There are approximately 1,300 franchise brands operating more than 78,000 franchise outlets in Canada — generating more than $68 billion in revenue every year. More than one million Canadians are employed directly or indirectly by the franchise sector, making it one of the largest employers within the Canadian market. But while it may look like more, a little more than 40 per cent (31,200) of franchise units in Canada are in the foodservice sector. Of those, 3,800 operate Tim Hortons locations; 1,800 operate McDonald’s locations; 2,000 operate MTY locations under 30 brands; and 1,000 operate Cara locations under eight brands.
These four companies alone represent more than 25 per cent of the franchise units within the restaurant sector. With the addition of the other major operators such as Burger King, Wendy’s, Yogen Früz, Boston Pizza, Pizza Pizza and The Keg, it becomes apparent that approximately 10 restaurant companies are operating more than 50 per cent of the foodservice franchise units in Canada. The logic here suggests the remaining 50 per cent of units (approximately 15,000) are operated by as many as 260 to 300 brands — or about 52 units per brand. Many have five units, some have 10, 20 or 30 — but all are considered small relative to the overall market.
Some brands are new, having only built a few units to date, but many, if not most of the brands are long-standing concepts that have failed to grow at a pace reflecting the top organizations. So what do larger operators have that the smaller ones do not? They know how to choose their franchisees and make a match that will last.
Finding the ‘right franchisee’
For franchisors — and for potential franchisees looking for a new opportunity — a matchmaking process that assesses a variety of personality and business acumen-related matters is an important decision-making tool. A bad franchisee fit usually ends in termination or court; burns a lot of emotional and reputational capital; and is a waste of time and money for both sides. Investing in finding the right franchisee — and making sure your potential franchisor is one you can live with — is determined by the effort and strategy put into vetting franchisees.
Know Thy Franchisee
To set up a fully integrated franchise system that supports franchisees, brands first need to set up a ‘franchisee profile’ — an outline of the qualities and factors the franchisor believes would result in a ‘best fit’ franchisee.
First, a franchisor needs to draft a set of criteria outlining key characteristics of successful performance within the company. While these criteria are not part of the current required Franchise Disclosure Documents, this type of documentation can be used by both parties to fully understand the workloads, responsibilities and accountability necessary for the potential franchisee to succeed. The franchisor must clearly inform the franchisee about the work to be undertaken and the franchisee must fully understand these criteria before signing on the dotted line. While small franchisors with fewer than five units may have difficulty establishing hard benchmarks, operators with 10 or more units can examine their current stable of franchisees and establish successful characteristics — helping them formulate a better profile going forward.
Additionally, it is imperative to look at whether the potential franchisee is going to be compatible with your system. For example, will they provide the required hands-on leadership at the store level? If you can define what that means to your firm, you can outline the leadership role in detail and assess the potential franchisee; and they can determine if the criteria is suitable to them on a long-term basis. If everyone knows the demands upfront, there will be fewer differences along the way.
Finally, once the system is large enough, current franchisees can be segmented into top, middle and poor performers and marketing and recruitment efforts can be focused on clearly defined groups of potential franchisees meeting the ‘top performer’ criteria. Identifying what makes the top performers successful provides an opportunity for franchisors to retrain poor performers using the successful criteria of top operators.
In a recent article in the Fall 2015 edition of The Franchise Voice, Peter Druxerman, VP of Druxy’s Famous Deli was quoted as saying, “We spend too much time focusing on the financial side of the transaction, rather than the people side. Franchisees and franchisors need to think carefully about matching personal mind-sets, philosophies and goals with corporate philosophies and goals.”
Only the Best Will Do
The financial side is easy; either the franchisee has the money or they don’t. That is much less relevant today as the focus shifts to identifying prospects who ‘fit’ the corporate profile. They have a similar personality, pay attention to detail and have strong leadership skills to drive sales by engaging both customers and staff — all while being able to manage costs.
The closest match to your franchisee profile is likely the best operator. In some cases, a good franchisor sees the potential in a franchisee who does not have sufficient funding. In those cases, it has been shown that helping finance the odd franchisee inevitably results in a franchisor’s best franchisee.
As the franchise system evolves, brands can easily modify franchisee profile guidelines to meet the need for different types of franchisees. Initially, more entrepreneurial risk-takers may be needed, while later in the life of the franchise system those who are able to perform within a more complex set of guidelines will be key. As the number of franchisees grows, even if they are all ‘top tier,’ some will always outperform others, allowing the franchisor to continually modify and strengthen the franchisee selection process.
Franchise success is based on a number of factors, but one of the most crucial is potential franchisees must share the franchisor’s philosophies, goals and mind-set — allowing both parties to drive toward the same goals of success and growth.
Doug Fisher is the president of FHG International Inc., a boutique management consulting firm specializing in the foodservice and franchise sectors. He specializes in franchise development, master planning and litigation support. The firm’s clients range from independent restaurant operators to the country’s largest and most successful franchise companies.
By: Douglas P. Fisher
Volume 48, Number 11