Franchising As An Expansion Mode

21 January 2010

Looking to get bigger by franchising? Here, some factors to consider

Mention the word franchising and most enterprise owners looking to grow their business would probably tell you they have, or still are, thinking of it as an expansion tactic. And why would they not, as franchising seems to guarantee a steady and proven way of making money. Last year, franchising expert Armando Bartolome of GMB Franchise Developers expected the industry would grow by as much as 45 percent, as more companies turn to franchising to grow their business.

The fact that it’s a buzzword among entrepreneurs doesn’t make the franchising route easy. For one, not all kinds of businesses are franchisable. Aside from that, franchising requires a special kind of partnership between the franchiser and his franchisees, therefore, those who shun the idea of sharing their trade secrets are better off thinking of a different way to grow their business. As Bartolome says, “The success of any franchise business lies in creating a harmonious relationship between the two parties involved.”

How do you know you’re ready?
In an article published in Entrepreneur magazine (July 2009, by Marie Anne Fajardo), Samie Lim, chairman of Francorp Philippines, says, “If the economy is good, all franchised stores do well, and when the economy is bad, franchisers do better.” Lim clarified that franchising essentially involves transferring a successful business formula to another person or company. ‘Successful,’ then, is the operative word in franchising. “In contrast, a ‘fake’ franchiser doesn’t know how to be successful; he or she just thinks of how to make money,” Lim said.

According to Reymont Choachuy, President of Noble House , the mother company of Sam’s Everything on Sticks, Itlog on Sticks and Sumo Mai, an indication of your readiness to franchise, or if you already have a ‘successful business formula’ is to base it on your income statement. “You have a branch, this is how you run it, you’ve worked out the kinks, and you’re earning money. So it’s a matter of duplication and finding the right locations,” Choachuy says. Noble House, which also helps other companies build their brands, is behind the re-packaging and marketing of Ferino’s Bibingka.

However, Choachuy doesn’t advise plunging right ahead. “We believe in trying to adopt the formula given by the Philippine Franchise Association which we are a member of. [Its recommendation is to run the business for] 3 years and [have] 3 outlets prior to franchising a brand. Now, [we try to] learn from [each venture] for three years before we start selling the business.”

Carson Tan, President and CEO of Global Quality Waters and Environmental Solutions Technologies, Inc. (GQWEST), emphasizes that, “for you to offer [your brand], you yourself should have your own existing stores, so you can say [to your prospective franchisees], ‘Look, these are my stores and these are making money. You just need to duplicate me.” [There are some who simply] join the band wagon, but they don’t even have a [company-owned] store. It’s not realistic.” GQWEST’s flagship brand, Aquabest, is one of the country’s top brands of water refilling services as well as a bottled water brand, and has won several times in Entrepreneur Philippines’ Franchise Awards. GQWEST also offers water treatment products and services such as waste water treatment, industrial water treatment, filters and ionizers.

Organize your support systems
Tan likewise says that business owners looking to franchise their business should have a unique selling proposition, and then a support system. “It’s very important [to have a support system because] franchisees look at the potential [of your business based on this]. Kasi, hindi naman naive ngayon ang mga applicants [Nowadays, applicants are no longer naive], they’re evolved, they read a lot, they know a lot. So pag nagbigay ka ng franchise sa kanila, kailangan may service support ka [So if you offer them a franchise, you need to have service support]” Tan continues.

Bartolome frequently tells prospective franchisees to thoroughly scrutinize how the franchiser runs the business before signing up. When it comes to spotting companies with franchising support, he says the best kind is that “where you see the franchiser and his management taking part in improving the brand, whose products are constantly reviewed, and its Research and Development is always coming up with new innovations not just on products but also on best management practices.”

Be ready to manage different kinds of franchisees
Even as today’s prospective franchisees have learned to be meticulous about the brands they’re buying into, it is even a stronger imperative for the franchiser to screen franchisees well, and to have a harmonious relationship with them.

Neil Delgado, General Manager and COO of GQWEST, disclosed one big advantage of having a good rapport with your franchisees. When typhoon Ondoy hit the country, the company’s warehouse or super store was badly affected. Equipment damaged by the floods were relatively easy to repair, he said, but the consumable stocks of course could not be sold anymore.

“Our super store supplies institutional accounts, those to whom we deliver around 800 containers a day. During the first three weeks that our facility could not function [while being repaired] some of our franchisees supported us in delivering the requirements [of our institutional accounts].” It was a symbiotic relationship: the company was able to supply clients’ demand even amidst a difficult time, while the franchisees received additional business, at least for a certain period.

On the other hand, not all franchiser-franchisee relationship goes smoothly all the time. Choachuy admits to having refused to renew some franchisees’ contracts. “Mostly, these are people who are not following the franchising standards,” Choachuy says. “Good locations are rare and hard to find, and once you award it to a poor-performing franchisee, you waste the opportunity for five years.”

He explains further: “Not every franchisee is fit to be a franchisee. The right franchisee is not someone who finished from Harvard, but someone who can implement, who can manage the business, because the business model has already been proven. Sometimes, they have their own ideas which they want to apply to the business, [forgetting that] the brand is just borrowed [by them from the franchiser]. They can’t wait for the system to take its own course.”

Tan shares that the positive outcome of managing franchisees is the rewarding feeling of seeing them succeed. On the other hand, even a franchise owner cannot please everybody, even his franchisees. For instance, even in Aquabest’s choice of endorsers, some franchisees complained, “Why him?” while others said, “Why not?” “Mahirap mag-decide [It will be hard to decide] if we will always consider everybody’s opinon,” Tan tries to explain to them. So there are certain decisions the management needs to do on its own, and there are others that it can choose to consult with the advisory council or with some franchisees.

Reaping the rewards
It is a rare company that can have hundreds of branches across the country or even in foreign shores which are all company-owned. Franchising is such a fast way to cover large areas and tap huge markets at once.

Other than the lure of rapid expansion, to be a franchiser means to share your business with your franchisee, and in return, they share their success with you. While the franchiser, according to Bartolome, should be “always ready to lend support as well as listen to the suggestions of franchisees,” the franchisees’ role and assistance cannot be forgotten, either.

“The rewarding part,” says Choachuy, “is seeing people grow with your brand.”

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