Choosing the Right Retail Franchise for You

By Phil Blain, Principal, Franchising Business Development Company

So you have selected retail franchising as appealing to you – what now?

How on earth do you select the right franchise for you? And that is the first problem, it needs to be right for you. Just because you have a friend who has done well with a Clark Rubber store or a work colleague who now runs a coffee van that seems to be doing well; it doesn’t mean these businesses will suit you. As a consultant I am continually asked what I believe to be the best franchise and that is a completely unanswerable question for this very reason. Only you can make this decision for yourself.

So step one is to focus on something you like doing. Nothing could be worse than not looking forward to getting out of bed each morning because you have to work at something you hate. So it’s not all about the money. You need to find something that satisfies you emotionally, something that you feel comfortable with, a brand you will be proud to tell your friends you are associated with.

Step two is to examine the lifestyle ramifications. You need to understand that your whole family will be impacted by this decision as most retail business involves long and often unsociable hours. If you are a party animal then working Friday nights may be abhorrent to you. You need to understand, if there is a preparation period prior to opening or a scrub down time after closing because this can add to hours considerably.

Is the business you are examining full of blue sky? Will consumers still want this product offering far into the foreseeable future? It mustn’t be a fad.

Don’t just think what you see as a shopper is the nice comfortable business you will run. A good example of this is Lenards. I have great respect for their modus operandi with potential franchisees who very early in the process are taken behind the magnificently presented counters full of mouth watering products to the back room where raw chook, boning and a degree of blood is a fact of life If their enquirer cannot handle this part of the business the applicants are quickly weeded out.

Once you have got passed all that then there are basically three categories for you to consider: Food retailing, non-food retailing and mobile retailing. Each has their benefits and drawbacks.

Premises based franchises frequently lay down strict opening hours whereas mobile businesses are less onerous. Rental costs expressed as a percentage of gross sales for the fixed location franchises should be known by the franchisor and a certain percentage maybe set as a maximum, e.g. no more than 15 per cent of turnover. Keeping rental costs under control is critical.

The other major cost component for most retailers is that of staff. If you cannot manage a roster where you may have up to 20 or more casual staff, who will largely be made up of teenagers who will let you down at the drop of a hat when they get a better offer; then don’t take on such a business. This stressful situation drives many retailers to distraction. Be prepared to get your hands dirty. Most retail business have some unglamorous aspects and you will quickly earn the respect of your staff if you are prepared to clean the soft serve machine or muck out the dog pens!

Always be prepared to do what you ask them to do. In the case of a franchise resale, be very wary of any claims regarding cash over and above the records provided. Most franchisors depend on accurate reporting and royalty payments as their income depends upon it and frown very severely on any transgressors. But vendor franchisees occasionally fall into this poor behaviour which in reality reduces  the value of their business as they cannot prove their gross sales. Your best option is to totally ignore any claims regarding additional cash income.

A franchise that encourages and assists the setting of both store and personal targets is usually a franchise that knows where they are going and how to get there. Much of this will depend upon exactly what staff the business has to support you at retail level. A major part of the measuring stick to establish the value for the royalties you pay is to value the support provided by these people. So ask the franchisor the questions about who will call on you, how often, what they will assist you with and, equally important, exactly what they do not expect to do for you. There is considerable benefit in seeing more than one person provided by the franchisor. Major systems may send out the usual business development manager who generally focuses on operational matters but it’s also of great value to see the merchandising expert, the accountant, the training manager and many others.

When you are comparing one franchise opportunity against another please do not compare the percentages of royalties you will pay to them. Just because a system has a four per cent management service fee that does not mean they are better value than one that charges six per cent. Understand clearly what it is you are going to get for your payments.

Product supply is another important issue for you to check. Do you have to buy all products through the franchisor? What happens if they cannot supply? Are there alternatives? A shop with no stock quickly goes broke.

Obviously the tenancy is a vital part of a fixed location franchise. How long is your lease for? Does it coincide with the franchise agreement? What happens if one lasts longer than the other? Who holds the head lease, you or the franchisor? If the franchise is a resale will you be granted a whole new term or are you just buying the term that is left on the franchise agreement? If it is the latter you may not have sufficient time to get a decent return upon your investment.

Does the landlord require a refit of the premises and if so, you must get advice from the franchisor as to their opinion of likely costs? Retail fit outs are generally seen to be astronomically expensive to the uninitiated.

It is possible to build a three bedroom home in Australia cheaper than to fit out a store in most shopping centres so your business plan must account for the possibility of these high costs.

Similarly, is there any likelihood that the landlord or franchisor will want you to relocate during the franchise term? This too can prove to be a very costly exercise which can more than take the cream from the top of the business if you do not allow for it.

On a personal level, please do not go into retail if you do not have a warm and engaging personality. The public will quickly work out if you are ‘putting it on’. Consumers generally buy only from people they like, so you need to be pleasant and you need to be able to sell. If you do not have these qualities you will need to employ people who do, which may also add to your running costs. The general public are rude, demanding and obnoxious – or that is how it will seem to you as a retailer.

Sadly we tend to remember the one ratbag we served during the day and not the 99 nice people. If you can remember this perspective, retail can be a very happy and rewarding environment.

Do you like and trust the franchisor when you meet them? First impressions are usually correct so ask yourself the question, “Am I prepared to work with these people for the next ten years or more?” If the answer is no then you had better keep looking.

Lastly, please buy a franchise with your head and not your heart. The numbers must stack up for you so you can improve your life – or why would you do it? So your professional advisers are key to you making a good choice, NEVER enter a franchise without the advice of a sector specialist accountant and solicitor.

The Franchise Council of Australia, the ACCC and various state small business government bodies are great sources of information. Use them all to help you make the right choice for you and enjoy your resulting franchise journey. 

Phil Blain has been a franchisee, franchisor and a highly respected franchise consultant for the past two decades. He now heads up the National Franchise Division of Business Development Company. Phil can be contacted direct on 0419 044862