Domino’s, Pedders and Wok in a Box: How franchising worked for them

The following profiles were compiled as part of a new Australian Government information pack that aims to

assist small businesses use innovation to help them grow. Clearly, managing for innovation requires strong leadership, an understanding of how people work, as well as a culture of innovation in the workplace, and in this hands-on, how-to guide, the three principals highlight commonsense ways small businesses can manage to encourage new ideas – the basis for innovation.

The new information pack, called Innovation>business>success, has been produced by the Department of Industry, Tourism and Resources and the Australia Industry Group. The pack is part of the Australian Government’s Innovation Awareness Strategy, a $35 million program announced in 2001 designed to raise awareness of the importance of innovation in Australia. The strategy is part of ‘Backing Australia’s Ability’, a major policy and funding initiative that includes $8.3 billion of additional government funding for innovation during the 10 years to 2011.

As all involved in the business sector will recognise, that three franchise systems have been elected as among the very best practice businesses in the country is irrefutable testimony to the increasingly sophisticated and mature nature of the Australian franchising sector as a whole.

Domino’s Pizza : product and process improvements

Background

Domino’s Pizza Australia New Zealand Limited is a publicly listed company that owns the Australian and New Zealand master franchise to the well-recognised international brand. There are 377 stores in Australia, making it the largest pizza chain in the country. Domino’s Pizza has 9,700 staff members and an annual turnover of $290 million.

Domino’s Pizza Australia began in Red Hill, Brisbane in 1978 as Silvio’s Dial-A-Pizza – the first store in Australia to offer home delivery. In 1993 Silvio’s, which then operated 70 stores, bought the master Domino’s Pizza franchise. Under its current growth strategy, the company aims to open 50 stores a year, reaching 418 stores in 2006.

Domino’s Pizza has been able to grow in the competitive high volume, low margin takeaway food market through an innovative approach to research, marketing and human resource management.

The inspiration

Domino’s Pizza managing director, 36 year-old Don Meij, says the pizza chain had a bumpy beginning, with three master franchisees failing during the first decade of Domino’s introduction into Australia.

“In the early days we were trying to save our way to success by reducing our number of break-even stores by cutting our spending on research and marketing,” Meij explains. “Our customers could tell, and by cutting costs we were driving them away. We were a company of compromise but when we stopped compromising and looked at our unique attributes that set us aside from our competitors, we turned the corner and were a success.

“If companies compromise by cutting jobs, research and marketing they are putting themselves at risk. There are whole brands that do not exist today, or that are on the brink of extinction, because they have not been able to survive a cycle of adversity. Every business has cycles of downturns, but you have to come up with innovative strategies to survive these.”

In the case of Domino’s Pizza, sound advice from a Domino’s Pizza mentor in the United States resulted in a new way of thinking for the business. He advised the company to invest in research, marketing and training.

The company, following a series of mergers, now sells more pizzas than its competitors, and Meij has been named Ernst and Young 2004 Entrepreneur of the Year.

The innovations

Many of the innovations undertaken by Domino’s Pizzas are examples of product and process improvements:

· Product development: The company invests heavily in product research through a private food research company, as well as through its ‘Luv Lab’. Luv Lab is the company’s own research kitchen that develops about 10 different pizzas a week to keep the menu changing. Staff members are encouraged to nominate new pizza topping combinations, and are paid a $1,000 bonus if their pizza becomes included in a Domino’s menu. The company also researches trends overseas. A cream cheese, double crust pizza known as Double Decadence – originated in Japan and South Korea. Domino’s menu is planned 18 months ahead, with an emphasis on new topping combinations. Meatosaurus and Kahuna are not found anywhere else in the world, but appeal to an Australian taste for ‘mega’ toppings.

· Marketing: The company also runs its own direct marketing centre – Domino’s Direct – that employs 12 people. The company analyses customers’ purchasing habits and builds them into its direct mail offers.

