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SUBSCRIBE TODAY
Before you invest, investigate. William Arthur Ward
vISIt WWW.WeAlThcreATOr.cOm.Au oR Call 136 116 to SUBSCRIBE now Refer to the tear out for details. Offer valid while stocks last.
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Issue 42September/October 2009$7.95 AUD $9.00 NZ (inc GST)
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41wealthcreator.com.au WEALTH CREATOR
Business
Business is up.Franchisee managers were positive about the sector’s prospects as they joined Wealth Creator’s roundtable to discuss the issues affecting the industry
Picking the right market cycle page 50Calculating cost of goods sold page 52
Re-energise your marketing campaign page 54
How is business in this gloomy economic climate?PATRICK McMICHAEL: Business in this
climate for Domino’s Pizza has proven to be
very positive. As of January we announced
5.2% sales growth and since then we have
launched a new menu and we have put out
information that the menu is trading well for us
at the moment so we are fairly pleased as a
company.
We would expect in these economic times
that we would see an increase in traffic as more
discretionary items and food items are looked
at, so overall we are happy with how we have
been going.
We do have a lot of expansion planned at
the moment. We have come across the last
two year period where we have reached a
point where it is a maturing business and there
will be different growth to previously. We have
mapped out the next wave of Domino’s which
will see us coming into Melbourne and finalising
the growth strategy in Melbourne and also
looking at Sydney and where our penetration
should be there. We have also mapped out our
instore strategies in Sydney and for all the other
capital cities, and we are also looking to expand
regionally.
Obviously we are pretty excited about all that
for the brand.
TANYA ROBERTSON: Business for us has
been very good. Last year we achieved more
than 20% growth on what we call “like-for-like”
– that is, fully trading salons – and 29% when
you include the salons that hadn’t been trading
for a full year.
BuSINESS
42 WEALTH CREATOR wealthcreator.com.au
Our performance so far this year shows we
are on track again for more double-digit growth.
The industry that we are in, beauty, has a
little bit of protection around the discretionary
spend in that as a female, if you wax you are
always going to wax. You are not about to
start shaving again and you might spread your
appointments but you will not stop. From the
Franchisees perspective, every time we opened
the paper it was doom and gloom and the
world was coming to an end so we focused on
what we did best in the first place – providing
a great customer service experience. We also
have a very simple business where our cost of
goods is not very high, and staffing makes up
our biggest cost, so it is not very hard to focus
on key business principals to make your salon
successful.
The only issue for us was that franchisee
enquiries have been down, which has started
to change over the past three months. We
are planning to open four salons by the end
of the financial year – one in Canberra, one in
Queensland and two in Victoria.
PAuL LINE: We have had an excellent year,
growing 50% year-on-year. There are a couple
of different business models within the business
where we are half franchisor and half wholesale
telco enabler. We have good growth projections
for next year where we are budgeting for 25%
growth year-on-year.
In terms of the franchising side of things, we
have gone through a process of in-sourcing
our sales and business development so that
we have really gone through a learning process
moving between the two arrangements. We
have spent a lot of time working on our sales
processes, so as a result we haven’t really
brought on a lot of new franchisees in the past
12 months. There have only been 3 new stores
in the past 12 months but this year we are
projecting a further 12, so there will be a 20%
increase in store numbers.
We have seen the number of franchise
enquiries increase, but we have found that
closing those enquiries has become a lot
harder. I guess we are in a fortunate position of
the telco industry being fairly non-discriminatory
and it is an essential service. There is a very
high loyalty in this country to the Telstra brand
where Telstra is the most expensive brand in
the market. This means that people who two
years ago wouldn’t consider changing are now
thinking that if they can save a few thousand
bucks for their business, then now would be the
time to do it. I think the economic climate has
worked more in our favour than against us.
JARROD MONTIGuE: We have had a
fantastic time over the past 12 months where
we are growing like-for-like sales at 5.8%. With
all the doom and gloom that has been out
there, books are still considered an affordable
luxury out there and people enjoy the escape
as well so it is pretty much a recession proof
industry where there will always be people out
there buying the discounted items right up to
those purchasing the higher end products.
As far as growth goes with our franchise
model we have had a consolidation period over
the past 12 months where even though we
have been in the franchise business since 1977
we have taken the chance to go back over our
model and see if there were areas that needed
enhancing or improvement. We have had what
you could call a good hard look at ourselves
and some of our internal systems have been
reviewed, especially in our advertising and
recruitment processes and also our training and
induction programs. We have made some slight
changes with that.
Over the past few months we have started
to see some very solid inquiries coming through
and the next step is to convert those into live
applications. Similar to Brazilian Butterfly we
have a couple of stores locked in already,
subject to finance, so we are looking to get
back into North Sydney at Greenwood Plaza
and we have had a number of independent
book stores approach us to convert into an
Angus & Robertson branded outlet.
