Are You About to Buy a Franchise? Your Most Important Question … Where Are My Customers?
Buying a franchise, or starting any new business from scratch, is a major commitment in money, time and energy. And it is never a short-term exercise. A typical franchise term is three or five years, usually with multiple renewal options, which means you are committing to a business venture for the next 5, 10, 15 years or even longer. Your new franchise must be able to sustain you for this length of time, otherwise why would you make such an important investment?
By sustain you, I mean provide you with a reliable, hopefully expanding, regular source of revenue, allowing you to pay your expenses, make a good profit and provide you with a worthwhile return on investment. The regular income to provide this comes from only one source – your customers. It doesn’t matter what product or service you sell your sales revenue is generated solely from selling to your customers.
Now, you might say that is obvious – it’s what business is all about, and this of course, is true. But are you sure your customers today (when you first commence) will be your customers over the life of your business? Remember this can be ten years or more. We live in a fast-changing world and major forces are shaping our lives and our livelihoods. This can be both good and bad if you are in business.
Most franchise opportunities are offered on the basis that the franchisor has a business model with a track record of success, usually over many years. This is partly what you are buying – the franchisor’s brand profile, marketing methodology and proven operating system. When the future is the same as the past, this is a perfect scenario. You simply apply the franchisor’s business model, and you too make money. But what if the customers of this model are changing, shifting in their buying habits, no longer located where they used to be, or are adopting new ways of shopping, buying, browsing and paying for their purchases? If you are not ready or able to change and adapt to their needs and wants, then your business may find itself with a diminishing base of customers who are spending less or spending differently or not spending at all.
Let’s look at some specifics and see how social and economic changes are already impacting on how customers make new and different buying decisions. Changing Patterns of Work If there’s one thing that accelerated rapid change in our working patterns it was the COVID-19 pandemic. Hundreds of thousands of desk-bound workers stopped commuting to a city office and started working remotely from home. Each of these thousands of workers were also customers for all sorts of businesses providing everything from meals and snacks, shopping for fashion, haircuts, entertainment, tech goodies, automotive services, and countless other purchases, often made daily. Since the end of the pandemic, there has not been a return to the previous workplace model of centralised city offices with its accompanying long daily commute. Despite pressure to return to the central office, the WFH model has become mainstream, and CBD’s still struggle to remain viable for many small businesses and service providers.
On the other hand, a new business model is emerging and attracting increasing numbers of WFH workers. That is, the suburban office hub. Brand new, tech centric, remote working stations with on-site amenities are popping up everywhere throughout the suburbs, providing a ‘halfway’ solution to people who don’t want to work only from home but equally don’t want to commute two hours each day to a city office. Being in the suburbs, the workplace ‘hubs’ are close to home, provide easy, lower cost parking, a vibrant, pleasant working environment and are becoming very popular. They also provide a completely new source of customers to businesses who cater to their spending needs. These hub workers still spend on the same goods and services (food, etc) but they are now located in a different part of the city. By carefully researching and observing the rise of the suburban workplace hubs, your business could be ideally situated to attract these workers as your customers – and keep them for the long term.
The Gig Economy
Another emerging trend, spurred on by the pandemic, is the rapid rise of the gig economy – all of it based heavily on tech-centric, online ordering. The gig economy takes many forms, from food delivery to ride share ‘taxis’ to trade services of all kinds. As the industry becomes more regulated, and therefore safer and more appealing, it is attracting more people as operators, and equally importantly, more people as customers.
People are increasingly comfortable placing online orders for things, knowing they will be delivered in a safe and convenient manner. Now, let’s say your franchise business is in food service. You have a ‘high street’ shopfront with kitchen, front-of-house counter and you may even have a busy lunchtime trade (from all those hub workers!). In this scenario, let’s see who your customer is and how you might need to adapt to meet their changing buying habits.
You have three separate groups of people you need to cater for. There is the increasing number of online purchasers – customers you never actually meet but who respond to your digital marketing and place their order on an App and wait for it to be delivered by a gig worker. To capture these people as customers you must have the necessary software, linked to a mobile App (either your own and/or one of the delivery platforms like Uber Eats or Doordash) and promoted heavily via your website and social media.
Then the second group is the intermediaries, the delivery people. Although not strictly your customers, they are an essential link in each sale that you make. Your business will need to efficiently cater to their needs also. That is, be ready with their order in a grab ‘n go manner, so they do not waste time and your staff are not holding things up.