· Training: Domino’s Pizza Australia runs seven ‘Pizza Colleges’ where managers are trained. An advanced manager training and technology facility will also be opened soon in Brisbane.

· Culture of youth and innovation: Domino’s Pizza employs many young people. The executive management team has an average age of 40, while many franchisees are in their 20s and 30s.

· Technology: The company is introducing a $20 million software package developed in the US that features a touch-screen to reduce errors during ordering, maps with the most direct route for pizza deliveries, and the capacity to introduce online ordering.

The challenges

According to Meij, a lack of market research can be a barrier to innovation.

“Many small business owners have an innate knowledge of their business. They may have grown up in a family-owned business, for instance. At some stage they need to go out and test this innate knowledge of the market because consumer tastes change, or a competitor can come in and take over the market,” he says.

“Ten years ago, 70 percent of Australian pizza sales were of traditional toppings such as Hawaiian and Supreme, but today they only account for 40 percent. Without research and innovation in our topping combinations we would not have picked up on the changing tastes in the market. Today chicken accounts for 10 percent of orders, but 10 years ago chicken as a topping did not exist.

“Research is very important, and it can be affordable. Focus groups and telephone surveys are more affordable examples of market research. A customer survey, for example, may be a useful way to compare your own beliefs with what consumers actually want. You may find that customers are only buying your product by default because it is the only product available at an affordable price. But if you question them about their wants, you may find out that by adding a few extras you can really give your customers what they want.

“We realise the importance of providing proper training and real career options to staff to generate a motivated and dedicated workforce. We try to promote a culture of innovation and fun. This can help generate fresh business ideas to stand out from the crowd.

“We keep reinvesting our profit into future technology, products and training. We are very focused on staff training because if you have happy team members you will have happy customers. While this sounds very simple, many businesses forget that business is about people.”

Meij’s self assessment

· Inspiration: 50 percent

· Perspiration: 50 percent

· Science and technology: 10 percent

· Marketing and advertising, market research and human relations: 90 percent

· Time between idea and realisation: “It took us five years to really get our franchising system going.”

· Lesson learnt: “You have to spend money to make money. Don’t scrimp on quality and service because your customers can tell.”

Innovation checklist

· Invest in product research

· Keep track of changing consumer tastes and trends

· Invest in staff training

· Build a strong and enthusiastic staff culture.

Pedders Suspension : new product innovation and improved processes

Background

Pedders Suspension is a family company that operates an Australia-wide franchise system specialising in automotive steering and suspension. The company – initially called Pedders Die Cast Welding Service – was formed after World War II by Roy Pedder, who had been a welder in the airforce. Pedder, operating initially from his backyard, used his knowledge of die cast welding to recondition shock absorbers that were then made from die cast metal and fitted to imported English vehicles.

Pedder’s son, Ron, started working in the business in 1966 and began running the company in the early 1970s. At this time, the concept of franchising was new to Australia, and he looked to the overseas experience to explore how the concept could work for the then small business.

Pedders also manufactures its own brand of shock absorbers and other automotive products, and runs its own research and development facility.

The Pedders Suspension of today has a turnover of $70 million a year and 45 franchise stores around Australia. There are also 17 company-owned stores and 40 regional authorised dealer outlets.

The company remains the only national suspension franchise business in the country. Pedders also exports its steering and suspension products overseas, and is planning to export its franchise system to South East Asia, the Middle East and Africa.

The inspiration

When Ron Pedder took over Pedders Suspension he was keen to explore opportunities to widen the scope of the family business. He believed franchising offered the business the opportunity to widen its reach and distribute more products into the marketplace without losing control of product quality and customer service standards.

“Franchising was a new concept in Australia in the early 70s,” he says. “We were the first suspension business in Australia to take up franchising. It was a completely innovative business strategy at the time. In all businesses there are opportunities, and in terms of our product, franchising turned our business around. We went from being a business with a turnover of $100,000 a year, to $70 million today.”