It has been a really good six months for a
solid review of our systems and we are coming
out the better for it.
ADRIAN GASKIN: We are a young franchisor,
we only started franchising in 2004. The last
12 months we have increased our franchisee
network by 46% and we are currently serving
in excess of 12 million customers per year and
turning over more than $135 million.
Talking about the current marketplace, as
a young franchisor we went out with a lot of
ambitions to do things and after 18 months
of franchising we stopped for 12 months to
reassess how we were going to evolve. We
‘relaunched’ in August last year, which I note
that a lot of franchisors have been doing in
this economic climate and fortunately we did it
earlier than most, and we find that the current
candidates really suit our model because we
really tend to push people away when they
first approach us and make sure that they are
making the right decisions. We insist they go
away and spend times in the stores finding out
what the good things are and the bad things as
well. They have compulsorarily got to go and
talk to other franchisees – we insist they do
a full due diligence before they meet with our
assessment committee to decide whether to
select them or not.
Basically we have to be pretty convinced that
they really know what they are talking about.
We have found with the current economic
climate that people are doing that anyay, so
the last 10 franchises we have put on have
been very good for our system. Our ambition
is to grow to 200 outlets in the next three to
four years and the way we have been moving
forward I don’t see it being an issue getting
there. It is a different way of getting into
newsagencies than being an independent
operator.
Like everybody else we have been having a
pretty good time at the moment, and I think as
you get more experienced as a franchisor you
probably make a lot less mistakes.
There are a lot of positive stories around the table – is this indicative of franchising overall in Australia at the moment?
STEVE WRIGHT: Yes it is actually – somewhat
to my surprise as I expected things to be worse
than what they are. Not because of the way
people are managing their franchises, but more
because of the way people and the media
were predicting a lot of doom and gloom and it
hasn’t panned out that way.
I have done a lot of reporting in the past
about franchise systems around the country
through our annual round of state conferences
and the stories have been quite similar in most
places.
However some conditions are not better
in terms of a number of key elements, they
are worse. One of the issues is getting bank
funding.
There is some new interest from new
franchisees, but they are being very careful
about it, which is a good thing.
Interestingly there were a lot of people who
thought trading conditions would be a lot worse
than they actually are, which hasn’t panned out
that way. A lot of good franchise systems
Ever wished you owned your own cash machine?
Now you can – ATM (Automated Teller Machine) ownership business with 20% p.a. minimum guaranteed returns. Earn a fee for every transaction. Every time cards are used in your Automatic Teller Machine, you make money!
Effective 3rd March 2009, the Reserve Bank of Australia, implemented reforms enhancing the ability for individuals and companies to own ATMs by abolishing the bank interchange fee. This means the existing private non-bank ATM networks are now more profitable which allows the ATM deployer to pay a percentage to individual ATM owners. You own the ATM machine and the experienced ATM deployers place the machine in the site and manage it. Your return is net of all fees.
The moment you purchase the ATM machines, your return begins, even if it takes sometime for the machines to actually be deployed. You will get a guaranteed minimum 20% ROI or $0.20 per transaction, whichever the higher. Buy with cash or borrow money against property holdings at historically low interest rates and profit with your 20% minimum return.
Many, very old, existing ATMs in established locations need to be replaced. One of the reasons these older ATMs are being replaced is they are unable to be upgraded to comply with the new Reserve Bank regulations requiring the ATMs to disclose fees. The average age of machines being replaced are between 15- 20 years old.
Tax benefits are enormous, take advantage of the legislation of 50% tax deduction bonus as part of the Australian Government economic stimulus initiative called the Temporary Small Business Investment Allowance. To get the initial 50% tax deduction bonus, orders for ATMs must be placed and deposits paid by the 31st December 2009 and machines installed by 31st December 2010.
100% hassle free: All ATM management, servicing, insurance, security and payment processing is completed by market leading, experienced, ATM deployment companies.
Have you ever wanted to earn transaction fees like the banks?
Please email Corr and Helene your contact details, including phone number, so that we may send you details regarding this amazing opportunity.
Disclaimer: This advertisement is not intended to be financial or accounting advice. You are strongly recommended to obtain independent advice from your accounting or financial professionals as individual financial positions may vary.
your own cash machine?
machine is installed.companies and banks.
Blue Horizon V3.indd 1 27/04/2009 9:25:08 AM
Ever wished you owned your own cash machine?
POSITIVE GEAREDSURAT BASIN PROPERTIESWith interest rates at record lows, here has never been a better time to invest!
Blue Horizons are property consultants, specializing in thesurat basin clean energy precinct, 210 km west of Brisbane.
Areas serviced are, Toowoomba, Dalby, Chinchilla & Miles.These towns are undergoing a massive build up of workers and their families. There are 100 billion dollars in diverse resource projects commencing in the Surat Basin by 2013.Clean gas fired power stations, thermal coal mines, newrail lines, new gas pipelines, coal seam methane gas, gas to liquids plants, ethanol refineries, agriculture and a massivenew cattle feed lot are just some of the diverse drivers to thebooming economy of the Surat Basin.
