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Entrepreneurs 101, day five – the franchise route

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The main franchising players have created wonderful businesses that have helped grow some great local brand names.

The likes of Boost Juice Bars, Gloria Jean’s Coffees, Pack and Send and even Aussie Home Loans have all been created and grown out of franchising.

According to the 2008 Franchising Australia survey by Griffith University, there are around 1110 business format franchisors operating in Australia and a total of 28 franchisor systems appeared in the 2008 BRW list of top 500 private companies in Australia.

In fact, Australia is the most franchised nation per head of population in the world – nearly three times as many franchise systems per head of population as in the US.

In 2007, the sales turnover for the franchising sector was around $130 billion, employing over 413,500 people.

“Overall, the sector remains robust and sustainable,” says Jason Gehrke of the Franchise Advisory Centre.

Untapped market

Three local franchise systems that have demonstrated this robustness include Pie Face, endota spa and Matchbox, a homewares, giftware and kitchenware business.

Belinda Fraser and Melanie Gleeson, the founders of endota spa were once school friends but a chance meeting at a barbecue saw them cook up their idea for a spa business.

“Mel was managing one of Melbourne's first day spas, and had decided that she wanted to open a spa of her own on the Mornington Peninsula,” Fraser recalls. “I also wanted to start a business – preferably one that I could grow into multiple locations – we realised that the two ideas could work well together.” 

She says Mel could see from her experience that there was an untapped market so they leapt at it.

Initially, the pair thought they'd own all of the spas but they believed business owners would be better advocates of their brand than in-house managers, so franchising was given the tick.

“This was, without doubt, our best early decision,” insists Gleeson. “Not only have we attracted passionate, professional and highly capable people as franchisees, but many of them have also taken on roles within the endota organisation as well. Our people are undoubtedly our best asset, and their personal investment in our vision is what has got us to where we are today.”

On the future, the women plan to grow their brand nationally, with a special focus on Perth, exploiting what they say is their competitive advantage.

“We are the largest spa network in Australia,” Gleeson says proudly. “We have our own certified organic skincare line and our in-depth understanding and knowledge of the spa business is unparalleled in the Australian spa industry.” 

Whisking up a business

Ross and Fran Cohen bought Matchbox, a supplier of homeware and cookware, in 1996 when it was then under administration. At the time, there were two stores in Melbourne.

The business grew both with some remixing of the product range and with the opening of new stores. By 2003, there was about eight company stores.

“My brother Charles, sister Annabel and myself all became involved at different times and now all have varying management roles within the business,” says managing director David Cohen. “It was at this point we decided to look at what our options were – franchising was just one of many things we thought about which also included potentially consolidating the business or diversifying.”

After a large amount of research, the family team decided that the brand could work as a franchise model.

“The more we grew with corporate stores, the less love and attention that we were able to give each shop,” Cohen says. “Our business is very labour-intensive and customer focused and we believed that with motivated owner operators, who were passionate about the brand would be able to extract that little bit more from the stores.”

The business coped well with the global financial crisis and Cohen credits the strong brand position.

“This gave customers the confidence that when they came to our stores they would get an experience that they enjoy,” he says. “We went through a large rebranding process that began in late 2008 to position ourselves as the market leader in kitchen, dining and home entertaining space. The products we sold were already brand leaders in this area but the message to the consumer was possibly a bit mixed.”

Interestingly, television viewing habits have helped the business.

“The increased interest in cooking with the raft of new TV shows has not only helped through this downturn period, but enabled us to grow strongly.”

On the future, Matchbox is looking to grow significantly in the next few years. It is relatively new in Queensland and Western Australia and the team want to open two to three stores in Perth as well as three to four in Queensland.

“At the moment, we are investigating our first sites in NSW and anticipate having two to three stores open there very soon,” he says. “Our grand plan is to have 60 to 80 stores.” 

Going online

The idea for Pie Face was conceived at Hugo’s, a restaurant once at Bondi Beach, over dinner.

“I wanted a branded food offering focusing on pies and so we brainstormed the idea,” says the company’s co-founder and CEO, Wayne Homschek.

And from the outset, he knew the business had to be franchised.

“We always knew franchising would be part of our model,” he explains. “It is critical in any QSR food service model, especially in Australia, with one of the highest costs in the world for employing staff.

“Company owned models don’t really work here like they do in US.”

The business started six years ago and now has 27 stores, which includes 13 franchisees who have 17 stores and 10 company stores.Homschek can see 325 stores by the end of 2014 in Australia with an IPO in 2012 or 2013 and there will be international expansion to US and UK somewhere in the middle.

He is certainly ambitious.

For those thinking about turning their businesses into a franchise model, he has some great advice.

“Invest in the right online marketing program and get a great sales guy,” he advises. “And have an economic model that stacks up – this is the hard bit!”

The franchise way of doing business increases the chances of beating business failure because of their proven systems but as Bruce McFarlane, lawyer for Hall and Willcox, pointed out – you can’t legally protect people from business failure.

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