Have Your Say: Unique franchise agreement ices the cake

Rowan Hodge | Batery World

Unique franchise agreement ices the cake for 20 years/100 store’s celebrations

Long before the Australian Government passed its Fair Work Amendment in September 2017 requiring franchisors to examine their role in compliance activities, national niche battery retailer Battery World had already overhauled its 20-year-old agreement with surprising results.

In March, Battery World announced to franchisees at their annual national conference that the franchisor had taken a bold and unprecedented step in creating a new franchisee agreement with reduced royalties and lower fees to the franchisor. The move was so unprecedented; it was met with scepticism by some franchisees. In return for bonuses to the franchisees, Battery World sought to double down on the commitment to the 24- hour battery roadside assistance, unpopular with some franchisees.

Seven months down the track, the new agreement is now squared away and live as more and more franchisees sign the new agreement.

It’s been a milestone year for the company: celebrating 20 years of operation and the opening of their 100th store last month.

The company expects to close the year out opening a further five new stores across the country as they continue their march towards a goal of 182 stores nationally. For General Manager Rowan Hodge, the new contract is renewed commitment to the franchisees and acknowledgement of tougher retail landscape of the future.

“Any P&L has a third axis that people often overlook,” he said. “There is revenue, there are expenses, and there is time. One thing our long history of success has bred is an appreciation of this third axis. We want the franchise community to prosper – their success depends on it right now – but more than that, we want them to continue to succeed far into the future.

“This third axis is all the more important in times of flux and challenge. Retailers are facing material changes to their competitive landscape and supply chain with the disruptor, Amazon launching their first domestic operations in Melbourne. Any reduction in cost pressure allows franchisees to better focus on fighting for the customer. Beyond just slashing fees, this new agreement specifically aligns around the customer, with dramatic discounts (from 6.7 per cent to 1 per cent royalty) on services that take the store to the customer.”

2016 Franchisee of the Year, and the company’s most successful store for 10 years in a row, Townsville’s Greg Leslie says signing the new franchise agreement was a no brainer. While happily operating under the existing agreement, Leslie says the winds of change of 20 years of operation, bringing with it increased store and franchisee numbers coupled with new operating and sales procedures meant the document needed updating.

“There was a lot of dead wood in the existing document: bylaws that were distracting and inhibiting but had never been acted on,” Leslie said. “This is a cleaner document addressing retailing changes and challenges over the last two decades as well as including incentives to drive the brand both through recruitment and retention. The term on the oldest agreements was an initial term of five years with a further five year option: or since 2015, six by six. This new document allows you a straight 12 years with voluntary renewals anytime. Add to that if a franchisee sells their business, the buyer also gets a full term, so as a seller you would always bank maximum value. This not only means better business planning but also increased security to your business.”

While Leslie has been with the brand 12 years: Cairns’ franchisee Rob Bonser, Darwin’s Kerry Boyd and Perth’s Tom Spence have been with the company for the long haul – the full 20 years. Spence, President of the Franchise Advisory Council, agrees crucial to ongoing brand success, along with franchisee wealth, is the company’s commitment to 24-hour battery roadside assistance: even with the mixed feelings of some franchisees: some who have been unable to connect the inconvenience of going out at night to increased sales.

“It’s madness that we are seeking out national accounts, but we still have franchisees reluctant to do this part of the business: the new franchisee agreement addresses this. Without trivialising it: we are a franchise and just as you cannot have one McDonald’s store selling cheeseburgers and another not – we need to offer the same level of service across over 100 stores. Once you have rescued someone from the road late at night they are pretty much a customer for life.”

Leslie is quick to agree: early in his business leaving a mate’s buck’s party to help out a stranded truckie landed him a $6 million contract. Yet still there was reluctance and the biggest stumbling block in getting all franchisees on-board with the new agreement continued to be ‘roadside’. With 20 years under her belt, working between the very successful Cairns and Darwin stores, Kerry Boyd says anyone joining the group has only to look at the top sales volume stores to see the secret really is roadside.