Access up to the minute press releases on our website on our Dalby/Surat Basin page.
It’s a familiar formula, lack of quality housing + plentiful high paying jobs causes rapid
capital gains and skyrocketing rental yields!
We have leading local builders working for you at volume rates & we pass these savings to you.
Our 4 bed, 2 bath, 2 living area, dlug brick houses are returning 8% before depreciation. Currently completed houses have been achieving $500 - $550 p/w.
These houses are not just slightly positive, they are income producing!
On completion our houses have experienced equity gains.
Build price is turn key, you get a/c, dishwasher, window furnishings, turf and fencing. We work with local property managers to ensure your property is rented quickly and for top dollar. This is the beginning of a serious growth cycle in the Surat Basin, so unlike many times before, when you were tempted but thought you were too late, you can now invest with confidence with us.
Contact Corr Piccone or Helene Thomas
Phone: 0409 455 [email protected]@bluehorizonsproperty.comwww.bluehorizonsproperty.com
Limited Supply: Sold on a first come, first served basis. So ACT FAST!
Please email Corr and Helene your contact details, including phone number so that we may send you detais regardingthis amazing opportunity.
Have you ever wanted to earn transaction fees like the Banks?
Disclaimer: This advertisement is not intended to be accounting or financial advice. You are strongly recommended to obtain independent advice from your accounting or financial professionals as individual financial positions may vary.
Now you can – ATM (Automated Teller Machine) ownership business with 20% p.a. minimum guaranteed returns. Earn a fee for every transaction. Every time cards are used in your Automatic Teller Machine, you make money!
Effective 3rd March 2009, the Reserve Bank of Australia, implemented reforms enhancing the ability for individuals and companies to own ATMs by abolishing the bank interchange fee. This means the existing private non-bank ATM networks are now more profitable which allows the ATM deployer to pay a percentage to individual ATM owners. You own the ATM machine and the experienced ATM deployers place the machine in the site and manage it. Your return is net of all fees.
The moment you purchase the ATM machines, your return begins, even if it takes sometime for the machines to actually be deployed. You will get a guaranteed minimum 20% ROI or $0.20 per transaction, whichever the higher. Buy with cash or borrow money against property holdings at historically low interest rates and profit with your 20% minimum return.
Many, very old, existing ATMs in established locations need to be replaced. One of the reasons these older ATMs are being replaced is they are unable to be upgraded to comply with the new Reserve Bank regulations requiring the ATMs to disclose fees. The average age of machines being replaced are between 15- 20 years old.
Tax benefits are enormous, take advantage of the legislation of 50% tax deduction bonus as part of the Australian Government economic stimulus initiative called the Temporary Small Business Investment Allowance. To get the initial 50% tax deduction bonus, orders for ATMs must be placed and deposits paid by the 31st December 2009 and machines installed by 31st December 2010.
100% hassle free: All ATM management, servicing, insurance, security and payment processing is completed by market leading, experienced, ATM deployment companies.
Our house and land packages start from $343,500.
Blue Horizons are property consultants, specializing in the surat basin clean energy precinct, 210 km west of Brisbane.
Areas serviced are, Toowoomba, Dalby, Chinchilla & Miles. These towns are undergoing a massive build up of workers and their families. There are 100 billion dollars in diverse resource projects commencing in the Surat Basin by 2013. Clean gas fired power stations, thermal coal mines, new rail lines, new gas pipelines, coal seam methane gas, gas to liquids plants, ethanol refineries, agriculture and a massive new cattle feed lot are just some of the diverse drivers to the booming economy of the Surat Basin. Access up to the minute press releases on our website on our Dalby/Surat Basin page.
It’s a familiar formula, lack of quality housing+ plentiful high paying jobs causes rapid
capital gains and skyrocketing rental yields!
Contact Corr Piccone or Helene Thomas
[email protected]@bluehorizonsproperty.comwww.bluehorizonsproperty.com
We have leading local builders working for you at volume rates & we pass these savings to you.
Our 4 bed, 2 bath, 2 living area, dlug brick houses are returning 8% before depreciation. Currently completed
houses have been achieving $500 - $550 p/w. These houses are not just slightly positive, they are income producing! On completion our houses have experienced equity gains.
POSITIVE GEAREDSURAT BASIN PROPERTIESWith interest rates at record lows, there has never been a better time to invest!
Build price is turn key, you get a/c, dishwasher, window furnishings, turf and fencing. We work with local property managers to ensure your property is rented quickly and for top dollar. This is the beginning of a serious growth cycle in the Surat Basin, so unlike many times before, when you were tempted but thought you were too late, you can now invest with confidence with us.
