As we reflect on our experience as franchise consultants over the past year, we have identified 13 lessons learnt from the franchise industry and South Africa’s current economic environment we find ourselves in.
1. Franchisees: Struggling in the current economic environment
- In the current South African economy franchisors are experiencing an increase in franchisees who are struggling to make a profit.
- The marginal franchisees have actually gone into a loss-making situation.
- Franchisors need to assess whether their business model and support structure is adequate to ensure that franchisees have the best chance of making a success of their business.
- Franchisors should implement an “intensive care program” for struggling and loss-making franchisees.
- Franchisors should never allow royalty holidays or breaks as a quick fix solution, rather offer additional support in these tough times
2. Support: It is what franchising is all about
- Franchisors need to provide extensive support to franchisees in growing a successful business even in tough economic times.
- In the current economic environment franchisee support should focus on financial analysis by assisting in reducing costs and increasing turnover.
3. Landlords: Don’t have all the power
- South Africa’s current economic conditions have left landlords with more vacant sites; therefore landlords will be more flexible in terms of rent reductions and rentals.
- Franchisors can assist franchisees to find sites at a preferable rate, however due diligence and site selection will still be crucial for the success of that brand.
4. Suppliers: Time to negotiate
- Franchisors can negotiate more favourable deals and settlement terms with suppliers in South Africa’s current economic environment.
5. Training: Train, retrain and train again
- Training is a very important element of successful franchising and should not be limited to the product or service offering, it should include brand culture and the customer’s experience.
- Franchisees require continuous and ongoing training to ensure that standards are maintained, and the franchisees are familiar with the latest operational procedures and processes available.
- In South Africa’s current economic conditions, it would be valuable to incorporate a training programme on how franchisees need to adapt their business pro-actively, read the market and how to implement changes when necessary.
6. Marketing: Promotional marketing is key
- Franchisors and Franchisees should never cut down on marketing expenses in tough economic conditions.
- Marketing initiatives should be promotional to increase market awareness and attract customers to ultimately increase turnover.
- When a franchisor provides national marketing, the entire franchise network receives exposure; this provides a different type of indirect support where the brand gets promoted and potentially attracts new and continuous business to franchisees’ outlets
7. Don’ts: What not to do
- Don’t let franchisees compromise on service, don’t cut staff at the expense of quality.
- Don’t reduce prices, you can’t be the cheapest and the best.
- Consumers want good service and value in these times. Don’t reduce the quality of products and services.
8. Culture: Build a culture, not a business
- A franchise culture needs to be learning orientated, open and collaborative.
- Each franchise should build and develop a culture unique to their brand and find franchisees and staff members that portray that brand culture and image.
- It is easy to be negative in the current economic conditions, but we need to force the franchise network to be positive and make the most out of the benefits that the negative environment presents i.e. if the business can survive this, it can survive any obstacle in the future.
9. Relationship: It is all about healthy relationships
- The franchisor-franchisee relationship should be built on mutual interdependence and reliance. In order for the relationship to grow and succeed the relationship needs to be collaborative and bound by common goals and mutual interest.
- Both parties should draw equal benefit from the relationship resulting in a win-win scenario to ensure a mutual beneficial, productive and positive relationship that contributes towards the success of the franchise network.
- A good example of this is that franchisors should not become greedy by going after rebates and kickbacks but rather investing these benefits back into the franchise network to the benefit of the franchisee.
10. Benchmark: Understand and improve the business
- Franchisors need to be aware of the financial health of all their franchisees and assist them to become more efficient and ultimately profitable.
- Franchisors need to implement benchmarking as this is an essential part of monitoring the performance of their franchise network and will equip the franchisor to call on the franchisees and advise franchisees based on business benchmarks.
- Where a franchisee falls below the average benchmark, this will prompt investigation and additional support.
- This also assists franchisees to compare their business to others in the network and motivate them to work harder if they can see what others are achieving or if they are below the average that something is wrong, and they need help.
11. Franchise Management Systems: Be online, communicate and interact
- An operations and procedures manual should be turned into an online management tool that presents information in a user-friendly way, allowing franchisees, field service consultants and franchisors to easily search for information and resources they may need.
- The system should allow a franchisor to easily communicate with the network and address concerns, queries and performance levels of franchisees.
- A franchise management system will add value to the network, increase the level of support provided, ensure consistency and conforming to franchise standards.
12. Franchisee Council: Listen, motivate and involve
- It is very important for a franchisee to know that they are being listened to and their questions and concerns are being heard.
- In tough times it is important to keep franchisees motivated and encouraged. Franchisors need to welcome input and suggestions from franchisees as the franchisees will see this as a willingness to listen and to support them, this can be achieved by a franchisee council.
- The council needs to have strict bylaws to indicate the scope and functions.
13. Franchise Industry Reputation: The good and the bad
- Franchising is a perfect mechanism to create employment if executed correctly. Responsible franchisors with proven concepts have made franchisees wealthy and are assisting with economic growth.
- New brands franchising prematurely result in a high failure rate amongst franchisees and the ultimate failure of the brand.
- Badly run, untested and/or unprofitable concepts have failed, resulting in franchisees losing their investments and damaging the image of franchising.
- Lack of legislation has resulted in many brands exploiting franchising and selling franchises without the necessary support infrastructure in place.
Let’s take these lessons learnt from 2018 and incorporate it into our franchises to make 2019 a successful year