Dialogue Building a Franchise Network for Retail Business

Panelists:

Qamar Zaman, GM APCOT;

Tanvir Abdullah Head of Operation s EGO;

Muhammad Usman, Director Cakes and Bakes;

Zahid Khan, CEO WRADA;

Shehzad Elahi, CEO Mushrooms

Moderator: Abdul Aziz

In this faced-speed world where technology has radically impacted consumer behavior, retail has started revolving around branding. It has become more about building and strengthening your brand. whether it is consumer retail, fashion retail or even retail of commodities, brand building is essential to keep intact your consumer base and attract new consumer. one of the key to establishing your brand is growing your business in the form of retail chains. Whenever you open a new outlet, your brand becomes stronger. The capital required to open up new stores can take one of the three forms: you can invest your own capital; you can involve a third party to invest in your business, perhaps through an equity company, etc.; or you can decide to adopt a franchise model.

The discussion in this panel sheds light on the pros and cons of the franchise model and gleans some important insights into the various aspects of franchising. All the panelists in this discussion have done exceptionally well in franchise management and have 15-20 outlets chains. The dialogue, however, focuses exclusively on the view point of franchisor.

Question: Is there a particular type of business for which the franchise business model works? Are there some dos and don’t to consider while opting for the franchise model?

Tanvir Abdullah, Head of Operations, EGO: No, I don’t think franchising is specific to any particular business. In my opinion, one cannot state categorically that it is more profitable to build franchises for one kind of business and not so for others. As far as the dos and don’t are concerned, it all boils down to creating a win-win situation for both the franchisor and the franchisee. As long as both benefit from the model it will work.

Question: Cakes and Bakes used to franchise is outlets. Recently they have rolled back on franchising and now most of their outlets are company owned. They seem to have adopted and evaluated the franchise model and decided not to expand through franchising. So did they encounter some issues with the model which impacted their decision?

Muhammad Usman, Director Cakes & Bakes: actually at Cakes & Bakers we have both franchises as well as company owned-outlets and the ratio is almost 50:50.

When we initially started our business in 1995, Gourmet was growing quite rapidly. When your competitor is growing fast also need to pick up speed. Even if you can’t expand at the same space you have to make an effort to compete effectively. So for every three outlets that your competitor opens up you need to open at least one to remain visible in the market. Gourmet works with banks and our strategy is to avoid banks. We try to invest our own capital but there is a limit to how much you can invest. So to keep pace with our competitors we branched out into franchise model.

We however, faced problems with the franchise model that basically stemmed from own weak back-up support system. In our industry there are about 200 SKUs (tock keeping units) and they are all perishable products. And there about 5000-6000 SKUs that any retail store sells we would obviously want our franchisee to focus on our products. But a franchisee has his own business interests to look after. If a third party comes to him with the promise of more benefits, the franchisee can end up giving that party the main shelf.

Moreover, ours is a perishable product and perishable products have a shelf life of about two days. If a franchisee sells a rotten or stale product it will hurt the brand. Because it’s cakes & bakes that people know

When your competitor is growing fat you also need to pick up speed

About and buy from. So to safeguard your brand you need to take into account different aspects of the business. Thus when we have problems at a particular franchisee’s end we close that franchise.

Having  said that, as far as franchise management is concerned, it is a viable model. But to implement this model you need to have good human resource, sales team, internal audit internal checks and selection team for franchise management. Otherwise you can encounter problems like we did. Currently, we are expanding our business but it is primarily through company-owned outlets. We have stopped giving franchises for the time being.

Question: Mushroom faced similar problems? 

Shehzad Elahi, CEO Mushrooms: Franchising is still in its infancy and people are doing experiments with this model. As a business model it is a very good model. But it is extremely important that the franchisor should be on a strong footing in the market and have a proper infrastructure as far as franchising is concerned. My experience is that despite having a good product, market and brand name, the model failed because the team handling our franchises wasn’t expert enough. We did a lot of franchising in the beginning but after a few set backs we reverted  back to company owned outlets.

It’s a workable model but much needs to be done to make it work. Currently, our strategy favours more company owned shops with a few franchises on the sidelines.

Question:  is there a formula to attract franchisees to your brand? The problem is when you are small you are not visible and people probably don’t want to take the risk by investing in you brand. But it is when you are small that you particularly need franchisees to be able to grow. So is there a recipe?

Zahid Khan, CEO WARDA. I have been very lucky in the sense that I had a very sound monetary position. Besides, I also have a very good reputation with fabric suppliers and they have no qualms about giving me supplies on credit. It is quite recently that we have started franchising our brand because to grow and compete in the lawn

It’s a workable model but much needs to be done to make it work

Market we need to reach out to more customer through franchisees.

But I opted for the franchise model after becoming confident that I would be able to supply to my franchisees throughout the year. Initially when I started WARDA I wasn’t in the position of replenishing the inventory for my franchisees without any hiccups. And I didn’t want people to have my franchise and say that it wasn’t profitable enough and what they earn in summer they tend to lose in winter because new products are not coming up, etc.

Now all over franchisees have good things to say about or brand. They come to us because they feel our product is good and they feel confident about our company. I am also very straight forward with them. I tell them that if a particular franchise doesn’t do too well it wouldn’t hurt us that much financially we have other shop that are performing exceptionally well. But it would definitely hurt the franchisee more.