Phone: 0409 455 604
BLue_Horizons_FP_42.indd 1 6/8/09 11:25:00 AM
BuSINESS
44 WEALTH CREATOR wealthcreator.com.au
Name: Jarrod Montigue
Position: Angus & Robertson national franchise manager
Founded: 1977
Number of outlets: 174 (57 franchise, 117 company-owned)
Annual turnover: $60 million (franchise stores only)
Headquarters: Melbourne
Growth targets: 100 stores in regional Australia
Name: Patrick McMichael
Position: Domino’s Pizza Enterprises Australia and New
Zealand franchise development manager
Founded: 1960
Number of outlets: 322 (in Australia)
Annual turnover: $591 million
Headquarters: Brisbane
Growth targets: All states in Australia
Name: Adrian Gaskin
Position: Supanews managing director
Founded: 1994
Number of outlets: 51
Annual turnover: $135 million
Headquarters: Brisbane
Growth targets: To reach 200 outlets
Taking part…
“One of the main benefits that Angus &
Robertson has is an incredibly strong brand
recognition in the market. Part of that is through
history because Angus & Robertson was
actually one of the pioneers of franchising in
Australia where our first store opened in 1977 in
Hurstville in Sydney.
We have franchisees who have been in the
business for 25 years and the number of stories
they could tell could have them writing their own
books, to be honest.
Another strength we have is that we are
enhancing our franchise offering and franchise
model. Over the last six months we have put
a lot of work into our training and induction
programme, and also we have taken the
opportunity to look at our marketing plan and
strategy as well.”
“We offer a worldwide-accepted brand, which
is a market leader in Australia. There is a long
track record of success with operating franchise
stores and company stores, which gives
franchisees confidence in the system. We not
only sell the franchises and manage and work
with our franchisees, we are also running our
own company stores, which are very successful
as well. When you have a company that can
be successful in the core business it gives a lot
of credibility and gives incoming franchisees
confidence in the business they are coming
into. We have invested very heavily into our own
business over the years, which has given us
the platform to gain that number one role in the
continued evolution of our business.”
“The greatest opportunity for franchisees of
Supanews is that they are doing their due
diligence on a business that is already trading. It
is very easy for them to substantiate the profit of
the business. Because our recruitment process
for new Supanews owners is very thorough,
they have worked in the stores and there are no
hidden surprises.
We insist on them going through an ardent
process to get there which is great because
there is nothing hidden and no surprises.
At the end of the day it is all about reassuring
them as they wonder am I going to make money
and will I be comfortable in the franchise? That is
ultimately the most important thing – that people
are comfortable and enjoy what they are doing.
45wealthcreator.com.au WEALTH CREATOR
took the trouble to prepare themselves last year
for business to drop off and as a result their
profitability looks pretty good.
A lot of businesses are reporting an increase
in turnover from the stimulus package that went
into the retail and services industry where there
were staple purchases rather than discretionary
spending. Some have had no drop-off in
turnover, they have actually increased their
turnover and their profitability is better because
they were anticipating the worse.
Even in bulky goods, which frankly we were
expecting to get hammered, there have been
some really good stories. Clark Rubber, for
example, closed three stores last year and two
of those stores were actually making money – it
wasn’t as if they were unprofitable and had
to be let go. The people were in two minds
about whether to continue and these are big
investment stores, so they sold out. But those
two stores have since re-opened. In one case it
was a next door neighbour who noticed all the
customers still showing up to the store and then
wondering where to go now it had closed. Now
that it has re-opened the results that the new
owner has achieved are better than the previous
owner year-on-year.
Have you used the financial downturn to really re-focus on the core offer of your brand and services? Did the downturn cause you to re-focus or would you have done it anyway?
ROBERTSON: Our re-focus was probably
because of the downturn. The salons are
successful – some more than others obviously –
but they all make money.
This was an opportunity to step back from the
business, and look at our key drivers which we
couldn’t do previously because we had such a
fantastic run of business up until then.
A couple of incoming franchisees also took
the opportunity to reassess, planning for the
coming six months waiting to see what will
happen in their current environment. It is one
of those catch-22 situations for some people
where they are planning for retrenchment – if
they don’t get it then they will stay where they
are but if they do then they will come to Brazilian
Butterfly.
There is no doubt that we have taken a step
back and looked at ourselves internally. There
were a few things that we needed to be more
aware of as well.
LINE: We were looking at the business anyway.
We actually started the process 18 months ago,
before the real crunch hit. The process was
driven more by our maturity and the life-cycle
stage of the business.
We also had a master-franchisor deal
where we had to extricate ourselves from that
relationship. It put us in a situation where we had
to re-assess everything we were doing anyway.
It wasn’t so much driven by the economic
climate, but having said that [in hindsight] it was
very well timed and has worked out well for us.
We have had a lot of people who saw our
franchise opportunity three or four years ago
and didn’t come on board then and now they
are actually coming back to talk to us again and
I think we are in a much better place to actually
deliver greater systems and assistance than we
were then.
