What are you doing to beat the recession

The R word is one step on from a downturn. Whatever the economic definition is for most of us, times are tougher than they were a year ago.

Of course some franchisors are claiming increased custom in this challenging year and for some this will have come about through careful planning. Others are more opportunistic and have picked up business as it comes their way. We’ve had stories of straightened businesses what are franchisors and franchisees on the front line actually doing to beat the recession?

Victorian English author Rudyard Kipling had some sage advice in his poem If: If you can keep your head when all about you are losing, theirs....It isn't a bad, premise. Despite all the negative press, doom established companies that should weather any storm being swept away in the flood of financial difficulty, it is possible to survive an economic crisis. It is possible to grow a business in a time of financial caution.

Franchisors who take a magnifying glass to their business and work out where they need to be when the recession ends, how to cut costs in the meantime and how to build business will have a head start over those taking a short term approach of cutting costs.

Like many home lenders in the market, the past 18 months have been challenging times for Rams Home Loans with new ownership, new management and a tough economic environment. However, despite the general downturn in the market, Rams reports the business is performing well. While many lenders have consolidated, are winding back their mortgage business or leaving the market altogether, RAMS continues to ramp up its offering and prepare for the future.

The company's chief executive officer, Melos Sulicich says: "In the past six months our business has grown substantially. Customer enquiry levels are breaking established highs, we have achieved record sales months, applications and settlements are up. Many franchisees throughout the Rams national network are achieving personal bests."

Restructuring

The business is a specialist home loan lender offering competitive pricing and products through a network of locally owned and operated franchises. The packages it offers appeal to first home buyers, self-employed professionals, first time investors and those seeking to refinance to a better deal.

Now owned by a major bank the financial services franchise is not sitting back and waiting for business. Rather than focus on the product it takes to market it is looking to the franchisees themselves and the structure of the system. A recently introduced new franchise support structure features enhanced field support, induction and learning, remuneration and commissions, IT and Local Area Marketing tools and services. Shortly it will also be launching a new operating model designed to be more flexible and easy to reproduce. This includes building strong relationships and business within local communities.

For example, the remuneration structure for franchisees has been simplified and is now more competitive and able to provide flexible upfront and trail options to meet the individual needs of franchisees depending on where they are at in the business cycle. Rewards have been added to encourage sales excellence.

Its support model has been re-engineered to better suit franchisee results; regional managers have been appointed to be key points of contact for franchisees and to assist with business analysis, site management and financial expertise; sales coaches are also available to assist with setting up the franchise business and training for franchisees and their teams.

Sulicich says the additional support has been well-received by franchisees.

"Now more than ever, we believe we have the tools and capability to achieve long-term growth. We are confident that our vision and strategic approach will continue to bring good opportunities to RAMS franchisees."

Franchisee performance is also the focus for barbecue and fried chicken chain Chooks which is sponsoring its franchisees to complete a Beyond Survival training course worth $25,000 through Westpac.

Chief chook Steve Hansen said the first two modules of the course were completed by most franchisees at the franchise group's first quarterly franchisee conference in February. "The Beyond Survival training course is helping Chooks franchisees to make better decisions based on the knowledge of what their true business position is weekly, not only monthly or quarterly or when they catch up with their accountant," he said.

Business skills

"The course has in particular made Chooks franchisees more aware of the importance of completing a weekly bookwork of profit and loss, and has shown them how to read their balance sheet in conjunction with their profit and loss statements.

"At Chooks we believe it is the perfect timing for our franchisees to increase their business skills as we face the economic downturn and higher competition as people become more conservative with their money."

Hansen said franchisees were better positioned now that they had learnt to be aware of their financials daily and weekly.

"The skills our franchisees have learnt through the training course has enabled them to forecast sales, discover when the sales are not high enough, taught them to look at the margins they have on different products and focus on those items with higher margins rather than those that are discounted, and make their business more cost effective and efficient."

Further support has been introduced at Contours , the women's fitness studio franchise chain that started with one studio in regional Victoria in 2005 and has grown to boast a count of more than 200 studios nationally and a membership of 50,000.

An average of two Contours studios open each week and now more than 40 per cent of franchisees operate multiple units. The brand has been ranked in BRW’s Fast Starters 2008 list.

The user-friendly business model and extensive studio support are aspects that CEO Justin Wilshaw sees as key in its appeal. "Those considering the purchase of a Contours franchise -particularly those with no business or fitness background - are looking for a stable system that will allow them to achieve their business goals, coupled with quality products and services," he says.

Franchisee support

Contours' support for franchisees includes an operating system, support, a variety of revenue streams and an intranet one-stop-shop for all franchisee needs. This e-learning centre provides franchisees with greater tools to train their staff, and the franchisor with a cost effective mechanism for ongoing training of the franchise network

This year franchise support continues apace at Contours with a newly recruited additional support team based at head office and in each state. An expanded training and workshop program is now available for franchisees and their team members across all elements of the business.