“It really is the icing on the cake and makes the big stores really big,” she said. “Even though it was part of the old agreement: – this new agreement makes it clear that a commitment to roadside is not optional if you want to be successful. That being said the deal has been sweetened with extra incentives like a reduction in royalties – so that should help with those franchisees who might find it confronting. Like anything new from a franchisor I have to admit I was a bit cynical about all the incentives being offered. People are naturally wary that a franchisor is in it to make money – but the exciting part of this new agreement is there is an understanding that if we make more money, they make more money.”

The company has also re-branded its logo and trademark, ‘Batteryologists’ as a tip of the hat to the obsession with product expertise that has fueled growth since 1997. Hodge says it’s fitting that in looking to the future, with the uncertainties facing all modern retailers, Battery World’s ability to give customers what they want, where and when they want it will continue to stand them out from the crowd.

“That means Roadside services, delivery, advanced 12-volt circuit solutions, and of course battery expertise. Not surprisingly, these were the principles upon which we were founded so are essential the agreement,” he said.

“The other way the new franchise agreement aligns with the third axis is by recognising the value of tenure. A franchisee’s tenure defines a limit on their future cash flows. This new agreement does away with that by locking in voluntary optional agreement renewals at any time during their 12-year franchise term, with an unchanged franchise territory guaranteed.

“There is no more fundamentally important document than the franchise agreement and though it might coexist with other contracts, it is the contractual connection between the parties for a very long time. Understandably any change to such a central document is a really big deal for both the franchisee and the franchisor – and that can be quite disruptive.

“We knew it had to be something special, something really ground-breaking, and so we’ve offered incentives the likes of which no other franchisor has done before. In doing so we knew it would be viewed with cynicism by some. But if you are promoting something that makes somebody more money and helps reinforce their business in the long run, the challenge is to get out there and educate them.

“There are huge legal repercussions with any contract this long, so in all communications our franchisees have been advised to seek independent advice before signing. This document is governed by laws and regulations made by the government. The most fundamental is the Franchise Code of Conduct (the Code). The law, including the Code, takes precedence over anything a franchisor ever does or tries to do, and that includes this contract.

“This agreement includes lower fees to the franchisor and lower royalties to the franchisor which virtually guarantees every single franchisee would be financially better off as a net result of either or both of these new concessions.

“If we will wind up earning less: why would a franchisor possibly want to reduce its fees and revenue base? The answer lies in a very simple franchising philosophy: remember who it is you work for. In the Battery World franchise network, like many elite franchising systems, we choose to take the view that we work for the franchisee, and our pinnacle goal is to help franchisees grow their wealth.

“Most of the reduction in fees will happen as a result of a major new incentive benefiting franchisees who carry out Battery World’s national 24-hour roadside service. This is not negotiable: and it is a service that has been a common denominator among our most successful stores for 20 years.

“In the context of new headwinds for Aussie retailers, services outside the four walls of a bricks and mortar shop have never been so important. Our franchisees are already obliged to do roadside. This new franchise agreement is all about reinforcing that with a big fat financial incentive, so that it further rewards franchisees, and carries us as one of our key points of difference for our next 20 years.

“Another topic relevant to franchising is the protection of vulnerable workers. Increasing profits of franchisees will go a long way to addressing this issue.

“Lowering a franchisee’s operating costs, in fees and royalties, is just one small way to lessen the financial pressures they may experience from time to time. And a more profitable franchisee is better able to properly reward their biggest assets – their team.”

Battery World’s commitment to franchisee wealth along with the flow-on effect to protecting vulnerable workers has not gone unnoticed by the Australian Retailers Association.

ARA Executive Director Russell Zimmerman said the changing retail landscape, including the imminent arrival of Amazon and other disruptors, heightened the need for retailers to stay focused on customers’ changing needs and wants like never before.

“Increasingly this means being available when and where the time-poor modern customer calls,” Zimmerman said. “A 100- store retailer like Battery World getting serious about taking their products and services to the streets 24-7 is a great example of being where the modern customer wants them to be. It’s also admirable to see this franchisor has formalised a strategy to lessen the overall cost pressures for their retailers.”

Rowan Hodge is the General Manager of the 102 store Battery World franchise network. He is a council member of the Australian Retailers Association; cochair of the Industry Working Group for battery recycling for the Queensland Government; and a member of the Australian Battery Recycling Initiative (ABRI). He has undergraduate degrees in Accounting and Law.