Franchise buyers are becoming increasingly sophisticated and turning to high-quality, top-brand franchise food outlets to obtain maximum short and long-term profit, reports Tony Maddock the general manager of Franchise Selection, Australia’s biggest franchisee recruiter. Here he explains one way that potential franchisees and franchsiors get together…

Franchising: What exactly does Franchise Selection do?

Franchise Selection: We recruit, screen, advise and process potential buyers for our 20 plus selected franchise brands. Our sole business is recruiting franchisees for franchisors. We celebrate our 20th birthday next year.

F: Which brands do you represent?

FS: AllSafe, Battery World, The Coffee Club, Crust, Trios and United Petroleum.

F: What are the biggest changes in franchising recently?

FS: Last financial year we successfully processed more than 200 applicants and our figures confirm prospective buyers have become extremely interested in food outlets. They see good growth potential in changing consumer preference for high-quality, top-brand franchise food outlets.

The change to food outlets really is dramatic. The people we are interviewing prefer food outlets about five to one with other outlets like hardware, homeware and services. It’s one of the biggest changes we have noted in the industry over 20 years.

The buyers are extremely optimistic that food franchising is stable and profitable and food-branding is well established in the marketplace. They see potential short and long-term growth as this sort of franchise is growing in consumer popularity partly because of its guaranteed consistency of quality. People are eating out more in high-quality outlets that have medium priced menus.

Potential franchisees see that the new development of food operation systems has made food outlets very robust, reliable and easily understood. Interestingly buyer sophistication has grown with the move to the food outlets and their simplified operations.

F: What do you mean by buyer sophistication?

FS: Prospective food outlet buyers are touring the various franchised food outlets carefully taste-checking the various types of food available, assessing the physical outlay of the stores and investigating the neighbourhoods. They want to like the food they are actually going to sell; they want to feel comfortable with the food itself and comfortable with the sort of clientele they believe it would bring to their own store.

These people are very aware that their personality should fit the product and vice-versa and are buying because they like the food, the culture and the store. Strong potential franchisees know what they want and are prepared to wait until the right store becomes available in the right location before they buy.

Top of their list are well-located stores, respected brands, high-quality food and the best systems. They are increasingly well-informed about franchise operations. There is a marked growth in franchise buyer’s sophistication at the same time buying emphasis has turned to food outlets.

F: So how do franchisees get together with franchisee recruiters?

FS: In our case we have more than 20 franchisors on our books and they are looking for people who fit exactly their company’s culture, strategies and operations. These companies advertise in print, on the net and in their own stores for potential franchisees.

On that last point a lot of potential buyers become impressed with their friends and relatives stores and then seek out further information in print and on-line about buying similar operations. When franchisors get queries from potential buyers in any of these areas they refer them on to recruiting specialists.

At Franchise Selection we then arrange a meeting with the interested buyers to discuss the possibility of them becoming franchisees. This is the first of an average of four meetings we hold with potential franchisees as they decide if they want to buy. Anyone considering going into business is investing heavily in time and money so we try and establish a business and personal relationship with them.

At the first meeting we painstakingly go through the A to Z of franchising. We find out just what sort of outlet they are interested in – food, services or homewares and then spell out what our brands have to offer: each has different and specific requirements.

It’s important that franchisee entrepreneurship dovetails into the selected brand’s operations; that’s the name of the game. Buyers are increasingly savvy about franchise operations and understand the relationship between franchisee and franchisor.

Our second meeting is usually about finance. Potential buyers take away application forms requesting financial details and are asked for a statement explaining just why they want to be in franchising.

The third meeting is essentially about due diligence and the buyers also present a verified set of financial details. We discuss how they are going to set-up and structure the business and we go through all the legalities of buying the business.

At the fourth and final meeting the franchisee meets the franchisor and they discuss any outstanding questions they may have. The discussion is broad-ranging and almost always ends with the franchisor granting final approval for the new business.

F: Are many people refused approval?

FS: No. The meetings are very thorough and every question the franchisee has about the legalities, finances, operations, staffing and locations have been settled. At this final stage of proceedings less than three per cent of buyers are refused approval.