-invent as required by the brand. Franchising works well only if both parties get wealthy.
There is a financial model that shows that in the first year, there is a deal quarterly which is a long-term one. In the second year, these long-term deals increase little. In the third year, there’s a deal each month and from there onwards there are multiple deals.
Keeping in mind the selling of the company, it is not good to keep hundreds of single-unit franchisees. It is always better to have a few large multiunit franchisees.
Reasons for Failure in Franchising
When you choose a wrong concept or the brand focus is shifted to other deals, the concept fails. Educating the brand enough to understand the end is necessary for a successful venture.
Common mistakes a franchisee can make are picking a wrong brand, choosing a bad location, wrong execution, and no proper marketing.
The mindset of both parties has to be on mutual benefits and a long-term relationship.
Is it the Right Time to Franchise?
Currently, the real estate and stock markets are in ups and downs. But if you open a franchise and get profit and reinvest, the compounded effect will give you larger profits.
This is the perfect time to invest in a franchisee because even though 50% of restaurants are closed the number of people going to restaurants is the same. The sales are high and landlords are also humble now. In the context of conversations, there can be low-cost conversations.
Edited By: Vaishnavi Gupta