ACCC and how franchisors are selecting franchisees

According to the Australian Competition and Consumer Commission , large and successful franchisors obviously want to stay right where they are – at the top of the tree. Small and medium players want to get there. In many cases they have great products, innovative ideas and bucket loads of enthusiasm. But, like the well-worn romance novel, they want the perfect match – the right person to take on that particular franchise at that particular time.

They also need to know how they are travelling in their quest for excellence. Are they on the right road and, if not, which turn should they take? On the flip side, the potential franchisee is not after a risk-riddled blind date. People wanting to launch themselves into business – many for the first time – want to give themselves every chance of making the right choice. They, too, are seeking the happy ending.

So is there a need for a more regulated system of accreditation?

What do the key players have to say about the potential for introducing a system that would help the matchmaking process and make it easier for all ambitious franchisees to aim for the high standards we have grown to expect from the top guns?

ACCC Commissioner John Martin acknowledges the need for some kind of standardised system.

“I see a need for some clearer guidance and an informal structure that is appropriate. It is important to make things clear for franchisors and potential franchisees,” he says. “With such a system we are talking about mainstream franchises and not the scam ones that are aimed at taking people for a ride. We hope that they stand out like a sore toe to people.”

In the mainstream, the more guidance that can be provided through benchmarking the better, so that mismatching is avoided, he adds.

“The big franchisors need to put the effort in and benchmarking is an important part of that.”

Franchise Point interviews around 800 families a year in that all-important matchmaking process and has represented such well-established companies as Red Rooster , Midas and Goodyear . Boost Juice came to the company with just two stores and now has 150.

Managing director, Michael Anthony, finds it constantly challenging to find enough quality placements for potential franchisees.

“In the US franchisees phone a consultant or broker and receive recommendations based on a phone interview,” he says. “But in Australia people don’t want to make decisions based on a phone chat. They need a framework for excellence because they want to find the right franchise system for them.”

According to Anthony, the company places 120 new franchisees each year.

“The biggest issue is, of the 400 companies that are actively marketing, how do we identify those that are committed to a path of excellence and those that are not? Then there is no one helping new franchisors understand where they are in business and where they need to go.”

Anthony’s idea is to have a system that allows businesses to improve by measuring them against themselves first.

“Any accreditation system should help businesses understand their position. I would like to see them measured against themselves, then against the industry.”

An appropriate accreditation system would help a new franchise understand what it needs to do to create excellence, he adds.

“Plus, it will highlight to the potential franchisor the companies that are already achieving excellence and those that are on their way to achieving it.”

Cheryl Scott, industry specialist franchising with the Australian Trade Commission (Austrade ), says she would support in principle the concept of a system of benchmarking within the industry because so many companies are not export-ready when trying to establish themselves overseas.

“Sometimes it is difficult to get them to understand that there are certain costs involved and a lot of things to consider,” she says. “Having a set of criteria or benchmarks would assist in that process.”

Scott says she would not want any such system to quell the kind of spontaneity and unpredictability that so often makes businesses unique.

“I would like to see any system that is introduced remain flexible enough to allow for individual opportunities rather than becoming a one-size-fits-all model,” she says. “Sometimes companies surprise you because they will succeed and advance in spite of all the predictions.”

It is far easier to open your 20th or 50th outlet in Australia than your first overseas, she maintains. So there are plenty of facets to consider with regards to which accreditation scheme could help.

“People need to ask themselves whether they are ready for the overseas market, not just if they have a suitable product,” Scott says. “They need the right resources, the right people and knowledge about suitable financing and protecting their IP. Some people get carried away with ideas but the more time you spend up-front, the better your chances of success.”

Business is about taking risks and Scott would not welcome an accreditation system that labelled a company totally in or out in the acceptance stakes.

“Success is linked to things like conditions in the market place, timing and having the right people,” she says.

“Having the basic steps laid down would be only one of many factors.”

Franchise Council of Australia CEO, Richard Evans, says he supports any process that assists in successfully matching a franchisor to the right franchisee.

“The days of walking in with a large cheque and the franchisor taking the cheque are gone,” he says. “Small business can be very demanding and if the franchisee appointed is not successful it can reflect badly on the brand. Franchisors are now spending more time in the selection process.”

Evans says there is a trend towards the use of the kind of psychological profiling techniques often used in industry.

“We are really talking about human resource systems and their transfer from private industry into the selection process,” he notes.

Red Rooster national franchising manager, Alan Tulloch, says that as soon as you try to benchmark anything, the important question is always, against what?

“People start to talk about best practice, so then we have to ask what best practice is,” he says.

While it might appear logical to earmark McDonald’s as an appropriate benchmark in particular areas, Tulloch says a comparison with others would be unfair because the company has been around for 40 years.

“Businesses take time to evolve and should not feel bad because they can’t match it with McDonald’s in a certain area,” he says. “People need to realise that McDonald’s has developed its system by learning from its mistakes over all those years. That new business may be the McDonald’s of 40 years time.”

The point is, you can have all the capital and IP in the world but it will not change the important components of successful business, Tulloch adds.

“If you don’t have the appropriate relationships or the mindset, you won’t succeed.”

Factors such as fairness, equity and honesty are the most important when dealing with franchisees and successful matching comes down to thinking carefully about what people like to do, what they understand, the income they need to live and their expectations.

Tulloch agrees a benchmarking system could help.

“Everything has its place,” he says.

No one would expect any accreditation system to provide all the answers and potential franchisees could do well to note Tulloch’s warning that nothing is guaranteed in business.

“All a franchise can do is provide you with the paint and the brushes. The rest is up to you,” he advises.

On the verge of obtaining that very paint and those all-important brushes is Chris Ruggeri, who is currently seeking his perfect match. Ruggeri began looking for a franchise about two years ago but a lack of accessible information led to frustration and disappointment.

“Two or three years ago I really found the franchise industry to be quite tarnished,” he says. “I did not know where to go or who to contact for information so it just got too hard. My search became very much on-and-off.”

Contacting an individual franchise meant being given start-up figures but little else, he explains.

“I was told, for example, that I could get a green site for $400,000 and an established one for $800,000, but that was all.”

While he has found the help he needed through Franchise Point and is now in the final stages of securing a business, Ruggeri says an accreditation system would have helped him “absolutely”.

“I would like to see an A to Z-type guide,” he says. “If you apply for a home loan, for instance, it is so simple because someone works through with you from start to finish. That is what I would like to see.”

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