Have you had to work harder to maintain franchisee expectations at realistic levels? Many franchisees would also have similar worries of downturns in business.
GASKIN: It has been a lot easier for us because
we are not a discretionary spend. Most of us
have been going to newsagencies since we
were being pushed in a pram, so it is part of the
traditional Australian shopping experience.
Certainly we have got to be smarter and
ensure that our supplier relationships are the
best they can be to give our franchisees an
advantage, but that is something we are working
on consistently.
For us we drew back to have a look at our
model and there was a recognition that the
economic climate was going to deteriorate.
That is why we withdrew our franchise fee and
looked to evolving our model to how we would
take over existing businesses and convert
those to a franchise business and somewhat
unusually for the franchise industry we leave a
fairly solid investment in the business. Inevitably
our franchisees tend to be buying existing
businesses so there are figures that can be
substantiated and then you can layer in our
supplier advantages.
The main issue is that we are not a
discretionary spend or a luxury.
ROBERTSON: That’s true. In the beauty
industry the luxury items would be the facials
and the massages which are more discretionary
and certainly anecdotally we are hearing that
people have stepped back from those services.
But waxing and nails are still seen as quite
essential because it is a process that you [need
to maintain] once you start and you find the
money for it.
I think where we had to pay attention with our
franchisees was those where knee jerk decisions
were being made that were not good for the
business or the brand. We needed to show
that the figures are actually showing something
different and we were showing strong growth.
If everyone had been affected then it would
be a different story, but there are always one or
two outlets where it is outside influences and we
have had to have conversations to explain why
[the situation exists].
MONTIGuE: We have had a similar situation
where we made a conscious effort at our
conference in September last year to really hit
home how important those basics are in business.
We talked about the basics of customer service
and making sure you have a clean and presentable
store – just really basic things.
There wasn’t much conversation about the
doom and gloom with most of our franchisees,
although I am sure it was playing on the back of
the minds of some of them who were thinking
there would be a good Christmas with the
stimulus package and then it would be downhill
from there. In fact it has been the opposite
and we have reinforced the statement that
franchisees need to keep doing the basics and
connecting with the local community and you
will find that when times are tough, people are
creatures of habit and they will go back to where
they have had great experiences before and
they will keep coming back.
LINE: To pick up on Steve [Wright’s] point
about the negativity, it was almost a PR job
where we had to tell our franchisees ‘look
guys, things aren’t actually as bad as they are
saying’. We have also done things like blogs on
A lot of businesses are reporting an increase in turnover
from the stimulus package
BuSINESS
46 WEALTH CREATOR wealthcreator.com.au
our website openly talking about the economic
climate and the things that are really happening
in our business and those in the economic
environment.
As much as anything it has been a PR
exercise to keep people’s spirits up but it is
a very fact-based message. If you are doing
the basics in your business then it will see you
through tough times, but you can’t take your
focus off those fundamentals.
WRIGHT: Franchising as a rule is not about
very exclusive services or products. It is about
delivering things that are able to be delivered in
a uniform way across locations and geographies
so that you can get economies of scale and you
can do quality control and ease of access to
build brand familiarity.
You will struggle to find a franchise brand
which is exclusive or at the top end of the price
range, because usually they are about value
and innovation and a niche. Telcoinabox is
competing with one of the biggest marketing
machines with all the inertia going for it, but
because it is an ubiquitous market because you
can copy the system and offer a niche which
can be reproduced easily then there is good
business to be done there. But they are not
going to charge Telstra prices because they
would be driven straight out of business.
The thing that is working really well for
franchises is that people recognise that and
it encourages loyalty. The customer gets a
certain experience and they will go back if the
experience is good and the value is there.
Franchising has been doing better business
than the corporate community and certainly
better than the small business sector generally
because of those reasons.
LINE: This crisis has certainly been a great
antithesis to the inertia that has existed by
moving people out of their comfort zones in
many different ways. That has been good for
certain businesses.
What challenges are facing the franchise sector now?
MONTIGuE: Bank financing is certainly one. In
our sector potential franchisees are being very
selective and there are certainly more options
available. There are also a lot more reasons for
people to be more cautious as they make these
decisions too.
McMICHAEL: A lot of the franchisees I am
talking to are interested to know the evolution
of the brand and where it is going. From the
Domino’s perspective, prior to the economy
being where it is now, several years ago we
were putting record numbers of stores on the
ground and we had just gone public so we
recognised that we needed to be looking at the
future.
We spent a good two or three years
searching the soul of Domino’s Pizza and
thinking about what we were going to look like
in 2010 or 2011. We have recently launched our
three year strategic plan which timed in well with
the downturn in the economy and really sets our
franchisees on the path for the next evolution
of our company. As I am talking to potential
franchisees they want to know if we have a plan
and what the brand will look like in the future,
what changes are being looked at and what
effect those changes will have on the business
moving forward. It is a challenge if you don’t
have a strategic plan but it is positive if you do
have it and you are able to share it.
