The future of franchised travel

The rate of change that is sweeping business will put pressure on both franchised and non-franchised travel networks. With more change ahead, how does a travel franchise system face new trends? Rod Young, managing director of Deacons Consulting, explores some trends and the problems they may bring, and asks “are you ready for change?”

The Australian franchise industry is booming. There are currently over 55,000 individual franchises operating across the country, representing over 850 franchise systems.

The announcement by Harvey World Travel of a new franchising model plans to create 80 new franchised travel locations. New franchise offerings are arriving on the market virtually every week and potential franchisees are faced with a more and more daunting question: ‘How do I choose the best opportunity?’ This is not just confined to comparing the offerings of the 850 franchisors that are offering “new and better” greenfield franchise opportunities, but also includes the growing number of existing franchise systems, whose franchisees wish to offer their existing franchise for sale. A look at the numbers may surprise you.

If those 850 franchisors are offering just 5 franchise opportunities across Australia over the next 12 months, in the next year there will be 3,500 new greenfield franchise opportunities put on the market in Australia.

The average franchisee sells their business after 5 years. That means 20% or about 11,000 of the more than 55,000 existing franchisees will offer their businesses for sale in the coming year.

As a result a franchisor now competes with over 14,500 other franchise offers each year.

Challenges ahead

Competing distribution channels are siphoning some of the growth in the travel market away from retail locations so value-added relationships need to be developed and service levels increased just to keep existing customers coming back.

Good staff are at a premium. As a personal service business the travel industry like many other service businesses is finding that the cost of attracting and keeping the best people is creating a potential problem, especially for company-operated networks.

In the travel industry, franchised networks have the potential to put pressure on non-franchised networks as individual franchised shops can operate from a lower cost base with better owner-operators focused on personal service.

Only poor franchisee selection, the relatively soft franchise agreements and lax compliance standards of some franchise networks are allowing the company-operated networks to maintain dominance in the travel sector. Franchisees are often their own worst enemy as non-compliance leads to a dilution of brand value and lost opportunities to maximise buying power.

If franchised networks can organise the power of aggregated buying and confront the compliance issues in their networks they have the potential to really compete with the more disciplined marketing and buying of company-owned networks.

A challenge for both franchised and non-franchised networks will also come from even more intense competitive pressure of growth in both the number of travel shops and the gravitation towards the higher traffic locations that will strip revenues away from existing well-sited shops.

Faced with the competition of 14,500 other franchise offers next year, it is obvious that a serious travel franchisor must strive to be a travel operator-of-choice just to make their current franchised travel businesses saleable, let alone grant new franchises to drive growth. This growing trend will manifest itself in poorer performing franchisees being trapped in franchised businesses they cannot sell unless the brand can continue to compete.

To compound these challenges, travel operators have already signalled that they will reduce commissions and rebates as they face their own competition so margins will tighten further.

Franchise trends

Highly competitive markets such as travel create competition for the best franchisees. A trend towards franchisees migrating to better managed and marketed travel brands will emerge as commissions and margins continue to be eroded by cost-pressured travel operators. As with other business segments the most prominent brands with the most shops, highest revenues and biggest advertising spend will gradually dominate the travel market leaving two or three big players wiping out lesser competitors and many unbranded “mum and dad” operators.

An examination of the spread of franchisees within travel networks clearly indicates that the vast bulk of franchisees are aligned with a small minority of franchisors who dominate the travel environment. The drift of good franchisee towards the better performing brands is a worldwide phenomenon that will be felt in the Australian market.

We will also see the emergence of the super-franchisee who will operate multiple travel shops in a mini-corporatised management system.

Globalisation will attract foreign travel networks with deep pockets into the Australian market via direct entry, Master franchising or single unit franchising. This trend will drive acquisition and merger activity last seen in the Jetset/Travelworld merger.

A travel franchisor will need to build a network and brand strategy built on expert advice to maximise both company and franchisee profitability and operational, buying and marketing compliance. To attract the best franchisees to a travel brand, a franchisor will need to stand above the competition in the recruitment process and will need to prove the value it can offer franchisees to retain them. Having done this, the best franchisees will take the brand a long way to building a strong and successful franchise system.

The outlook is rosy

The prospects for the travel industry look good. These challenges and trends will create opportunities for the better players to dominate their marketplace, for company-owned networks to franchise and both business models to acquire existing networks to create a more dominant position.

The world economies are producing more wealthy people with the cash, leisure time and longevity to enjoy the fruits of their labour and investments than ever before and this will create more travel spend than ever before.

The dominant travel brands of the future will offer ever-new products at keener prices with better, more personal service levels in safer environments.

There are 10 key points that travel franchise systems need to be able to deliver in order to become a franchisor of choice and thereby compete in an increasingly competitive environment:

1. Look good

There is no substitute for first impressions

2. Procure prominent premises

The best retail sites are seen by more people and as a result, trade at higher turnover levels.

3. Ensure franchisees are profitable

Money talks, and the better franchise owners are looking for above average returns on their capital and time.

4. Be seen

Invest money to develop a profile in the media.

5. Make your franchisees smile

The advocacy of a franchise owner is one of the most powerful indicators of franchise of choice.

6. Advertise, advertise, advertise

Plan to spend more on advertising as a percentage of sales than your competitors.

7. Be at the forefront of technology

Have the capability to provide franchisees and their customers with access to all the latest information.

8. Be selective in the grant of franchises

The quality of the people in the franchise network will dictate its success.

9. Listen and learn

By listening to the better performing franchisees, franchisors are able to continually improve the standards and performance of the entire network.

10. Have strong supplier alliances

Supplier relationships are becoming more critical as the big get bigger and mergers and acquisitions occur downstream. Marketing and training support will become critical.

Being a franchisor of choice is integral to the long-term success of a business. The franchise business model creates value by taking advantage of the personal energy, capital and entrepreneurial spirit of its franchisees.

In order to sustain strong growth and successful operations, the travel franchise must focus on compliance but be nimble enough to meet a changing market. Are you ready for change?

Rod Young is the Managing Director of Deacons Consulting, Australia’s premier franchising consultancy. They have been involved in the development of many of Australia’s most successful franchise systems. Rod can be contacted at rod.young@deaconsconsulting.com or on 03 8686 6777