Franchising: The Ideal Strategy For Growth Post Covid-19
28 Aug 2020 - 2020 has been an unprecedented disaster for F&B, retail, services and commerce at large, and the impact will be felt for the long term before we establish what many are coining the ‘new normal’.
How we as franchisees, franchisors, brokers, agents work right now is very different. The share of investors, their eye on particular brands has changed overnight. Brands available to franchise have also changed overnight, some simply don’t exist anymore; but in times of adversity entrepreneurs arise and I’m seeing them come through already with aspirations to grow and scale through franchising from the outset.
I’ve been an F&B operator for many years in time zones and countries around the world, and there’s nothing different in my approach to running a business wherever they are. Operational excellence, standout leadership and high-quality reputation stand for a lot, and that simply hasn’t changed, but given the impact of Covid on industry franchisees and ‘ors have had to work together like never before simply to survive. Recipes, service standards and operating procedures have been changed that we would never have agreed to a year ago. Aspects such as delivery is now integral in the model; some brand owners would never have agreed to such changes before, but in order to collect fees / pay fees for the long term, this is a necessary change.
But for the immediate future, here are ten points that I’ve been musing over in recent weeks now that business is coming back:
Four walls – Delivery has had a huge impact on food service, as I might say delivering the brand ‘within the four walls’, but never did we think that delivery and online would evolve to such as extent that it went from a ‘nice to have’, to ‘have to have’, for multiple reasons Brand flexibility – the extent a franchisee can flex the offer locally; it’s always been a point of contention with many, with some franchisees more controlling than others. ‘Glocalization’ has been an area of great resistance for many, but now an essential aspect of survival
Liquidity – the ability to keep the business going when times really do get tough – that’s not just the franchisee, it’s the franchisor too. For the vast majority, cash will be the single factor that brings operators through these tough times.
Market entry – there is no room for error when entering a new market; the brand needs to ensure that the franchisee will deliver every brand element and the development plan, and the franchisee must ensure that the franchisor will be there to support them at every eventuality
Development plan –be even more pessimistic with your expectations to deliver. Optimistic planning never really works, and 2020 will teach us how painful it is to close marginal stores. This must include market exclusivity clauses, avoid closing out markets without deep thought. Be realistic in the number of markets you request as you will come under pressure to commit to more ambitious targets
Due diligence – take more time over this than you ever did before. Not just the franchisor in the franchisee, but the reverse too
Fee expectation – build a brand for the best long-term interests of the business. Unless you have an exceptional brand with heritage, brand recognition, uniqueness, world class leadership that demonstrates fast return on cash. For many franchisors the royalty fee is the main source of revenue from the relationship unless they are also able to supply ingredients. Parties need to be mindful of that. Target royalty remains 6% But a ramp up may be appropriate.
Collaborate – open your mind to working with the best people such as lawyers, brand developers, recruiters, martech experts etc. Talk to people, take references and take your time.
People – some of the most talented people are available for hire. Hospitality and service trained employees and leaders are some of the best trained in the World. Take your time over hiring, you never need to compromise over hiring now. Hire for personality and train for skill
Force majeure – Both parties will look very hard at the detail of the contract to protect themselves, who ever thought about a pandemic…?
Owners and operators will collaborate more, be ever more cautious, extend rigour and hold on to their cash. Take your time and do the best deals possible. Don’t worry if the brand you’re chasing drops out, there will be another one out there soon. Trust your instinct. I attended a workshop recently with one of the world’s leading franchise lawyers, Babette Marzheuser Wood from Dentons who confirmed: “Franchising is the ideal strategy for growth post Covid. It offers an asset light expansion option to franchisors whilst giving franchisees cheap access to substantial know-how and industry expertise. Compare the average franchise signing fee to the cost of paying a consultancy to help you develop a new business model: franchising wins easily”
David Singleton has worked in the hospitality and retail industry in the USA, EMEA and South Asia as a brand builder, creator, operator, franchisee, franchisor for some of the world’s best known and respected brands.
David advises, speaks, writes, and mentors across the hospitality and services sectors, globally. He can be contacted through www.davidsingleton.work
World Franchise Associates