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The Franchise “Space Programme”

(Published in ETRetail.com on 6 December 2013)

Franchising isn’t rocket science, but advanced space programmes offer at least one parallel which we can learn from – the staging of objectives and planning accordingly.

A franchise development programme can be staged like a space launch, each successive stage being designed and defined for a specific function or role, and sequentially building the needed velocity and direction to successfully create a franchise operation. The stages may be equated to Launch, Booster, Orbiter and Landing stages, and cover the following aspects:

  1. Launch: assessment of the franchiser’s own readiness to launch and manage a franchise network in the target geography
  2. Booster: having the franchise pack ready to target the appropriate geographies and franchisee profile
  3. Orbiter: franchisee recruitment
  4. Landing: operationalising the franchise location

Stage 1: Launch

The first and perhaps the most important stage in launching a franchise programme is to check whether the organisation is really ready to create a franchise network. Sure, inept franchisees can cause damage to the brand, but it is important to first look at the responsibilities that a brand has to making the franchise network a success. Too many brands see franchising as a quick-fix for expansion, as a low-cost source for capital and manpower at the expense of franchisee-investors. It is vital for the franchiser to demonstrate that it has a successful and profitable business model, as well as the ability to provide support to a network of multiple operating locations in diverse geographies. For this, it has to have put in place management resources (people with the appropriate skills, business processes, financial and information systems) as well as budgets to provide the support the franchisee needs to succeed. The failure of many franchise concepts, in fact, lies in weakness within the franchiser’s organisation rather than outside.

Stage 2: Booster

Once the organisation and the brand are assessed to be “franchise-ready”, there is still work to be put into two sets of documents: one related to the brand and the second related to the operations processes and systems. A comprehensive marketing reference manual needs to be in place to be able to convey the “pulling” power that the brand will provide to the franchisee, clearly articulate the tangible and intangible aspects that comprise the brand, and also specify the guidelines for usage of brand materials in various marketing environments. The operations manual aims to document standard operating procedures that provide consistency across the franchise network and are aimed at reducing variability in customer experience and performance. It must be noted that both sets of documents must be seen as evolving with growth of the business and with changes in the external environment – the Marketing Manual is likely to be more stable, while the Operations Manual necessary needs to be as dynamic as the internal and external environment.

Stage 3: Orbiter

Now the brand is ready to reach out to potential franchisees. How wide a brand reaches, across how many potential franchisees, with what sort of terms, all depend on the vision of the brand, its business plan and the practices prevalent in the market. However, in all cases, it is essential to adopt a “parent” framework that defines the essential and desirable characteristics that a franchisee should possess, the relationship structure that needs to be consistent across markets (if that is the case), and any commercial terms about which the franchiser wishes to be rigid. This would allow clearer direction and focussed efforts on the part of the franchiser, and filter out proposals that do not fit the franchiser’s requirements. Franchisees can be connected through a variety of means: some will find you through other franchisees, or through your website or other marketing materials; others you might reach out to yourselves through marketing outreach programmes, trade shows, or through business partners. During all of this it is useful, perhaps essential, to create a single point of responsibility at a senior level in the organisation to be able to maintain both consistency and flexibility during the franchise recruitment and negotiation process, through to the stage where a franchisee is signed-on.

Stage 4: Landing

Congratulations – the destination is in sight. The search might have been hard, the negotiations harder still, but you now – officially – have a partner who has agreed to put in their money and their efforts behind launching YOUR brand in THEIR market, and to even pay you for the period that they would be running the business under your name. That’s a big commitment on the franchisee’s part. The commitment with which the franchiser handles this stage is important, because this is where the foundation will be laid for the success – or failure – of the franchisee’s business. Other than a general orientation that you need to start you franchisee off with, the Marketing Manual and the Operational Manual are essential tools during the training process for the franchisee’s team. Depending on the complexity of the business and the infrastructure available with the franchiser, the franchisee’s team may be first trained at the franchiser’s location, followed by pre-launch training at the franchisee’s own location, and that may be augmented by active operational support for a certain period provided by the franchiser’s staff at the franchisee’s site. The duration and the amount of support are best determined by the nature of the business and the relative maturity of both parties in the relationship. For instance, someone picking up a food service franchise without any prior experience in the industry is certainly likely to need more training and support than a franchisee who is already successfully running other food service locations.

Will going through these steps guarantee that the franchise location or the franchise network succeeds? Perhaps not. But at the very least the framework will provide much more direction and clarity to your business, and will improve the chances of its success. And it’s a whole lot better than flapping around unpredictably during the heat of negotiations with high-energy franchisees in high-potential markets.