LINE: You definitely need to be talking about
your plans. You can’t stay in desperation mode
at all, you have to be talking about your brand
and staying focused on it.
McMICHAEL: The key is also to do that when
you are trading at your very best. That is the
point, you need to make that decision at your
very best point because if you are going down
and making that decision on the back foot then
it won’t work.
MONTIGuE: I would agree that there are a lot
of people asking about the brand. We have had
a similar experience where people have been
very keen to find out what our plans were and
the direction for the future.
ROBERTSON: The other problem from our
perspective is that we tend to attract a slightly
younger franchisee. We are an investment of
$200,000 to $250,000 so while we are not top-
end we are not at the low end either.
For someone who is 25 to 35 to have that
sort of cash is getting harder, so we are looking
at other ways of getting the right franchisee into
our brand. We don’t want to go down the track
of lowering franchise fees, It’s looking at those
people who are a great manager or have a real
have a passion for it but just can’t get the money
together – they might be able to get some of it
but not all of it. That is the challenge in that we
need to get the right people as well.
We are not a typical ‘investment’ franchise,
you can still make money if you put a manager
in but it is better if you really work it and will
manage it yourself. If you haven’t got the right
staff and you can’t do it yourself then you will be
in trouble.
LINE: Finance is definitely a challenge for
most of us. We are a very low cost franchise
compared to others sitting around the table but
even at that level it is tough.
We are working with the banks to get our
accreditation which we don’t currently have,
but even that presents challenges. When we
are talking to the bank they are talking about
fixed and floating charges and what is needed
for security and the potential debt down the
track. You start getting into some negotiations
with the banks and those conversations can be
quite challenging because there is not a lot of
flexibility from the banks with regards to some of
those issue. We had never considered getting
accreditation because we didn’t think we would
need it at our level. Now we have re-evaluated
that because we do need it and it is an essential
part of our strategy going forward.
Finding the right people, whether you are in
good times or bad times, is critical. When you
have that personal touch that is when you can
really make some money and that all comes
down to smarter marketing strategies, better use
of media, smarter recruitment processes, better
profiling of people coming into your business.
GASKIN: We have accreditation with banks and
we find it relatively easy to make sure that we
have the right calibre of people applying. But our
accreditation is pretty well 50% of the entry fee.
We are finding that banks are not a big issue
for us but that accreditation has been very
important in addressing that issue. The more
Franchising has been doing better business than the corporate community
47wealthcreator.com.au WEALTH CREATOR
Name: Steve Wright
Position: Franchise Council of Australia executive director
Headquarters: Melbourne
Taking part…
“The Franchise Council of Australia is
unequivocally working for the good of the
whole sector. It is not about any sectional
interests, it is for franchisors, franchisees and
suppliers on the understanding that they are
mutually interdependent.
You can’t have a successful sector that is
only successful in one of those areas.
Lately we have taken greater steps to be
more inclusive for franchisees and suppliers
to try and make sure that their voices are well
heard as well as franchisors.
Those initiatives are going really well.
There are others around the place that
advocate a different approach, but nearly
always it comes down to an adversarial
approach. But that is great for lawyers and
that is it.
Name: Paul Line
Position: Telcoinabox general manager
Founded: 2003
Number of franchisees: 55
Annual turnover: $33 million
Headquarters: Sydney
Growth targets: Australia wide 25-30%year-on-year growth for 2009/10
compared to 2008/09
Growth targets: Another six salons and 10% sales increase like-for-like
“What sets us apart as an opportunity is that
unlike pretty much every other franchise group
I can think of, when you come into
our group you get to create your own brand.
You get to create your own brand and we
enable you to do that – that is probably our key
differentiator. Having said that, I think there are
some other factors that make us unique.
With Telcoinabox you don’t need a shopfront,
there are no geographical territories and there
is absolutely unlimited potential.”
Name: Tanya Robertson
Position: Brazilian Butterfly franchise development manager
Founded: 2002
Number of outlets: 20 salons (15 franchisees)
Annual turnover: $9.1 million
Headquarters: Melbourne
Growth targets: Another four salons this financial year and 10%
sales increase like-for-like salons
“We are a specialised chain of waxing salons
with our core offer being Brazilian waxing.
We offer all types of hair removal, including a
permanent hair reduction system and spray
tanning. We are a business where you have to
have a passion for people, you need to be able
to follow a basic system and be prepared to get
in there and make it happen. We have our own
training programme for our staff and what sets
us apart is that we focus on what we do best.
We are not trying to be a beauty offer – our
theme is total body care. Our franchisee training
is entirely based around how to open a Brazilian
Butterfly and make it successful for you.
BuSINESS
48 WEALTH CREATOR wealthcreator.com.au
accreditation you have then the harder you will
work with the banks and the better the calibre of
people you have applying through you.
