COPING WITH RECESSION
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6 April 2009 - What actions are franchise systems taking to help their franchisees deal with downturn? In this extract from the latest issue of Franchise New Zealand magazine, we talk to some of New Zealand's most experienced franchisors
‘The best time to learn to run your business is a tough time.' That's the opinion of Al Dunn, the former CEO of McDonald's in New Zealand, who is now a director of Burger Fuel. If he's right, then franchisors and franchisees all over the country are enjoying some valuable lessons right now.
For many franchise systems, of course, recessions are nothing new. Most recently they saw downturns in 1991/92 and 1998 and, while the current problems may seem massive, established franchisors are able to draw on their experiences back then to navigate through the issues. It is the franchisees themselves who are most likely to be new to the recessionary cycle.
‘If you picked up the papers or watched television first thing in the morning, you wouldn't get out of bed,' says Rodney Wayne, the veteran hairdressing franchisor. ‘You'd think that nobody was going to turn up today so why bother? But people still need to get their hair cut, still want to look good and feel better, so they keep on coming. That's common in many franchises - the challenge that we all face is ensuring that our businesses are run as efficiently and as well as possible. That's the same in good times and bad - it's just that, at the moment, the focus is more on profitability rather than sales.
According to Al Dunn, 'In the food business, people may have trimmed their budgets but they still want to eat out - it's part of their personal and business lifestyle. Get the proposition right and you'll find it's actually about value, not price. It's important to maintain operational standards - the classic Quality Service Cleanliness values - because when money is tighter people are much more critical of these things. They may have chosen your business rather than a more expensive restaurant but they still expect to be treated well. Stay away from a price war or you'll get dragged into the commodity business and margins will evaporate. Instead, change your product mix. Offer new groupings of products that are more value-focussed. If you're clever about it, that won't necessarily mean reduced margins and will attract more people too.'
During previous recessions in the 1990s, Fastway Couriers was in expansion mode as the Napier-based company took its services first national and then international. It might come as a surprise, though, to learn that the same is happening in 2008/2009. How is it achieving results that others can only envy?
‘By providing what customers want,' says Brem Ellingham, managing director of Fastway Global, simply. ‘In previous recessions we recognised that businesses wanted to save money so it was easy to sell our cost-effective services. Back then, we supported our franchisees by providing additional support and hands-on assistance, including a marketing campaign to promote the savings businesses could make by using Fastway Couriers. We're doing the same again this time. We've re-assessed our offer and are focussing all marketing of services on the savings that customers can make by using us. This has put us back in expansion mode; against all trends, Fastway's sales are growing rapidly. December sales in New Zealand were up 22% on the previous year and this has led to the requirement for more courier franchisees so we are recruiting again.
It's the same old story: franchises that have weathered the storm in the past will survive this recession and come out stronger, especially if they provide an essential service or product.'
When Grant Archibald launched the Speedy Signs franchise in New Zealand in 1997, he couldn't afford to think about recession. ‘Having laid down big dollars for the master licence for Speedy Signs in New Zealand, I was committed to making a success of it no matter what the media was saying. I believe that your success in business is ultimately up to you and that if you follow the marketing programme and systems that the franchisor recommends you are certainly more likely to succeed. Having no previous experience in the sign industry, that's exactly what I did - and it worked.
‘The day we opened for business our sole marketing piece was a two colour, single-sided A4 flyer. We obtained work by going out and asking for it. It meant leaving the store and visiting literally hundreds of local businesses to introduce myself and explain what Speedy Signs was all about. By physically going out to prospective customers we developed relationships built around real service in a market traditionally poorly-serviced by tradespeople. As a result, we found a ready market regardless of the economic conditions.
‘That's something I'm now passing on to our franchisees. Tthink back to the marketing methods that were so successful in the founding months of your business! I believe there are plenty of opportunities in business but you have to be hungry enough to go and grab them.'
The other aspect of the current recession that several experienced franchisors have touched on recently is that now is actually a good time for companies to upskill their franchisee base. Apart from site visits and training from the franchisor team, many are taking the opportunity to have seminars conducted by trusted suppliers or to encourage franchisees to attend relevant external courses.
It's also a time when existing franchisees who might perhaps have got rather too comfortable in their routines will have been shaken out of their complacency. Apart from making them more willing to listen to the franchisor's advice, as Rodney Wayne noted above, this could also facilitate changes of franchise ownership in some areas. The skills demanded of franchisees do change from time to time and if franchisees are unable to summon up the energy and enthusiasm necessary then it may be time to inject new blood into the franchise.
This means that there are likely to be a number of existing as well as new franchise opportunities coming on the market, some in highly attractive areas.
Read the full version of this article in the latest issue of Franchise New Zealand magazine - get your free copy here
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