It all began for the Michel’s Patisserie franchise in 1988 when Noel Carroll, a food technologist, was a corporate in a corporate world, working with global entities such as Sarah Lee and McCain Foods. Noel Roberts, meanwhile, was making patisserie products such as croissants filled with ham, cheese, chicken and asparagus before the majority of the Australian market even knew what a croissant was.
Coincidentally, their respective wives were good friends, having grown up in houses next door to one another. Carroll had fallen into a routine of dropping by into one of Roberts’ small string of outer Sydney-based bakeries for a drink with him and also to pick up and take home an assortment of the pastries. Carroll mooted the idea of expanding the concept to reach a wider market, and as it happened it wasn’t long before Roberts spotted a small wholesale bakery for sale. Owned by a large corporation and run by what Carroll describes as “pinstriped suit guys”, it had a contract to supply David Jones but despite this, was losing $30,000 a month. Its name was Michel’s Patisserie. The ‘two Noels’, as they are now widely known in franchising circles, decided to buy it.
“Back in 1988 we had nothing,” Carroll says. “The banks were handing money out like drunken sailors and taking it back as soon as interest rates went up. Even though the sales weren’t initially there, we borrowed to the hilt to buy the business and decided to open a few more stores around Sydney’s northern beaches.”
They also did something that had never been heard of in the industry before – taking production of the cakes and pastries off-site into an industrial area to enable a concentrated focus on the retail operation of the new shopping centre outlets.
Roberts continued to make the product himself, more often than not working both days and nights until at 3am the pies and cakes would, fresh from the ovens, be picked up by Carroll and transported via van to the stores.
“This enabled the people in the stores to just focus on retailing, instead of manufacturing, and also allowed us to have a centralised quality control. Noel could watch every product being made for each store and there was no concentration of capital at the retail level. Renting a production facility in an industrial area at Hornsby, which we could use 24 hours a day, was $100 a square metre compared to $1500 a square metre at Warringah Mall. It made so much sense but had never been tried before,” Carroll says.
By 1990 the fast food franchise had started to make something of a name for itself, with some 10 stores scattered mainly around the northern beaches. Roberts had employed some good people to help with product production, but the “recession we had to have” meant the banks were nervous about lending any more money for expansion. The decision was made to franchise the business, with existing store managers offered the opportunity to purchase their stores. With its heightening profile, Michel’s also attracted the interest of other third parties, the upshot of which was that the Noels were able to retrieve some of their investment, pay the banks back and think about investing elsewhere. As a result, average store sales increased 20 percent.
“It was then that we realised what franchising is all about,” Roberts says. “At its core, franchising is about harnessing the motivation of an owner/operator. We delivered a very good product, system of marketing and store fit-out, and combined with a highly dedicated owner/operator sales went through the roof. Even where before there had been good in-store management, as franchisees they were more committed to developing a rapport with customers. The Newport store is a good example of this, where when the manager actually took over the store sales went from $6000 a week to $8000 within a month.”
The bottom line question, of course, is why did this happen? According to Roberts, the reason is quite simple. As the Newport store manager she opened the doors at 9am and closed them at 5pm, in line with company policy. As a franchisee, however, she was keen to capitalise on the buses from Wynyard Station that dropped off countless commuters from the CBD at around 5.10pm – people who were actively looking for something to take home, be it an apple pie or quiche for a quick dinner. As a manager, when the doors closed at 5pm any remaining pies and quiches finished up as wastage. As a franchisee she remained open until 5.30pm and reaped an extra $300 in just one half-hour.
Today Michel’s Patisserie has in excess of 300 franchise outlets and is averaging a new store opening every week. Its product range boasts some 190 items of small and large cakes, flans, pastries, pies, quiches and other savouries, with the added value of hot and cold beverages and party items. In addition, Michel’s provides a solution for celebrations such as office and home parties, birthdays, BBQs and any other special event. It has won the Franchise Council of Australia’s Franchisor of the Year award in 2001 and 2003, opened stores in Shanghai, China, and is on the cusp of serious expansion into New Zealand.
“We are really ramping up,” Carroll confirms. “In New South Wales alone we will have 190 before the end of the financial year and over the next few years we believe it can probably accommodate 260. Given that extrapolation with regards to population, we can do one per 25,000 people around Australia, meaning there is no reason why we cannot expand to a national total of 600 to 700 stores.
According to the Noels, a fundamental in successful expansion is site selection – and they have not always got it right.
“In the early days we tried to go into fashion precincts, and there was one site in particular in Parramatta that we were especially committed to. We sat there for days on end with counters just registering the sheer number of people passing by. Eventually we realised, however, that it was a fashion precinct – people simply were not thinking about food. We have traditionally worked best when hooked outside a major supermarket, although more recently we have established a significant presence among the strip shops.”
With Noel Carroll on the national board of the Franchise Council of Australia and with a large percentage of his business based in shopping malls, he inevitably has some very strong views on the long-standing issue of retail leases.
“Over recent years we’ve seen businesses come into centres prepared to pay any rent whatsoever,” he says. “They come in waves – the mobile phone kiosks and before them it was the coffee chains. Now it is the juice companies. They may have 85 percent gross profit margins but in paying exorbitant rents they set a benchmark. Some people may call it supply and demand, but they set a benchmark whereby in paying around $4000 a metre the centres then come back to the butchers, bakers, fruiterers and patisserie operators and demand the same rent. We’re prepared to open our books and show that our franchisees are not operating at 85 percent profit, but still we get these exorbitant rental increases. I believe the trend will inevitably flow back the way of the retailers, but at the moment all the bases are stacked in favour of the centres. So when they ask us for our turnover at the end of every month, we have to give it to them, and when the turnover is high their first response is to bring a competitor in next to you. I certainly do not believe we should be giving them our figures at the end of every month.”
