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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

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Blue Horizon V3.indd 1 27/04/2009 9:25:08 AM

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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.

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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

corr@bluehorizonsproperty.comhelene@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