Is the fast food franchise sector ready for Red Rooster?

It seems strange that a business empire which under one name or another has franchised for around 25 years suddenly announces that it has fully committed to franchised expansion.

But then Red Rooster franchise is an unusual story.

In 2002 former fierce rivals Frank Romano (originally WA-based Chicken Treat) and Nick Tana (originally Big Rooster – Qld)/WA united to ‘buy back the farm’ and secure the Red Rooster operation from Coles Myer.

Factoring in their own networks, this created a consolidated base of almost 350 outlets Australia-wide, and unchallenged national market dominance under the fast food franchise banner.

Since then, they have opened a modest tally of 61 stores and the ratio of company-owned to franchised outlets has remained steady at 70:30. But they have been busy on other things.

The news Tana and Romano brought to the recent Red Rooster convention on the Gold Coast was that after three years of behind-the-scenes restructuring, the path was clear to launch an aggressive franchising program from January 2006.

The announcement was acclaimed and celebrated by the brand’s pool of franchisees, unsettled by years of corporate uncertainty (and remarkably patient with it), however many were asking, “why?”

As Red Rooster franchisee Andrew Russell puts it: “These businesses can be highly profitable. We have strong fast food competition for sure but we have this wonderful niche called ‘Family Meal Replacement’.

Red Rooster provides the kind of meal you would cook and be proud to serve to your family – guilt-free – at a price that makes doing it yourself seem silly. And we flesh out our offering with fast meals/snacks that offer variety and also make nutritional sense.”

“As working franchisees we have always fully understood why the company would want to keep most of the business to itself,” says Russell.

“Every time an outlet comes up for grabs you have existing franchisees putting their hands up for it. So this sudden focus on franchising – this ‘liberation’ – has taken us a bit by surprise.”

Romano explains:

“In the old days, franchising was a means of using franchisees’ capital to get some economy of scale and brand recognition going,” he says.

“I can understand a degree of uncertainty regarding our motives at this point because franchisees know full well that expansion capital simply isn’t an issue for us. The crux is that we’re looking ahead to a time, in the not too far distant future, when the most precious commodity is going to be people.

“We know from hard experience how difficult it is to recruit and keep good operational people and it’s only going to get harder,” he says.

“We need to create an environment in which good people can thrive, be proud of what they do, build significant multi-outlet businesses, make very attractive money both day-by-day and at the end of the game – and stick with the brand.

That’s what franchising brings to the table for us. Stability in terms of personnel. Our strategy is to develop human capital. Our agreements are 10+10, where franchisees, can decide whether they want to move into the second term. This allows franchisees time and confidence to build. In some cases there’s also the succession angle. Growing a business for the kids.”

Red Rooster plans to have at least another 150 outlets operational within the next few years, largely franchised. It already has commitment from 32 incoming franchisees who will take over geographic and demographic ‘pockets’ capable of supporting multi-store operations in the first part of 2006.

Existing national support office staff and franchisees are circling, however Frank is also keen to inject new blood into the network.

“It’s very gratifying to see people who know the business inside out putting up their hands,” he says.

“But part of the human capital approach is also bringing in fresh people with fresh ideas. We see franchisees’ intellect, experience and understanding of various markets as a great resource that many systems ignore.”

“Generation X is now moving into management roles and Generation Y is pretty much unfathomable to anyone who isn’t in Generation Y. In the mix of franchisees and their staffs, we need to umbrella the generations.

“I see significant product development as the Ys move into the business and start telling us that the emperor might have no clothes a few years down the track. I know for certain that we have to make our business welcoming to the Ys as employees and future stars or we’ll have little in the way of service standards continuity.”