Talking about the ways to attract franchisees to your brand, I think there is no single recipe. It is chiefly about tour brand being good enough to secure the franchisee’s confidence. The franchise model is basically about a partnership and trust. If somebody is coming to me and choosing my brand out of so many other brands in the market and is making a financial commitment, she/he is looking for profits and security. In Pakistan we don’t have very strong laws to protect investment so people tend to do their research before coming to you for a franchise. They find out everything about the product, it sales, and its reputation, and then make an informed decision.

Qamar  Zaman, GM APCOT: It is all about your brand imaging APCOT is in the shoe business for the last 25 years and it is only for the last ten years that we have introduced ourselves in the local market. And we have had a more than 100 percent growth rate for the last five years. The reason behind growth is, of course, our brand image and the quality of our products. People from every area of Pakistan now approach us for our franchises. They have taken our franchises on advance payments and it is really a miracle for shoes to sell on credit. They tell us that the APCOT brand in their shops will help in building the image of their shop. In four years 180 people have opted for our franchise, and we have eleven company-owned shops.

To retain the confidence of your franchisees, quality products, on-time deliveries and refilling of stock are vital elements.

There is one more thing that I would like add. It is extremely important to have an efficient retail chain management system. We couldn’t have handled our franchises so well without Candela. It is not humanly possible to keep track of the important KPIs in retail without appropriate software and Cande4la has helped us do just that; it has a biog hand in APCOT ‘s growth.

Tanvir Abdullah, Head of operations EGO: I think you need to wait till you are operationally sound enough to be able to feed your franchises. If your own infrastructure is strong you can give time to your franchises and manage deliveries on time. We have six personal stores and eighteen franchises and all of them are satisfied. It is about building and maintaining a mutually satisfying relationship.

Muhammad Usman, Director Cakes & Bakes: Yes, the franchise model is like marriage where both parties should be serious about making it a success. Maturity at both ends is needed to make the system work and ensure that no one gets hurt in the process.

Question: what factors play a role in the selection of a franchisee by the franchisor?

Qamar Zaman, GM APCOT: We take many factors into account for selecting a franchisee. The particular area where the shop is located, the location of the shop, size of the shop, air conditioning in the shop, availability of parking area, and expertise of the prospective franchisee are some of the prospective franchisee are some of the factors we look at before making our decision. We don’t give our franchise to just anyone.

Question: There are two options for the franchise model: you can either go for exclusive franchising or your franchisee can carry multiple brands. Which one do you prefer?

Zahid Khan,CEO WARDA: we would prefer our franchisee to carry only our product and there are various reasons for it. First, we need a large area to display our multiple designs. Second, if there are other brands the customer’s focus is lost. Moreover, if any customer has a bad experience with some other brand in the shop our brand will also suffer because the unpleasant will associated with the shop.

Qamar Zaman, GM APCOT: I AGREE WITH Zahid Sahib. Multiple brands at one place can divert customer’s interest. However we are okay with the idea of a shop within a shop. For instance English Boot House in Karachi is a big shop where the display area for Apcot shoes is large enough to work as a shop within a shop.

Question: One way to look at is that if there are multiple brands you drive more traffic to the shop?

Shehzad Elahi, CEO Mushrooms: In a way this is true. But we prefer exclusive franchising because our product range is quite big and it can only fit in with exclusive franchising. In smaller cities where exclusive franchises are not possible we do keep our selected range with a few selected shops. But entire range is only possible at an exclusive outlet.

Question: It has been pointed out during the discussion that franchises work beter if the owners themselves manage the business instead of hiring someone to do the job. Would you prefer that your franchise be run by the entrepreneur or hired staff?

Tanvir Abdullah, Head of Operation EGO: it Is about the brand. If our franchisee owns more than one outlets it is not possible for him/her to  personally manage every store. So our criterion is how passionate a franchisee is about our brand. If the owner is serious about the franchise, his/her team will work accordingly.

Shehzad Elahi, CEO Mushrooms: As I said earlier, our experience has shown that successful franchises are those where franchisees take personal interest and manage their own shops instead of  hiring someone for it.

Question: Aren’t entrepreneurs usually difficult to handle?

Shehzad Elahi, CEO Mushroom: I personally that an entrepreneur is in a better position to understand our apprehensions because our interest our common and we share a similar goal: to increase sales, Managers, on the other hand, don’t have the same stakes in the business and if they are inefficient they may pass the buck to someone or something else.

Question: I f you have ample financial resources and money is not really an issue, would go for the franchise business model or would you rather prefer to expand through company- owned outlets?

Zahid Khan, CEO WARDA: I think at the end of the day one has to branch out into franchising. Because it is not just about money it is also about management. As your business expands there’s lot of movement involved and it is not possible to manage every outlet. With franchising you can grow faster and you also have time your hands to concentrate on other things as well.

Muhammad Usman, Director Cakes & Bakes: I think if money is not the issue and you have enough capital, you can train your own team and implement your own systems at your outlets. This give you enough autonomy and control over your business because the entire system is your hands. While with franchising you are not the helm of affairs and cannot ensure standardization of your products the way you can do at your own outlets.

Question: Do we need an exit plan in the franchise model?

Muhhamad Usman, Director Cakes & Bakes: When you enter an agreement, exit plan it decided and one has to follow it.