Franchising can be a very effective way of expanding a business, but it's not as easy as it looks.
So we asked two highly successful franchise operators to share their tips for building a franchise.
Sara Pantaleo joined her brother Rocco's Italian food chain La Porchetta in 1996 when the company had 12 restaurants. Pantaleo became chief executive in 2005 and her brother was killed in a motorcycle accident in 2001. The franchise chain has grown to 74 restaurants, including seven in New Zealand. Another two are set to open in the next 12 months.
California native and former Wall Street Trader Clovis Young came to Australia in 2007 with a plan to start a Mexican restaurant franchise. From the initial Mad Mex restaurant in Darlinghurst the chain has grown to 30 restaurants around the country.
Here are their tips:
The right franchisees
“The number one secret to success in franchising is accrediting the right people,” says Pantaleo. “Early on as you're growing you probably don't put enough effort into that front, because you think 'I've replicated the success, so anyone can do it'.”
Being prepared to work hard and a love of Italian food are the key attributes, she says. Restaurant experience or being a qualified chef are not important. “If the attitude is right we can teach them skills, that's not an issue,” says Pantaleo. “We arm them with skills, with leadership skills as well as technical skills.”
But ultimately success is up to the franchisees themselves. Pantaleo tells them: “We facilitate it, we give you the tools, you use them.”
Resilience is also important. “If they love it, then if there's a bit of a tough time they'll see it through,” says Pantaleo.
When Pantaleo joined the business there was a lot of passion about Italian food, but very little in the way of documented franchise systems. “None of the recipes were written down, there were no instructions, no manual,” she says. “I was the driver of all the franchise infrastructure and all the current systems we have in the business.”
Systems need to be documented so that each of the franchise maintains standards and delivers the same product. “We are one brand, and if we as a brand are sending a message and that message is delivered differently at each site it does make it difficult,” says Pantaleo.
And to achieve constancy strong training is needed, especially for people with no experience in hospitality or in running their own business. “In a franchise system you do need processes, you do need lots and lots of structure so that the franchisees understand that they've got the tools,” says Pantaleo.
“We have set up all the manuals, whether it be the policy and operations manual, our crisis manual, our OH&S manual we've got it on an intranet system and it is available to them all the time.”
The company has its own training program – named “Recipe for Success” – for its franchisees and their staff. “Even if they're not going to be the chef we still get them to spend time in the kitchen, time in the pizza section, time in the bar and time on the floor,” says Pantaleo.
Don't expect fast money
Franchising isn't cheap, with significant costs involved in brand development, hiring office personnel such as account managers and finance managers, and holding franchisee conferences and training. “I would be a much wealthier person today if I had five company-owned stores and no franchises,” says Young, of his Mad Mex chain. “But the plan isn't to keep it at 30 stores. At 50 stores it's a much more valuable business.”
Young says the business has taken $2 million in investment to get where it is today.
“There is no free ride,” he says. Young says there's typically a “trough” between two and 20 stores where the business requires a lot of investment and isn't profitable. “At scale it's a great model,” he says.
Position, position, position
“You need to get some really smart real estate advisors to help you with the strategy and getting the right spots,” says Young. As with any retail offering, finding the right location is key. Consultants handle lease negotiations on behalf of Mad Mex and organise meetings with key shopping centre groups.
A good real estate “partner” can communicate with shopping centres and ensure that the franchise is front of mind when a vacancy comes up as well as “negotiating a deal we can live with”.
A successful franchisor has to be a people person, says Young.
“To start a franchise business and to be a leader in a franchise business is more difficult than in a traditional business,” he says.
“You need to be a stronger leader. You're running not just a big team of employees, but you also have a big team of business partners and those business partners have different backgrounds and education levels.”
“It's a lot more selling, a lot less telling,” he says.