Trends in multi-unit franchising
Iain Martin - Director, The International Franchising Centre
It seems to be a truism in franchising, that what the US industry is doing today, we’ll be doing in a year or so’s time. One trend which is accelerating there, is multi-unit single brand franchise owners, taking on additional brands. In this blog, I’m going to touch on a number of reasons for why its happening, and why franchisees in a similar situation in the UK, should consider going down the same route. Whilst I am focussing primarily on QSR operators, the principles are applicable across a range of sectors.
The first major benefit is diversification – I remember a year or so back when we had a health scare relating to beef (mad cow disease), burger sales dropped dramatically – if the owners of those restaurants had had, say a chicken concept to sit alongside their burger operation, the effects on their bottom lines would have been reduced considerably.
Its often possible to ‘leverage’ an existing management/support team – so that not only can a new brand be supported effectively from day one, but also the values and culture of the existing business transferred rapidly to the new venture.
Having demonstrated an ability to spot good premises, recruit, train and manage good staff, and follow the operational procedures of the business, training for the new brand becomes a relatively simple task. In addition, acquisition of a new brand will create new career opportunities for existing staff members – and new challenges.
A portfolio approach to business development (as opposed to just expanding in terms of unit numbers under one brand), will make the business more attractive to high calibre prospective employees – you become an employer of choice.
A multi-brand approach not only leverages overhead costs, but also creates a range of cross-marketing possibilities – if an operator is able to run complementary brands in adjacent locations, particularly in a food-court context, the ability to attract say families whose food preferences are different, becomes a reality.
The International Franchising Centre and Lloyds Bank are hosting an invitation-only lunchtime seminar which explores this area in greater detail – click here for more information.
Iain Martin is a Director of the International Franchising Centre and specialises in helping international franchisors secure UK partners, and UK franchisors to develop successful franchise networks, through several brokerage businesses.
Reclaiming Goods from Insolvent Franchises
Fiona Boswell - Senior Associate Solicitor, Freeth Cartwright LLP
Franchisors’ sales contracts should contain provisions that help to reclaim products if a franchise becomes insolvent.
Retention of Title
In sales contracts this clause states that the franchisee’s right to own the products is in some way conditional. Normally, the franchisee legally owns the products either, when it pays for them , or when payment of all outstanding sums due to the franchisor, not just the monies owed for those particular products, is made. This type of clause gives a franchisor the ability to reclaim unpaid for products from insolvent franchisees.
What To Do if your Franchisee is going into insolvency
A recent case concerning an insolvency in the fashion industry has highlighted that some businesses may not have the protection which they expect from their retention of title clauses¹ . This case specified certain steps that should be taken to rely on these clauses when customers become insolvent.
- Act promptly
- contact the Franchisee / the relevant insolvency practitioners
- inform them that you have an RoT clause and wish to exercise it
- Revoke any implied rights to sell the products (in your franchise contract or elsewhere)
- Identify your products
- Terminate the sales contract
- you may also need to do this so that the Administrator/Liquidator cannot argue that he still has an implied right to sell your products as part of the ordinary course of business
Nb: If your claim against the Administrator or Liquidator fails, you may still have a claim against the person that bought the products from the administrator. In a recent case the owner of various stock sold on by the Administrator successfully sued the purchaser for wrongful interference with their products².
What You Should Do Now
You should review your standard terms and conditions of sale to ensure that your RoT clauses give you the right protection. In particular, that it contains an express right for the Franchisee to resell the goods which automatically ends on the Franchisee’s insolvency.
If you have any questions about this case, retention of title in general or any other issues concerning a franchise contract please contact Fiona Boswell. Fiona is a Senior Associate Solicitor at Freeth Cartwright LLP and Head of FC Franchise Build, Manage, Grow, Exit ™ Unit. You can contact Fiona on 0845 070 3812 or e-mail fiona.boswell@freethcartwright.co.uk
¹Bulbinder Singh Isher t/a Isher Fashions Jet Star Retail Limited [2011] EWCA Civ 459²Jogo Associates Limited and others v Internacionale Retail Limited [2011] EWHC Civ 384 Whilst every effort has been made to ensure the accuracy of this article, it does not provide complete coverage of the subjects referred to, and it is not a substitute for professional legal advice and should not be relied upon as such.
Managing reputation: don’t leave it to chance!
Sally Anne Butters – Head of Media, Coconut Creatives LLP
Too often, companies forget that they need to take action to manage their reputation. They could have very happy customers but very few people really know about how great their products are or how superb their customer service is. How can you grow your business into new regions or markets without shouting about the great reputation you have? How will you attract the best franchisees?
The Chairman of the Institute of Directors, Neville Bain explains:
“Organisations need to apply more attention to managing reputation. Firms with strong positive reputations attract better people. This gives rise to a virtuous circle of greater efficiency, better relationships with customers and suppliers, and enhanced legitimacy in the eyes of society as a whole.”
“In the absence of a good reputation, the ability of a company to create value is severely impaired. Boards need to be aware that reputation, like trust, takes time to build but can be lost in the blinking of an eye.”
In its most basic form, a franchise is a business opportunity that should already have a track record of profitability and market need which means that a franchisor just needs to help that good reputation become known to prospective franchisees.
In the Natwest bfa franchise survey 2011, word of mouth is top spot on how people first find out about franchising and specific franchise opportunities:
“When asking franchisees how they first heard about franchising, it immediately becomes apparent the extent to which word of mouth is key, both in terms of hearing about franchising in general, and about specific franchises. Friends and relatives are the most mentioned single source (24%) of initial awareness.”
Whilst the survey continues to evidence that people use a variety of sources and online and offline media in their research phase of the journey to becoming a franchisee and confirms that a franchisors should take a multi-channel approach to franchise recruitment, it is clear that testimonials are a must have in a franchisor’s marketing kit. This is confirmed within the decision-making process of a prospective franchisee:
“Again, as with the initial awareness of franchising, we see the importance of the personal touch in this industry, with high proportions citing a reason as ‘liking the people’ and ‘recommendation from existing franchisee’.
“Franchisees make careful decisions. Unsurprisingly given the personal and financial investment involved. On average franchisees said they had sought advice or made checks with 6 different sources prior to signing their franchise agreement.
Judgements relating to the franchisor offer and the impact of running the franchise on their lives are the most frequently made assessments, In terms of external consultations, contact with existing franchisees is crucial in terms of assessing profitability and their opinion of the franchisor.”
So, it is clear that franchisors need to take the time to review the reputation of their franchise business and how they manage it. I would recommend building this in to your marketing plan on a monthly basis; your advertising copy, online profiles, press release, video blogs, and internal communications. Every member of staff should be aware that everything they do can impact on your reputation and ultimately, the future of the business.
Here are a few tips:
- Take time to collect and review customer and franchisee feedback – quickly acting on poor feedback turns a bad experience into a good experience.
- Keep an up-to-date bank of testimonials
- Update your online and print marketing materials on a regular basis with your latest testimonials
- Take time to train staff and franchisees in your ‘perfect pitch’ – you have 90 seconds to explain what you do, how it can benefit who you are talking to and prove how it has benefited others
- Make your franchisees your ambassadors; take them with you to networking meetings, exhibitions, and discovery days.
A consistent message is king; communicate this in everything that you do and a prospective franchisee will feel confident in building a relationship with you!
Sally Anne Butters MCIPR, is Head of Media at Coconut Creatives.
Tags: business marketing, business reputation, franchise business, Franchise Marketing, franchisors, sally anne butters