Michel’s is now such that it is in a position to turn down sites on account of leasing costs, and it has not hesitated to do so. Both Noels recognise, however, that there are many other franchise operations that because of lack of bargaining power, are not so lucky.
“We have so many stores now that we are in a position to benchmark and refuse to pay any more than $1900 a square metre – take it or leave it. Unfortunately, some of the newer franchises aren’t and they just get railroaded into things. For us, lease prices have not been an impediment to growth so much as infrastructure. For example, we’ve had to move our bakery facility four times because we’ve grown out of it.”
Leases aside, both Noels believe franchising is geared for a sustainable boom, this despite the currently high employment rate. True, with close to full employment many people might choose to stay in their jobs, but there are just as many seeking lifestyle change and the chance to reap rewards from their own effort, they say.
“The other factor helping franchising is bank cash flow lending, something which has really only come about in the last three to four years. No longer do you have to own your own home and have half a million dollars in the bank to own a franchise. Nowadays potential franchisees need only gather some collateral and as a result we are finding that a lot more younger people are coming into the system,” Carroll adds.
“These people haven’t just bought a job,” Roberts notes. “They haven’t been retrenched at 55 and don’t necessarily have a lot of money. For them franchising is a high-energy proposition and they have fire in their belly.”
In the case of Michel’s this is just as well, as neither Noel shirks from the fact that running a franchise can be hard work. There is a driving need for franchisees to be behind the counter working in their business, as well as on the business. Well-developed people skills are essential.
“From day one we have always said there are two things needed to run a successful Michel’s Patisserie,” Roberts says.
“We call them the ‘Two Ps’ – personality and product knowledge. We can teach to instil product knowledge, but we cannot teach you to have a personality. It is a fact that turnover has doubled in stores where somebody without sufficient people skills has been replaced by a franchisee who has.”
What, then, do they identify as the key attributes of a successful franchisor?
“I think one of the reasons we have been successful is that we have always listened to our franchisees,” Carroll explains. “I’ve seen franchisors come and go over the last 17 years, some of which start up and straight away think they know everything there is to know, insisting that everything is done exactly the way they say. In contrast, we have always been good listeners, and that is important. Our franchisees have access to us or other senior people within the system, and we have always been prepared to help people who are prepared to help themselves.”
Like his business partner, Roberts accepts that neither of them have a monopoly on good ideas, and as such listening to the views of those at the coalface is an important way of constantly developing the system.
“The cream comes to the top, and we certainly encourage entrepreneurial franchisees to have their say,” he states. “As such, we bring them into a franchise advisory group where every six weeks they will meet with the management team and advise us on their views regarding the direction of the business, new products and so on.
“Franchising should not be about suppressing entrepreneurial spirit, but at the same time we recognise that there are also people who join the system because they want leadership and are prepared to do everything exactly the way we say. There are many others, however, who can and do add to the business.”
The two Noels might well listen to their franchisees, but they did not heed the advice of two of franchising’s fast food juggernauts, McDonald’s and KFC, when it came to expanding into the People’s Republic of China.
“They said to us do not go there, because just when you reach a stage where you think you are doing alright, the government will change the goal posts. As it turns out the government does in fact change the goal posts, although it is gradually getting better from that point of view. Still, it is not easy. There isn’t much transparency and it is hard to get information out of there. Even so, I wouldn’t call it a bad experience. In fact, it has been tremendous in the sense that it has been our first overseas sojourn,” Carroll says.
As Michel’s Patisserie ramps up its international expansion, it recognises that both the model and the product will require a certain amount of tweaking.
“Every country will be different,” Carroll acknowledges. “In China consumers seem to have a sweeter palate, and even in New Zealand people do not eat identically to us. Canada offers tremendous opportunity and Bakers Delight, the principals of which are good friends of ours, tell us how they are going. Bakers Delight had to rebrand under the Cobs banner, but I think we are registered all around the world. In the case of the US we will definitely go to California before the East Coast, quite simply because it is much closer.
“We would also be reluctant to do business with people we don’t know. Somebody from here would go to Canada, and likewise the United States. The people on the ground in New Zealand are an ex-franchisee and former bakery manager from Sydney who formed a partnership for the NZ launch.”
At home, of course, the Noels have also expanded beyond their traditional turf with the acquisition of the John Brennan Hair and Wellbeing franchise systems. Noel Carroll explains the strategy:
“Amalgamation seems to be a trend of the future. We recognised a few years ago that we had a particular skill set with regards to rolling out retail chains, and of course once you have done it once… We now know all the landlords very well, we clearly know retailing, and we certainly know store fit-out. It really doesn’t matter what sort of store it is, the key is in knowing what sort of people fit the store. With Michel’s we had the infrastructure in place insofar as marketing, customer service and training were concerned, so we decided that if we could find another niche in the market with a point of difference, we would do it all again. We knew there would be no point bringing out another juice bar or mobile phone retailer, but an untapped niche in the market was an attractive proposition and something I think you will see more of in the future – the bigger chains owning more brands. Multi-brand ownership in franchising has some tremendous benefits, and in the case of John Brennan, we recognised an opportunity in that full service hairdressing has not to date been done very well.
“We would never be interested in something that we could not roll out nationally or possibly around the world, and John Brennan with a small chain of 15 hairdressers fitted that bill. It needed capital and mentoring from people with experience, and we could provide both.”
The two Noels, it can be said, are now looking to the future with a very real sense of ‘wellbeing’. l
16-May-2006