buying a franchise
Want a bigger opportunity? Taking up a regional or national master franchise could offer the challenges and rewards you seek, suggests Simon Lord
ome people think of ‘buying a franchise’ as being about buying a café or a cleaning business and working in it yourself – and for many people, that’s exactly what they do. If they want to expand beyond that, they buy a second or third outlet, or employ staff to handle more business. But there is another way to expand through franchising, and that’s to acquire a master franchise. A master franchisee takes on some of the responsibilities for developing the franchise in a particular region, or even on a national basis. They recruit, train and support individual franchisees and, in some cases, may also set up their own operations. In return, they generally receive a proportion of each new franchisee’s initial and ongoing fees – these arrangements vary from business to business. Some master franchisees at national level may not sub-franchise at all, retaining ownership of all their own outlets, like Starbucks and Wendy’s, for example. Some, like The Coffee Club, have no company-owned outlets, focusing totally on supporting franchises. And others may operate a mix of company-owned and franchised outlets, like Pizza Hut. Look through this magazine and you’ll find a number of master franchises available. These include national opportunities such as Hudsons Coffee, Hog’s Breath Café and Gloria Jean’s, and regional masters like Epiphany Café, Portermark, Jim’s and V.I.P. Home Services. Some are more suited to large companies with access to finance and an established infrastructure, while others may be taken on by individuals or couples looking to start small and grow big. Different franchises use different terms, which can get confusing: master franchisees may also be called master licensees, master franchisors, area franchisors, national franchisors, regional franchisees or almost any combination of the above. To keep things simple, in this article, we’ll stick to ‘master franchisee’, and call the individual operators ‘sub-franchisees’.
your own region Gary Turton is a regional master franchisee for Jim’s Mowing. His region covers Auckland’s North Shore, where he is responsible for 25 sub-franchisees, as well as having customers of his own. He bought the master franchise after having run his own successful IT business. ‘I saw that a strong, established brand like Jim’s provided the ability to leverage my skills to earn more and build a business more quickly than doing it myself,’ Gary says. ‘I had a long-term vision to create an ongoing income stream while doing minimal work – well, I was wrong about the minimal work part!’ he laughs. ‘My roles include business marketing and sales; subfranchisee selection; business and marketing trainer; technical trainer; brand guardian; coach; co-ordinator; adjudicator; motivator; counsellor; information hub; supplier deal maker and liaison. I’m also a forecaster – both of weather and potential personal or team issues – a backup mowing contractor and a lender of gear.’ As Gary’s list suggests, one of the prime requirements that master franchisees need at a regional level is people skills. ‘Learning to mow lawns and run a business is one thing, but learning to be a master franchisee is another thing entirely,’ says Gary. ‘When I joined Jim’s, I had to do a week-long master franchisee induction course before they would accept my payment and allow me to sign. Some potential master franchisees were rejected from the course as their attitude was wrong. This really impressed me.’ Gary says that there are many advantages to being a master franchisee. ‘The
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hard work has already been done for you: the system has been created and is proven to work. You have a lot of flexibility within your region and you are able to take time off and still keep earning. You also benefit directly from your successful efforts. I love seeing my sub-franchisees succeed, often beyond their wildest dreams, or hearing that my training advice has worked. Because I select, train and support them, their achievements are a direct result of what I do.’ Of course, there are downsides, too. ‘You have to work within the system and so decisions can be slower than you might like sometimes, and the other master franchisees I work with might not share my ideas,’ admits Gary. The biggest concern, however, is that shared by franchisors and sub-franchisees alike. ‘When you are recruiting, the consequences of a poor selection decision can be very long-lasting and damaging because you have to divert resources until the sub-franchisee either comes good or moves on. But the overwhelming majority of my team have been successful, which is why the business has more than tripled in my time.’
bringing in an overseas brand Jim’s was already a well-known brand in New Zealand before Gary took up his master franchise, but that’s not usually the case if you import a franchise from overseas. That means that, although a franchise system may be wellestablished in another country, its success is not assured in NZ where market conditions and competitor activity are different. In many instances the creation of brand recognition – so vital to attract both customers and sub-franchisees – will have to be established by you, the master franchisee. Of course, the franchisor will provide basic marketing material but the core effort must be made inside the territory itself. A national master franchisee therefore needs to be more entrepreneurial and have the skills and resources to develop the franchise locally. Wise buyers seek to reduce the risks as far as possible by carrying out their own thorough research into the local market for the product or service, and confirming that the price asked and the number of outlets proposed by the franchisor is realistic. Overseas companies often have little understanding of the local market or the dispersed nature of our population, so it pays to use local specialists to analyse any opportunity.
a different perspective One hugely-experienced US-based consultant who represents franchisor clients looking to expand internationally, says that New Zealand is an attractive destination for international brands because it’s an Englishspeaking, franchise-friendly country. However, he is also aware of two huge limitations: market size and investment ability. He told us last year that his clients fall into two broad categories: one is food, the other includes education, retail and service. Food franchises require a minimum unit commitment from a master franchisee in order to cover the costs of country start-up. All but one of the brands he represents require a 10-unit minimum commitment: any less and it is difficult for a franchisor to justify committing resources that could be utilised in bigger markets. His experience is that New Zealand entrepreneurs are frequently unwilling or unable to commit to a 10-unit minimum, whether on a companyowned or sub-franchised basis. For education, retail and service franchises, minimum numbers are less of an issue but the start-up costs are considerable. The minimum master franchise fee for any of his brands is US$150,000. From the franchisor’s point Franchise New Zealand
Year 27 Issue 02
14/06/18 12:00 PM