McMICHAEL: We have put a lot of effort
into our selection process bringing on the
Nathans profiling system and fully integrated
that throughout the whole process. We have
three different levels of interviews to bring in the
correct franchisee.
The Nathans team came in and did a full
round of training with our franchise team and
our operations team which was really along the
line of developing the interviewing and selection
process.
We also work with the incoming franchisee
looking at their business plan and the projected
cash flow across the first three years really
makes sure everyone is on the same page.
If we get that right and the benchmark scores
for the incoming franchisee are all correct, by
the time we go to financing we are not finding
that there are any issues. There are no surprises
there, we have vetted the franchisee correctly
and the business plan has been done properly
with the franchisee and franchisor having
ownership of that plan. I know that scares
a lot of franchisors signing off on business
plans, but we feel that if we don’t do that then
that is where the risk comes into it. If we have
completely separate expectations then that is
where disputes form later down the track and
the ability to achieve common goals becomes
less achieveable.
When Wealth Creator conducted this roundtable in 2008 it was just after the Franchise Code had been introduced and there were still a few teething issues with it. Have those concerns died down now?
GASKIN: One of the things we have looked at
closely is the disclosure of rebates. Our system
is one where we give 100% of our rebates back
to the franchisees. They pay a royalty which is
transparent but all the rebates get given back.
All the agreements we have with our suppliers
are intrinsic on a confidentiality agreement. So
a supplier attracts an inordinate rebate but the
last thing they want is for someone to leave
the franchise system and demand the same
rebate. Obviously there must be security of that
knowledge.
I understand that is now again under question
however?
WRIGHT: It is something that has been
suggested at the latest review, but I don’t think
it is a top order issue.
It is also a competitive issue for other systems
operating in the same industry where if you
disclose, for example the marketing value and
what the wrebates are and how it all works then
essentially you are describing your marketing
policy, so there are some pretty obvious reasons
why open disclosure of that is not a good idea.
It is available for the ACCC to investigate at
any time anyway, so the mechanism for it to be
scrutinised is there.
The government is still in the process
of responding to a review of the franchise
code and that is likely to focus on some
enhancements to disclosure, as opposed to
dramatic changes. I think the likelihood of
it being a response which adds significant
compliance for franchise systems is unlikely.
However one can never anticipate too much.
There are still a couple of things that raise
some interest, such as the concept of good faith
laws and regulations for negotiation. Otherwise
there are some positive changes such as
disclosure and mediation and perhaps even
some government help in those areas. We are
lucky in this country that there is good low cost
mediation that gets results. That saves a lot of
people a lot of time spent with lawyers, so if that
can be further improved that would be great.
After this period of volatility, what comes next in the evolution of your business?
GASKIN: For Supanews we have gained some
excellent momentum through this time which will
stand us in good stead. But again I think that
may be traced back to the period where we put
franchising on hold to let our system evolve.
I only see good things coming. I see us able
to achieve that expansion towards that 200
store mark within the next couple of years. If
the economy improves and people get their
confidence back up then we will only move
forward.
Having said that we will not change our basic
philosophy. We will still make sure that every
franchisee is a good franchisee – you are only as
good as the last franchisee put on the ground.
Part of our system demands that our incoming
franchisees go back and talk to the last six
franchisees, so if we have done something
wrong then we crucify ourselves. It makes us
work harder to ensure our decisions are correct.
At the end of the day we make our final
decision on selecting a franchisee by looking at
them and saying ‘when we have a disagreement
12 months down the track, are we going to
have enough mutual respect that we can move
forward?’ and if we don’t believe we can then it
doesn’t go any further. If we think we can then
they are successful.
No matter how well we try and do things
there will always be some disagreement and you
have to have that mutual respect.
MONTIGuE: Similarly to what Adrian said,
through Angus & Robertson we have had a
good period of consolidation and there has
been a good chance to review our systems and
processes. We are in a much better place than
we were 12 months ago and it is a really exciting
time now.
One advantage we have had over the
journey is a very good brand credibility in the
marketplace – it is a brand that is instantly
recognisable as a good place to go for books.
Obviously one of our directives is to really
enhance that profile in the franchise community,
where I feel that we haven’t done a good job of
that. I still get enquiries today from people who
weren’t even aware we are a franchise.
Another avenue I am very keen to explore is
that we have actually got a larger portfolio of
company stores than franchise stores. There
is certainly a plan to convert some of those
company stores into franchises. There are 117
store managers who are potential business
owners and franchisee owners which is a
resource we haven’t tapped into.
One of the things I did not so long ago was
to put a correspondence piece out to these
stores saying that some of these managers have
been with us for 10 to 15 years who would be
obvious candidates for franchisees.
In the main, franchise stores are more profitable
than corporate stores
49wealthcreator.com.au WEALTH CREATOR
I have had a great chat to some of them, even
some of those who are still in the dream phase
and may be 20 to 25 years old and dream of
running their own business one day. The next
step is to work out how we as a franchisor can
help them achieve those goals.
