Our Managing Director, Gabby Symons, recently sat down with Chris Caldwell, former CEO of Pie Face and Lenard’s Chicken, GM at Bakers Delight and Founder/Franchisor of his own food franchise, LOVE POLLO, who provides his view on the future of the retail franchise sector and what he knows is the formula to success.
In their conversation, they look at the opportunities and challenges in the Australian franchise market, how recent controversies are cleaning up the industry and what to look for when researching a potential business opportunity.
Gabby: The franchise industry is challenged at the moment, it’s getting an absolute battering, mainly through a couple of recent scandals and a few business models that have proven to be flawed. However, it’s a good industry with lots of opportunities and there are many great franchise brands out there. What are your views?
Chris: You're right. There’s a couple of franchise systems that have been doing the wrong thing for a long time. Being in the industry for so long, you generally know who those businesses are. All of this unveiling, I wish it had have happened five years ago to some of those businesses because they wouldn't have done as much damage as they have to the industry as a whole.
Chris: There are over 1,200 franchise systems in Australia and the vast majority of them are doing the right thing or at least trying really hard to do the right thing: follow every piece of legislation that there is that we need to follow.
There are a couple that has done the wrong thing and that's really disappointing and they've damaged the business, for right now, or the sector, for right now.
But I think in the long run, the recommendations from the senate enquiry will really help address some of those issues. And for all those systems, franchise systems that are doing the right thing, they've got nothing to worry about.
Chris: So, I think it will really help clean up the bottom-dwellers that were doing the wrong thing.
Gabby: Agree, it’s an uncovering that needed to happen.
What are the things that you look for when you’re doing your research into a retail franchised organisation that you might want to join? What do you look for?
Chris: Yeah, good question. There’s a lot of things I like to look for, but I think there’s two things that I really look for, particularly in the current environment.
The first thing is the ownership structure of the business. And I say that because a lot of the franchise systems that have gotten themselves into trouble have been the ones that have been highlighted in the media, have either been publicly listed, or they've had private equity investment, or they've had a change of ownership control in the last couple of years, the last five to ten years.
So those changes, or those financial models, or ownership models, have potentially changed the financial model of the business itself and so that's something to be very conscious of, and cognizant of, and I make sure I investigate that and understand the strategy behind that ownership model.
And the second thing is financial due diligence. And I don't mean just looking at a profit and loss statement and looking at a balance sheet. Understand what’s the- look at that revenue log, what is the percentage of that revenue that comes from royalties, what's the percentage that comes from franchise fee renewals, so licence agreements and how much comes from rebates.
Gabby: Rebates, that’s the big one.
Chris: Rebates is the big one and if a business is relying too heavily on rebates, then in my view, it's not a sustainable business model, the balance needs to be right. Because, as a franchise business, in most cases, your revenue should rely on the royalties that a franchisee makes from sales. You shouldn't be taking that and also taking a big chunk out of the supply chain as well.
Gabby: That makes sense, but how visible can you be, or are you able to be before you've joined an organisation? Because rebates are one of those ‘undercover’ things.
Chris: At the moment, you are relying on full disclosure from the franchisor or from the potential employer telling you, giving you the exact numbers. I think in future, disclosure of rebates will become something that is legislated, so it will be much clearer and that will obviously help iron out some of the poor performers in the franchise industry that aren't necessarily doing the right thing, in my opinion.
Gabby: Yes, as you say, 95% of the franchisors or the franchise companies are doing great things, just disappointing what those couple of well-known retail brands, what was uncovered and how they choose to operate.
What do you think the key formula is for success for a franchise organisation?
Chris: That's really, really simple. Make sure your franchisees are profitable.
Gabby: Yeah, okay, bottom line.
Chris: Absolutely, in the franchisees… and in the roles that I have been in in the past, my focus has been on improving the profitability of franchisees and that flows through to having a successful franchisor.
While joining a franchise organisation can be extremely profitable and rewarding, finding the right staff once you're up and running can be a challenging process.
At People Equity, our team of retail recruitment specialists can advise you on the intricacies of the franchise marketplace and ensure you find the right team members for your business.
Whether you are an established franchise or are just getting started in the industry, contact us today for expert advice on recruiting talent in the retail industry.
You can watch the full video interview here: