follow us on twitter @EliteFranchise find us on facebook connect with us on linkedin google+ page

The numbers game

Written by Dara Jegede on Monday, 03 March 2014. Posted in Analysis

The experience gained from building one prosperous franchise will come in handy for your next opening – but it is no guarantee of success

The numbers game

As a franchisee on the lookout for the next lucrative opportunity, the logical step may be to open an additional unit of the same franchise. After all, a franchisee will already know the ins and outs of that brand. 

However, that’s not to say opening further outlets will be a walk in the park. It’s important to remember that each new territory will bring with it a host of new challenges, not least a different breed of clientele. Therefore, the first step to second-store success must be to have a thorough look before you leap.

“For franchisees it’s about making sure they do their research into the local area that they’re looking to go into,” says Pip Wilkins, head of operations at the British Franchise Association (bfa). “You should carry out the same research you would when first investigating a franchise; making sure it’s affordable and, if there’s competition, ask yourself ‘can the market take another store?’”

This is the approach Murli Mulchandani and his partner Rikesh Nichani took when opening their second Mail Boxes Etc. store, a delivery franchise, in Mayfair. “We did our numbers,” says Mulchandani. “We looked realistically at what we believed the store would be capable of doing and we moved forward cautiously.

But the big motivator to open another store was when we found the correct location.” For Murli and Rikesh, the location and size of the store for their type of franchise was particularly significant. “We would study the location at different times of day, and different days in the week,” says Mulchandani. “You look at whether the area is more residential or has more businesses and whether it is near transport links.”

Once your research is done, Wilkins believes having a good relationship with financiers is next on the check-list. “With some networks, a multi-unit franchisee might be buying an already existing business, perhaps from a fellow franchisee,” she says. “They would have figures they can take to the bank and say ‘this is what this business has already done, I want to buy this as a resell opportunity and then move on to purchasing with bank funding’.”

So the banks are on your side but more importantly the franchisor needs to see a successful track record. For Kate Lester, founder and owner of Diamond Logistics, she expects exponential sales growth in the franchisee’s already allocated area. “Beyond this, franchisees should be sales-driven individuals determined to build their own businesses,” she says. “They’re prepared to go and knock on doors and generate the business. They’re quality led and 100% proactive when it comes to client care.”

Ian MacIntosh, CEO of RED driving school, believes that retaining customers should be a key priority for franchisees, and that reputation is critical. “For the driving industry giving good service and being a good instructor go hand in hand on how a franchisee can grow their business.”

As with a lot of things, part of securing success is exercising due diligence and making calculations but until you open the door to trade, you will never know the direction things will take. Establishing a proper structure is therefore crucial as far as Wilkins is concerned.

“Your role changes when you become a multi- unit franchisee,” she explains. “The owner becomes more of a management franchisee, managing staff across different regions as opposed to dealing with business issues themselves on a daily basis.”

Mulchandani expresses similar sentiments. “When you’ve been an owner, you’re used to being in complete control because you’re there all the time,” he says. “But the more stores you have, the more you have to step back and learn to manage and have procedures in place for checks and balances,” he says.

A franchisee can expect support from a franchisor in such aspects. From managing, recruiting and training staff, Wilkins advises that the franchisor should be on hand to assist with all areas. “They would have training structures in place to take on franchisee staff and make sure that they’re able to run the business the same way,” she says.

Having opened several stores, Mulchandani found they had a degree of autonomy, but help and guidance was available when it was needed.

For Lester, with Diamond Logistics’ three-day training programme and 90-day sales setup programme, the franchise provides a massive amount of support for franchisees right from training. “Franchisees will know exactly what they have to do day after day in order to get the volume of business that they need,” she says.

Ultimately it’s in the franchisee’s hands. And with greater numbers comes greater responsibility – hence a vital skill in assuring your success will be the ability to manage your growth. Mulchandani elaborates: “When we opened our second, we divided up our roles and each partner took primary lead on one particular store,” he says. “We took on some staff for support in our individual areas but as things have evolved, we now manage across four stores.”

It’s not all work and no play however as running multiple units can have some decent recompense. “You’ve got stores that are very similar in make-up, design and outlook. It’s a bit like having four sisters or brothers. They’re not the same, but they retain a lot of the same characteristics because they’re from the same parent company. You’re able to transfer the skills that you’ve learnt from the different stores across to the other ones,” says Mulchandani. “So you can deal with a problem in store three because you dealt with it in store one.”

In one scenario, one of their Mail Boxes Etc. stores experienced flooding. “It affected our business for a period of time but because we had other stores, we were able to shoulder and share that burden across the business as a whole.”

Increased profit is an obvious benefit from having additional stores, but it is not always that simple. “There aren’t as many economies of scale because you’re not dealing with one homogeneous thing,” says Mulchandani. “You have four distinct locations so you physically have to move stock around, which can be both expensive and time-consuming.”

Above all else, Wilkins advises a franchisee looking to expand to take note of the training, advice and support that the franchisor can offer. “They have seen and helped franchisees do it before,” she comments. “I’d also make sure that if you’re taking on a second area that you can afford it. There’s no point in over-stretching yourself.”

Ultimately, as a franchisee sets about expanding their portfolio, it helps to remember that quality almost always trumps quantity. “It’s better to have four good stores than six mediocre ones,” Mulchandani says. “If you’re doing well and are happy with the number you have, you should only add to that if you think it will improve things and if you the effort involved will give you the return you’re looking for.” 

 

About the Author

Dara Jegede

Dara Jegede

Jegede recently left the London School of Journalism having previously embarked on a soul-searching stint in the city of love. That's Paris, by the way.

Affiliate Member

Strategic Media Partners

<