Strategic marketing and communications will also play a strong role to ensure the brand continues to maintain its position.

"Our business model allows our franchisees to grow," says Wilshaw. "We proactively recruit as most franchises do but to set ourselves apart from competitors we focus on organic growth. From a headquarters perspective it's always very rewarding to see our franchisees open their second studio - as it's a clear indication of the success of the first studio. While our unprecedented expansion and multiple award wins are certainly great achievements, our proudest moments come from our internal recognition of our franchisees."

John O'Brien, CEO of Poolwerx , regards his market as a lucky one right now. Taking care of the pool is not something that can be deferred, he says; consumers need equipment and chemicals, so people need to keep spending on pools. It has also helped the business that people aren't travelling so much but taking holidays in their backyard.

However, the new equipment purchases were very late to pick up last year, he reports, with the traditional September lift delayed until December. Better purchasing has also been fuelled by better weather.

Looking ahead

While this trend has more to do with consumer sentiment and cautious spending, the fact that PoolWerx has a rolling five year plan has undoubtedly helped the franchisees themselves, says O'Brien.

"We were conscious five years ago of the need to future proof our business. Since then we've introduced the retail side with 60 stores in five years, and three years ago introduced the business to business side. PoolWerx is now a major provider to commercial pools and spas.

This year our mobile side is up 12 per cent, retail has increased 18 per cent and the business to business has grown 28 per cent to the end of February on last year's comparable figures. And we've seen an 18 per cent increase overall.

"We see this as an opportunity to grab market share off individual stores," he explains. "Franchise groups survive better in this climate.

"About 12 months ago we introduced a guarantee facility with NAB for franchisees who haven't quite got the lending ability to purchase a competing store, so we will provide the security to the bank. This summer they've been jumping out of the woodwork."

PoolWerx has addressed leasing issues with landlords, renegotiating leases mid-term if necessary. It has gone down the track of providing a step-in deed for franchisees that allows the franchisor to step in and run the site in the case of franchise failure. This in turn gives the company the ability to negotiate better terms, says O'Brien.

Over the last two years franchisees have been encouraged to be not just multi-store owners but to buy into the fourth generation model. Franchisees can open an anchor store and hub, opening up to four 40 square metre satellite stores within half an hour's drive of the main outlet. Admin is handled at the 200 square metre store and suppliers can deliver to one outlet which reduces their distribution costs and that has benefits for the franchisees. This model allows the brand to reach into much higher traffic areas and it can service both regional and city areas.

Clark Rubber has been preparing for the tough economic times since the summer of 2007/08. Managing director Chris Malcolm spent this time in the UK and France and returned to Australia convinced of the need to take action to ensure the Clark Rubber business was prepared for a downturn.

"From February last year, we could see that sales were declining. At the same time, it was evident that costs were going up – petrol, interests rates, food, etc," Malcolm explains. "We took some action at that point, including initiating some redundancies, however, we were well placed to hit any recession head-on."

What followed for Clark Rubber was beating its sales budget in December 2008. In January, 2009, the business has recorded sales growth of 14 per cent compared to a year ago and it beat budget again in February.

Malcolm is confident he is now well prepared to keep all his franchisees in business through these hard times thanks to a clear strategy.

Firstly, it was decided that Clark Rubber would not actively look to increase store numbers nationally and the resources usually dedicated to new store openings would be moved to support existing stores.

Cutting out non-essential services to franchisees and systems is another move. Malcolm went back to basics and dropped training courses on marketing to the ageing population and how to process a lay-by, and instead concentrated on customer service and financial management.

Tough choices

Staff redundancies have been a hard choice. "It was the second toughest thing I've ever done, because every year over the past 14 years we've increased staff," says Malcolm. There were initially negative responses from suppliers and media but just a few months later some of those people were saying they wished they had done it sooner," he adds.

Sacrificing one of the two retail business managers working in each state allowed Malcolm to introduce a new role in each state to assist franchisees with book work and financial management. "It was a gutsy move," Malcolm believes. "People told us not to get involved in franchisees' financial management because if things go wrong we would be blamed by franchisees. But we think it's worth it."

The company has also consolidated suppliers and negotiated better prices for franchisees by saving suppliers some freight costs.

Like PoolWerx, Clark Rubber has renegotiated leases with landlords. "Thank God we are not in big shopping centres," Malcolm admits. "We have sat down with landlords of some stores that have struggled to take costs out, put the profit and loss sheet on the table and asked for help. Some of the better landlords have acknowledged the problem and been flexible."

While Malcolm expects this year to be tough Clark Rubber still plans to open four stores in Western Australia and says his team is working on increasing sales across the board through working with suppliers to broaden the product range.

"Our priority is to help franchisees get through the tough times. Every franchisee has different needs, some are more highly geared than others. We need to move quickly when the pressure is on."

This article appears in the Franchising Articles section courtesy of Franchising Magazine