DC Strategy and super franchisees to the rescue

The 'buy-a-job' crowd of franchisees are being supplanted by business people who want to make real money.

When husband and wife Ron and Donna Kerkvliet sold their Capt'n Snooze outlets in Melbourne and Canberra in 2001, they had 15 years of business experience and enough capital to open their own independent furniture store. But the training, systems and brand recognition of franchising persuaded them to stay with the franchising model. Ron Kerkvliet says: "We feel very comfortable inside franchising."

In 2002, they bought five Athlete's Foot franchises in Melbourne, each turning over about $1.3 million annually. Donna Kerkvliet is now preparing to open an Ella Bache cosmetics franchise outlet in Melbourne. Ron Kerkvliet says operating several Athlete's Foot outlets allows him to employ managers and work on the business, rather than in it - as is the dream of many business owners.

The Kerkvliets are an example of the new breed of super franchisee. Franchising has usually been considered as a way of buying a job for life, or as a lifestyle choice for semi-retired professionals and middle managers. These people are still entering the industry, but the franchising industry in 2003 is more mature and sophisticated. It is attracting and supporting a different kind of franchisee, one who owns more than one franchise outlet or who owns outlets for more than one franchise system.

The founder and chief executive of the PoolWerx franchise chain of pool maintenance vans and retail stores, John O'Brien, says the emergence of the multi-unit franchisee in Australia in the past two years follows a trend in the United States. "I recall meeting a KFC franchisee in the US about five years ago and he had 64 stores as part of his franchise. They are huge businesses within themselves."

In the US, there is a trend toward franchisees holding franchise outlets for more than one franchisor. In regional areas, it is not uncommon for a local business person to operate two franchises - for example, an icecream and a pizza franchise - from shared or adjacent outlets. O'Brien believes that Australia will follow this trend.

O'Brien's PoolWerx has 120 franchise territories held by 80 franchisees; some franchisees own three. "What's happening for us - and it's happening for others as well - is that as franchisees are proving themselves, we'd rather grant extra territories to existing proven franchisees. We'd rather do more business with fewer franchisees and encourage them to be bigger businessmen."

The Franchising Australia 2002 report prepared by Lorelle Frazer and Scott Weaven at Griffith University found there is a growing acceptance of multiple-unit franchisees; 43% of franchisors are encouraging the practice as a way to reward franchisee performance.

O'Brien says that some of his multi-unit franchisees are new to franchising. As his PoolWerx franchise system has matured, more senior and talented business people are interested in buying franchises. "They want a bigger slice of the cake; they want to fast-track and they want multiple areas granted upfront." Such people are very different from potential franchisees who just want to buy a job, or a semi-retired lifestyle. The talented ones arrive at PoolWerx with finance arranged and a business plan in place, according to O'Brien.

The emergence of the professional franchisee is a huge relief to franchisors. O'Brien says that until five years ago, franchising was dominated by the buy-a-job or lifestyle franchisee. "[It is] awfully hard work to manage and grow those sort of people." He says that the lifestyle franchisees were not interested in "scaling the heights" and buy-a-job franchisees always thought about business from an employee's perspective.

Many of the less ambitious franchisees entered the industry in the recession of the early 1990s, during a time of corporate job-shedding. The franchising industry probably has no one to blame but itself for attracting them. O'Brien says that until two years ago, he advertised for new franchisees with an image of a franchisee floating on an inflatable mattress in a swimming pool. Under the picture were the words 'Spend every day by the pool and get paid for it'. He says: "And that's what we got. We got lifestyle franchisees and we struggled."

The pitch has changed completely. PoolWerx now advertises with the slogan 'Empires start here'. O'Brien says the campaign has attracted a different calibre of franchisee - and more of them: the company gets 1.6 franchising inquiries a day and started 45 new franchisees in 2002-03. Average annual turnover per franchise is $200,000. A PoolWerx franchise costs about $70,000.

The managing director of Australia’s leading franchising specialist DC Strategy , Rod Young, has coined a saying after 30 years' experience in the franchising industry: "You get the franchisee you deserve." Young has seen a shift recently from franchisors seeking to sell franchise outlets in order to raise capital to fund their own growth, to franchisors selling franchise outlets to attract quality people into their business.

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