Thinking of bringing your franchise business to Australia/New Zealand?

Bringing a Franchise business to Australia? – The 6 Biggest Pitfalls to Success

Franchising offers brands an excellent and proven means to grow, however it is not always plain sailing.   All too often a lack of planning for growth, combined with a rush to get new franchisees on board leads to significant issues can destroy forward momentum writes Bruce Waddington.  

In my 25 years of developing strategies to help businesses grow, I have witnessed franchisors large and small making similar mistakes over and over again. While franchising can achieve rapid growth for a brand, if this growth is executed poorly, picking apart the damage can at best stunt growth, or at worst lead to a brand’s demise. Unfortunately for many US brands, Australia has not been a happy hunting ground. Brands like Denny's, Taco Bell, The Keg, Wendy's & Starbucks are just a few of the brands that were either too early, didn't have the right product mix or were over ambitious with growth plans. Starbucks has since relaunched with vigour and is getting excellent traction with it's key target market and Taco Bell has just opened it's in 2nd store in Brisbane after being out the market for over a decade.

Geotech is well placed to assist potential new Franchisors assess market opportunity both in Australia & New Zealand. We are the premier consultancy to a number of domestic & internatinal brands currently operating here. McDonalds, KFC, Nandos, Guzman Y Gomez, & The Coffee Club are just some of the brands we work with.

While significant resources are spent securing good franchisees, often not enough time is dedicated to planning a clear, well researched and well communicated growth strategy.  Adding to this, recent happenings in the franchise world have led to some erosion of trust in the sector.  

Developing a robust and defendable growth strategy is now critical. With this in mind, I felt it appropriate to share the 6 biggest mistakes I believe franchisors make whilst trying to grow. 

1. Unnecessary or Ill Designed Franchise Territories
One of the biggest problems for long term growth is borne out of territories.  While formal franchise territories can seem an attractive way to entice franchisees in the early days, all too often ‘hard and fast’ territories (that are invariably too large or ill considered) becomes a nightmare that severely limits growth. 

I would be a rich man if I had a dollar for every franchise network I have worked with that subsequently wanted to turn back time and re think their allocation of territories.   
I generally advise to avoid territories wherever possible.  The only exceptions tend to be mobile franchises, where a franchisees does need to some tangible area to work within.  
Outside of this, the better course of action is to assign non binding Marketing Areas for franchisees.  This gives them some sense of allocation, without all of the pitfalls that go along with defining formal territories.  

2. Managing Cannibalisation
Often the reason franchisees like the idea of a territory is that they feel it will insulate them from cannibalisation impacts as a network grows.  This is ill-founded thinking, as any franchisor worth their salt will manage cannibalization as to not detriment indivisual franchisees significantly.  
If a franchisor can demonstrate to a franchisee that they take cannibalization seriously and have a robust methodology to estimate and manage it, this fear largely dissipates. 
Further to this, an important point to make with franchisees is this - having a same brand in a local area is preferable to a competitor, as it limits competitors gaining traction in an area.  Additionally, the multiple points of presence in an area can reinforce a brand, benefiting all.  
Cannibalisation is a very real issue, and one that has seen many a franchisor come unstuck.  Planning is necessary in order to manage the issue effectively.  

3. Not Planning a Large Network When Small
I regularly see examples of store networks that were planned initially with a small business mindset, only to run into issues around this later (as the brand develops).  Giving away too large a territory is one example of this.  Another that we see regularly is servicing regional towns or large shopping centres.  
Often a brand will enter a town or large centre that should be able to support two stores, and place the first store in the dead centre of the town / centre.  All too often this makes it more difficult to establish a second store.  A bit of forward planning (with an eye on the grand plan) helps to avoid these types of issues.  

4. Allowing Franchisees to Dictate Unreasonably to Franchisors
Often a new emerging franchise business will be so keen to secure a franchisee that they let them have unreasonable influence on critical issues, such as site selection.  
Just because a prospective franchisee lives in a particularly suburb (and wants to get quickly from home to work) does not mean that a site in that suburb is appropriate for the brand.   
It is important that franchisees understand the overriding growth plan for the business and agree to work within that framework.  Failure to do so might get a franchisee onboard, but a failed site will do more damage than good (by many times).  

5. Forgetting the Basics when Selecting Sites
There are some absolute basics when it comes to selecting sites that are, unfortunately, all too often overlooked. Issues such as effective visibility and branding is one that I see not being adequately considered.  At the most basic level, if a customer cannot see you, they will not come to you!
Another issue is understanding the nature of your business, and how this relates to the types of sites you should be selecting.  Impulse businesses need traffic and therefore need a high rental high exposure site.  Destinational businesses on the other hand (businesses where the customer males a pre considered decision to seek you out and visit you) do not require such a high profile location.  All too often I see impulse businesses in low exposure locations and destinational businesses paying far too much rent to be in a high traffic location.  
These absolute basics of selecting locations should be kept top of mind always.  

6. Not Learning from stores or franchisees that have gone before
This one is probably the biggest pitfall a medium sized franchises make – failing to learn from the sites in the network that are currently trading (or that may have closed).  
An existing network presents a unique opportunity – to undertake some analysis to identify what makes the best stores good, and the worst stores poor.  
The identification of critical sales drives for the brand then ensures that the best sites are selected by focusing on the things proven to be beneficial to sales.  
This type of analysis can then lead to the development of site selection tools and models to predict site potential.  It can then lead to a strategic network plan, highlighting future pipeline sites based upon the findings from the analysis.  

In summary

Having a plan to manage growth is critical, especially within the franchise sector.  Failure to do so may have dire consequences for your brand down the track. Feel free to contact jeffv@geotechinfo.com.au or call 61-3 9544 0440 for a confidentail discussion.

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