Pedder travelled extensively in the United States to see the concept first-hand, but it took more than a decade of planning, legal advice and research to perfect the franchising system that is operated by Pedders Suspension today.

“The reason it took us so long to develop our system was that we had to prove that the format and business plan would work before we could expect someone else to take over a franchise,” Pedder says. “We started by opening stores ourselves and learning through experience what worked and what didn’t. The format we eventually came up with in 1983 is the same format we use today.”

The innovations

One of Pedders’ early innovations was in franchising, but there have also been other important innovations:

New products through research and development: In the 1970s, Ron Pedder saw a gap in the market for shock absorbers that could withstand Australian road conditions. The company set up its own research and development facility in Keysborough, Victoria, where it develops new product lines and components. The company spends about 15 percent of turnover on research and development. About 70 percent of Pedders products are manufactured in Australia. Pedders produces its own distinctive brand of shock absorbers called Pedders Red.

Training: Pedders was the first private company in Australia to be classed as a registered training organisation and offers industry recognised apprenticeship certificates in light vehicle steering and suspension. The course is open to apprentices employed elsewhere.

Branding: Pedders has been able to stand out from competitors by building a distinctive brand, supported by extensive marketing and advertising. The company’s advertising slogan, ‘Straight advice. Specialists you understand and… no bull!’ is widely recognised. Each Pedders store also features the distinctive emblem of the cartoon character, Red Bull.

Building company profile through industry events: The company also formed the well-known Pedders Suspension Rally Team, and was a high-profile competitor in the Australian Rally Championship for some years.

Business plans: “Having an annual business plan, as well as a five-year rolling plan, makes you sit down and physically plan outcomes and the ways to achieve those outcomes,” Pedder says.

The challenges

According to Pedder, one of the biggest challenges for the company was convincing banks to lend money when it embarked on its franchising plan. Because the concept of franchising was new to Australia, banks were reluctant to lend. This is easier now, and banks even offer special franchise ratings for different franchises.

Another challenge has been to maintain an inclusive work culture while the company expands. Pedders divides its stores into ‘tribes’ to create a competitive environment. Pedder also tries to keep meetings small, to encourage staff input.

“It’s important to keep people focused and keen,” he says.

“It’s important to make them feel that they are members of a team, and to keep them excited about what the company is doing. As you grow this becomes harder. We try to keep meetings small, and we try to create environments where people can contribute. It’s very time consuming but necessary if you are to create an environment where people feel they are valued.”

Pedder’s self assessment

· Inspiration: 20 percent

· Perspiration: 80 percent

· People: 50 percent

· Product: 30 percent

· Marketing: 20 percent

· Time between idea and realisation: Ten years to develop workable franchising system

· Lesson learnt: “The most important thing in business is to get the right people. The biggest limitation is finding people who really want to succeed.”

Innovation checklist

· Look beyond Australia for new ideas and ways of doing things

· Adapt overseas ideas to the Australian market

· Invest in research and development to develop your own products

· Marketing can be a powerful growth tool.

Wok in a Box : innovative organisational strategies and new operational processes

Background

Wok in a Box is an Asian fast food takeaway franchise established by Adrian Morrissy, an accountant, in 2002. There are 20 Wok in a Box takeaway restaurants in Australia: 14 in South Australia, three in Western Australia and three in Victoria. Morrissy plans to increase this to 40 stores by the end of 2005.

Wok in a Box sells wok-tossed noodles. While the emphasis is on takeaway, there is also limited seating in each store. The menu consists of freshly cooked Thai, Malaysian, Indonesian, Chinese and Japanese dishes at low prices. There are low-fat meals as well as a children’s menu.

Adrian and his brother Paul run two stores and employ 20 staff, but most of their time is spent selecting and training appropriate franchisees, as well as finding suitable locations for new stores.

The inspiration

Morrissy studied accountancy to provide a solid foundation for his long-held aim of establishing his own business. He worked for one year as a financial accountant for Pacific Dunlop, as well as a management accountant in the United Kingdom for three years before setting up Wok in a Box.