Local Chains

The world’s largest retailer earned bouquets as well as a few brickbats when it recently opened a Hispanic version of its large store format, named Supermercado de Walmart. The signs around the store are in Spanish as well as English, selling traditional Mexican national brands as well as traditional Hispanic food like tacos, tortas, aguas frescas, sopes, carnitas and barbacoa at the chain’s customary low prices. 

The surprise, if any, was that this store was not in a city in Mexico but in Houston, Texas, USA.

Wal-Mart’s logic behind the format is that it would be more relevant to the heavily-Hispanic population in the catchment of the store in Houston, and that it was a natural evolution to what they had been doing for years. 

However, some customers and observers do not agree. Quite a number of people are up in arms against this “pandering to immigrants”, which they see as a threat to the unity, homogeneity and identity of the United States of America. One internet commentator condemned this segregation with a rather unique view, saying that segregating customers like this was actually “racist” and belittled the Hispanic customers who live in that area.

We should probably wait for the dust to settle on this debate. Spanish-speaking customers may actually respond positively – or not – to this new format. Yes, some defensive or aggravated English-speaking customers may also boycott Wal-Mart over this move. 

As for me, I believe that it is a good move for Wal-Mart to test how far customization can help their business and how finely they can tune their response to customer demands, because they will need all the learnings they can get to effectively tackle markets that are even more different around the world.

Of course, many retailers and marketers in a market such as India would be puzzled by all this fuss. After all, if a Chennai-based company opened stores in Maharashtra, it wouldn’t put up signs in Tamil, neither would a Punjab-based retailer expect its customers in Imphal to understand promotions in Punjabi. Fragmentation and customization is a fact of life to the Indian retailer.

Or is it really that clear? 

In fact, India has its share of marketers who seem to think and plan mainly in upper income metropolitan-English, and this bias creeps in not only in the content and structure of promotions but also, unfortunately, influences the merchandise mix. Even while PowerPoint presentations are made about how diverse the country is, and how it is possibly more like many countries rolled into one, we often make use of cookie-cutters for designing our product plan, our marketing strategy and everything else that defines the retail store and the customer experience. 

Now, before I am labelled unfair for making sweeping generalizations, let me also say that other than any such urban English bias, there are also another couple of reasons why a retailer may take a template-based or cookie-cutter approach to the market.

Firstly, if you’re launching a new retail chain, there is a need to derive efficiency by driving scale as quickly as possible. Repeating the product formula across locations allows a retailer to increase the impact of merchandising efforts in terms of additional margins due to volume margin terms and better negotiating power with the supplier. Also, the management effort is used in a much more focussed manner, lowering effective management costs.

Secondly, there is the need to demonstrate a consistent image across the entire footprint of the chain, and to appear to be a chain. Repeating the product and presentation formula reinforces the common image and branding.

However, the pertinent question is whether there is any point in following a consistent identity if it appears alien and irrelevant to most of your target customers? In a category such as grocery, where the customer don’t really shop across multiple stores in a chain, is it better to be locally relevant rather than consistent across the country or even a region? Clearly, if you have a national or international template that is locally irrelevant, you don’t have any chance of succeeding with the consumer. 

On the other hand, is it really organisationally possible for a chain-store to be local, and if so how can it best strike the balance between chain-wide consistency and tweaking the offer to provide local focus? 

To my mind the starting point is the definition of an identity based on a clear value proposition and operating principles. This includes a range of factors from the visual elements of branding to how the staff stack shelves or interact with the customer. 

The next step is to make the merchandise locally relevant, because that is what creates the transaction. The answer to “how much local” would also provide the answer to “how the locally-relevant merchandise should be managed”. Organisational models could range from entirely centrally-managed local merchandise and data-driven decisions, to central management of range architecture and purchases but local pull-based replenishment, to outright purchase from local vendors by the specific store’s management to create a truly local store. 

Of course, devolving range and purchase decisions to local management raises issues about maintaining control as well. To a certain extent processes and system can help to mitigate the risk of fragmentation of the identity or potential mismanagement. 

But the strongest glue is culture, as the manifestation of the organisational identity. Culture defines most strongly “the way” the organisation works. 

Imagine the business as an individual with a well-defined personality. In different cities that individual might speak different languages and dress in different clothes, but still express the same values.

With a well defined and well expressed organisational personality, localisation can occur without fear of corruption of the brand identity, consistency and controls. Then the chain-store can truly become a local store and part of the consumer’s life as it is.

The other choice, of course, is to wait for a significant part of the local consumer to adapt to your international or national template. Would you be prepared for that?