Through our accreditation with the NAB at the
moment, even putting some of our managers in
the right direction with some business planning
advice and financial planning is a start along
the path to see how far they can go. We are
also looking internally at how we can help them
through maybe waiving the franchise fee –
anything is possible at this stage.
There are 117 options out there and if we can
convert between 2% and 5% then that is a great
start. Obviously there is also a great succession
plan we can tell our employees as well, that one
day they start off as a casual employee or store
manager and then wind up running the store.
WRIGHT: What has been the motivation to
switch to a higher mix of franchisee versus
company stores?
MONTIGuE: Obviously there is a direction within
the company to do that but over the journey
there used to be more franchise stores than
company stores as well. The majority of our
franchise stores are very profitable and I would
like to think that the growth would continue with
the conversion of some of these company stores.
GASKIN: Let’s not kid ourselves – in the
main franchise stores are more profitable than
corporate stores, aren’t they? You have that
ownership factor in there.
LINE: I think at Telcoinabox we also have a
very positive mindset going forward. The last
12 months have been good for franchising in a
lot of ways because there has been a shakeout
of the more opportunistic franchise groups that
haven’t survived. That has been aligned to the
much greater education of franchisees and
greater due diligence from shopping around
for different options and people generally being
more cautious.
I see that as being a very good thing for our
business and for anyone else who feels they
have a good business. When times are good or
bad a good business will always do well.
In terms of franchisees coming into the
business I know the past couple of years have
seen several people attracted to the ‘franchisee
lifestyle’, but I think that might change a little
bit as people become a bit more hard nosed
and more focused on return on investment and
actual results.
Lifestyle was a great idea when it was boom
times and it all sounded fabulous. But in this
climate people are more interested in knowing
if they put their money into something that they
will get it back.
ROBERTSON: Our key focus is going to remain
on growth and growing the Brazilian Butterfly
brand. We are at 20 salons now and we want
to push to 30 in the next 2 years. The focus
in the last 12 months has been on getting the
franchisee base right and getting the systems in
place so they can focus on their business and
we can grow the brand.
We have solid businesses out there that we
can show as examples. Like Adrian, incoming
franchisees must talk to existing franchisees.
If they come to the second interview and they
have not done that then I don’t go any further
with the interview.
As a company our biggest challenge is
managing that growth in a constructive way.
McMICHAEL: The mindset at Domino’s is very
positive. We have a mature system and a pretty
high store count and we are well into our new
strategic plan for the evolution of our company.
A lot of it is simply focusing on what we do
best to make sure our customers get the best
product with the best service and our offer is the
best it can be.
Part of that plan is looking at our image and
where we see ourselves in the future. We just
put a plan on the ground for the new 2020
model and we are seeing good reviews from
that and positive sales.
We feel that our franchise community is very
positive at this point in time which is based on
that plan and we feel that as we evolve in that
plan we will reevaluate what our next strategy
will be. As far as our targets for recruitment
go, we will continue to expand in all markets in
Australia. We have isolated where that growth is
and we will be talking about how that growth will
play out when we announce our results.
Overall we have a really positive outlook for
our future growth.
WRIGHT: We will be focusing on two main
areas which are education and lifting standards
across the board.
In the course of the inquiries last year we said
that education was a key to getting past some
of the problems reported to those inquiries.
From a franchisee perspective it is about
entering the sector with your eyes wide open,
understanding it better on arrival and thereby
having a better relationship with your franchisor.
For franchisors it is about understanding the
importance of good recruiting practices and
policies because an organised approach to that
side of the business has really lifted in the past
12 months.
We have taken it upon ourselves to try
and actually help potential franchisees
with seminars in every capital city. We run
seminars in conjunction with the ACCC about
getting into the system with your eyes wide
open and those campaigns are starting to get
some traction. The ACCC is very pleased to
see that the sector is taking this responsibility
upon itself. Ultimately better educated
franchisees means better relationships with
franchisors which in turn means more profit
and everyone is happy. It has real commercial
drivers. We are also working with vocational
and educational institutions to develop
programs so that there is a longer pathway for
people rather than just getting some basics
and that is the end of it.
A possible benefit for franchises out of this
downturn is the disenchantment that people
have with big business might rub off in a positive
way for franchising.
Franchising is a very compliant cycle of
business and it has some really good in-built
disciplines that stop some of the excesses you
see in the corporate world from happening. It
has got big businesses and it has for twenty
years, but you have never heard of the head
of a franchise company heading overseas with
shareholder funds.
I think that is because of the way it is set up
and the regulations it adheres to. It pays taxes and
there is not much chance for a cash economy in
franchising. There is also a mutual profitability that
goes on between a franchisor and franchisee and
that puts a natural break on excesses.
Ultimately better educatedfranchisees means better
relationships with franchisors