“I always liked food,” Morrissy says. “The idea for the business came during a trip to Koh Samui in Thailand. I noticed that during the day all of the restaurants along the beach there looked similar, but at night some of them really looked fantastic. And I noticed that the ones that looked fantastic were also the restaurants that were busy.”

Morrissy believed there was a gap in the Australian market for Asian food served quickly and cheaply in stylish surroundings. Each store has the distinctive colours, layout and furnishings of the Wok in a Box brand.

“Branding is a very important aspect of the business,” he notes.

“We think we are providing better quality food than other Asian restaurants, and we want people to associate Wok in a Box with this. We want to make sure our customers come back with their friends, and that when it comes to choosing where to eat they’ll see our name and remember the good food and service they received.”

The innovations

Morrissy’s main innovation has been to produce and present Asian food in a trendy environment that appeals to Western tastes. His focus on design and marketing has been central to the popularity of Wok in a Box.

He is focusing on simplifying processes in the kitchen by streamlining the role of the chef in the business.

“We are trying to make the processes easier. In this way, we’ll be able to train anyone to perform this role, rather than having to find someone specific,” he explains.

This is partly in response to a difficulty in finding skilled chefs, as well as hospitality staff in general. To find chefs Morrissy advertised in ethnic media, through migrant employment agencies, and by putting flyers up in respective Chinatowns.

“An ongoing problem is employing and retaining staff, and it is important as a manager to build good relationships with employees,” he says. “One of my chefs said to me when he started working that he preferred to work in a place where he got on well with the manager and had an enjoyable working environment. This meant more to him than earning a few dollars extra somewhere else.”

Another process innovation used by Wok in a Box is a sophisticated point-of-sale system for inventory management, as well as monitoring busy and quiet times.

Morrissy decided to establish a franchise system for the business rather than retain control of each store because it reduced his risk and also made for better running of each store.

“The success of each store depends largely on the customer getting a good experience in terms of service and food,” he says. “A franchisee is most likely to make sure their store is clean, the service is efficient and the food up to a high standard. They have a vested interest. The franchise system is also a way of reducing our financial risk.”

The challenges

According to Morrissy, business challenges included:

· Finding a site and convincing a landlord to take on his business

· Working out what equipment and recipes he needed

· Hiring staff and working out wage rates

· Designing the look and feel of Wok in a Box with a limited budget.

Like many new businesses, Morrissy had limited funds during the start-up phase. He spent six months working full-time in preparation before he was able to open his first store.

“I used my own funds, and my parents helped me get a loan,” he says. “I really had to keep costs at a minimum, but I was selective in where I scrimped. For instance, I didn’t scrimp on signage or decorative features, but I saved money where I could, where it didn’t have any effect on the immediate customer experience. I kept costs down by using the advice of friends, and by buying equipment like refrigerators second-hand.”

Morrissy was quoted $40,000 by a graphic design company for design of the store fitout, logo and menus, but through utilising advice of friends in the graphic design industry and his own judgment, it ended up costing only $1,000. He also paid another company in the takeaway industry to provide him with advice about the equipment and staff he needed.

While this approach was time-consuming, it also led to a detailed understanding of his new business.

As for finding his first site, he prepared mock menus and a business plan to convince his first landlord that his business idea was viable. Within weeks of opening it was making a profit.

Morrissy’s self assessment

· Inspiration: 50 percent

· Perspiration: 50 percent

· Science and technology: Next to zero

· Looking at the business from the customer’s point of view:

· 33.3 percent

· Having good staff: 33.3 percent

· Marketing: 33.3 percent

· Time between idea and realisation: Six months of thinking about

· it and another six months of full-time work to actually prepare

· Lesson learnt: “Trust yourself and trust your ideas.”

Innovation checklist

· Branding and marketing can be valuable business assets

· Seek advice from experts to fill gaps in your own knowledge

· Point-of-sale technology can help you manage efficiently

· Streamline staff roles.

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