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