By Mike Morton
Let’s say you have a really strong new restaurant or retail idea. You’ve identified a timely, unmet need, sales are strong, and you’re worried a competitor is going to replicate your concept and stall your momentum. To truly own this new idea, you need to extend it fast. However, the financing required to build a slew of stores in new territories is, well, daunting to say the least.
“If we franchise, doesn’t that mean a loss of control?”
“And, doesn’t company ownership mean greater value in the brand?”
These are common questions when potentially big multi-unit retailers mull over growth strategies. Yet increasingly, new and established brands alike are realizing that going the franchise route not only doesn’t compromise their brands, it can in fact strengthen brands by offering more control, more store locations, more flexibility, and ultimately more revenue. In even less time than typically comes with the company-owned approach.
Why does franchising work?
On the most basic level of business operations, franchising addresses three key issues: money, time and people.
Franchisees are investors; they bring capital to the table. With franchisee funds, companies are learning they can expand their business without the corporate capital or bank loans necessary to open more company-owned units. Franchisers, from Bob Evans and Wendy’s to IHOP and Denny’s, remove operational costs from the corporate balance sheet and shift those expenses to regional operators.
Similarly, franchisees do a lot of the legwork. Suppose you’re hoping to grow in a new state or metro area, native franchise owners, familiar with the cities and neighborhoods you are targeting, can save you tons of time and work as they scope out the sites and navigate local permitting.
Of course, the key to ultimate success is people. Here again, franchisees are motivated by their ownership. Like the difference between a homeowner and a renter, franchise owners pony up the cash and truly have “skin in the game” with their own stores. Invested as they are in the business, they know that your success and the power of your brand is theirs as well. Studies corroborate this impact, showing that franchisees can outperform company managers by up to 30%.
Does it work for everyone?
That depends on how it’s planned and executed. As with any strategy that’s “good on paper,” we’ve learned from the successes and setbacks of companies such as Wendy’s, 7-Eleven and Taco Bell. We study what works and what doesn’t. Some of the most effective franchisers we’ve seen rely on third party consultants for management of operations engineering, design, construction documentation, and more. It frees them from maintaining these internal resources and allows them to do what they do best.
So how has it succeeded?
For retailers interested in growing fast, or the right way, or more efficiently, franchising is a good solution for all of the above. Believing that in general, it’s better to franchise and outsource, than to keep it in house and do it yourself. Why? Proven success.
One leader in the coffee and breakfast space had a huge in-house staff for designing and building new stores. Over time, the company parceled out that work, and the resulting benefits soon began to speak for themselves lower costs, faster rollouts (from drawing board to ribbon-cutting), lower taxes, and more.
McDonald’s is legendary for doing this right. When McDonald’s comes up with a new design, it helps franchisees upgrade their stores to help keep the brand fresh. By keeping corporate costs minimal, it allows McDonald’s to invest in services with consultants to maintain the freshness and consistency of their brand — which its continuing strong sales figures indicate consumers are still lovin’ it.
What about control?
The idea of control, in a franchise situation, needs to be recalibrated. While the franchisor no longer oversees day-to-day operations of the individual units, it in many ways assumes more direct control over the partners it chooses for outsourced ops, engineering, and more. Partners like WD work directly for corporate, often with a streamlined client service arrangement that makes for simplified communications and gains in speed and efficiency.
How to get started?
Once it is determined that franchising is the best option for the organization, figuring out which services to outsource is critical and having a trusted partner to help manage the process is essential to success. Corporate will often designate several consultants as their AOR, which helps franchisees expand and update the fleet of stores while maintaining brand standards, improving efficiencies, curtailing redundancies and increasing speed-to-market through lean construction methods.
WD has years of experience working with corporations as they transition from corporate owned to a franchise model, as well as retailers and restaurants that have been franchising for decades. With a portfolio of services, including architecture and engineering services, site selection, construction documentation, assistance, and administration services, as well as permitting and site design and planning, retailers can select services that fit their business model and trust that their brand standards will be upheld by their trusted partner.
Mike is EVP of Program Management Services, and is directly responsible for the highly complex oversight of WD’s client programs. With years of experience working with franchisees and corporate retailers Mike is able to provide expert guidance for keeping programs moving forward while adhering to the project scope, scheduled timeline, and program budget and ensuring the alignment of resources across all levels of the organization.