Thirdly, your walk-in customers. Your business would serve those customers in the traditional manner. That is, take their order over the counter, prepare their purchase (in this case their meal, coffee or snack), and process their payment in a prompt and friendly manner. They may even occupy a table in your shop if that’s what you offer. Now, in preparing your business for this new mix of customer types, you may look at changes to how you configure your shop front. Your online, App-ordering customer (and their gig worker) will want a quick-in, quick-out prepaid service. But your walk-in customer will probably not like standing in line while some helmeted, motor cyclist, delivery person with a large backpack jumps the queue while they stand at the counter or sit at their table.
In this changing scenario, a shopfront layout that physically separates the in-shop customer from the online (delivery person) customer will not only increase your overall efficiency, it will go a long way to keeping all customers happy. This is turn, enhances your business and demonstrates that you understand the needs of each and are responding accordingly – good for your long-term prosperity!
Low Carbon World
Australia, like much of the rest of the world, is moving to a low carbon economy. Fossil fuels are on the way out and renewables are increasingly becoming the energy systems of the ‘new world’. For small businesses, including your franchise, this may have major impacts on not only how you deal with your customers, but in some cases, who those customers will be in the next 10-20 years. Two obvious examples of the transition to a low carbon world are electric vehicles (EV’s) and rooftop solar panels replacing coal-fired electricity and natural gas. Of course, not every small business will be impacted the same, but here’s two examples.
If your business is in automotive services, you must be aware that EV’s require very different service and maintenance schedules and the skills required to deliver them, to those of combustion engines that have dominated motor vehicles for the past 120 years. EV sales may not be in the majority just yet (lots of problems with long wait times, charging infrastructure, lack of battery system knowhow) but this is rapidly changing. In the next 10 years, it will be difficult to buy a new combustion engine vehicle as every manufacturer will be pushing EV models. Your customer (the EV owner) will expect you to deliver a high-quality, cost-effective maintenance and repair service and if you don’t you will lose those customers to your more forward-thinking competitors.
Likewise, with rooftop solar panels. By February 2023, there were 3.4 million rooftop solar panel systems installed on Australian homes, that’s 31.4% of households. If your franchise business is in home or trade services, here is an emerging opportunity just waiting to be tapped into. Solar panels are not maintenance-free. To operate efficiently, they must be regularly cleaned of dirt, bird droppings, leaves and storm damage. This is not a job for the homeowner. A trade services business whose customers include homeowners would be missing out on a lot of business if they did not offer a suitable solar panel cleaning service. Conversely, your customers’ expectations of your business would most likely include that you can and would supply such a service.
In other words, although the actual customer may be the same person, their expectations of the services you provide are changing – and to prosper in your franchise, you will need to adapt, skill-up and promote your changing, or extended, services.
Conclusion
As you contemplate buying your new franchise business, do not solely rely on the sales patterns of the past, no matter how experienced your franchise company may be. Changing and evolving times demand that you, as the small business franchisee, have a clear and in-depth understanding of exactly who your customer is. More importantly, an understanding of how that customer, by their profile, location or buying habits and expectations, may be changing.
After all, 10 to 20 years in business is a long time and a lot can, and probably will, change over that time. By all means look back at the track record of your franchisor, but also look forward to make sure you have a relevant business for the turbulent times ahead. And most importantly, stay positive. It’s an exciting and ever-changing world out there!
Roger Dickeson is an experienced franchising professional and has worked in the sector as a consultant, adviser and business planner for over 30 years. Roger’s specialty is business development for small to medium enterprises and as a strategist in the franchising, licensing and capital raising fields. His clients include new start-up ventures, established but expanding companies using franchising, and large corporations with expansion visions, in Australia and internationally. With formal qualifications in Business and Marketing, Roger has been a leading consultant in developing franchising and licensing systems for clients throughout Australia, New Zealand and the Asia-Pacific region.
As a regular writer and commentator on small business and franchising topics, Roger seeks to inform, educate and challenge ideas in the increasingly complex, but exciting and rewarding world of business franchising.
Roger Dickeson, Senior Franchise Consultant Wollermann Franchise Developments
(03) 9999 5488 | rdickeson@franchisedevelopments.com.au | www.franchisedevelopments.com.au