28 Feb 2014
Ease of finance sees franchising flourishing at London show, despite widespread concerns over local business partners going rogue
This year's London Franchise Show featured event planners eyeing China and Asia-bound homecare companies, while franchise-owners sought to ensure global brand compliance and offer an increased range of low entry cost solutions.
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At first glance, jet-cleaning stained concrete, laser hair removal and wine festival organisation may seem to have little in common. What unites them, though, is that they were three of the most popular opportunities on offer at this year's London Franchise Show.
Somewhere in between a fast-track enabler for entrepreneurial business people and set of brand handcuffs restricting your every move, franchising has its distinct pros and cons. One key benefit – especially in a still uncertain economic climate – is the perception of a reduced risk that a franchise supposedly offers. With reduced risk, of course, comes easier finance.
According to Matthew Simmonds, Head of Operations for Nomasvello, a UK-based hair removal franchisor, it is this comparative ease of securing backing that is currently driving the franchise sector. He said: "Franchising, as a sector, is buoyant because the banks respect franchising. They'll lend to a franchisee looking to start up their own business in preference to an individual who's just saying 'I want to open my own business'. That's why franchising is such a massive route to market.
"Our model isn't at all capital intensive. The equipment is the most expensive part and that's put through a lease company over five years. So that's a £40,000 start-up cost, of which the bank will lend you £20,000. This will secure you a small opened store and is actually quite a low investment."
Perhaps not entirely surprisingly, it was those exhibitors offering franchises with low initial set-up costs that proved the most popular with visitors. The more capital-intensive franchisors found the going noticeably harder, with many driven to offering cheaper start-up options.
One company that has adopted this two-tier, lower-price option model is Snap Fitness, a Minnesota-headquartered gym business. Explaining its post-recession approach, Darko Vasic, the company's Director of Franchise Development, said: "Before the economic crisis in the US, we had established 1,500 locations in two years. We were the fourth fastest-growing franchise operator on the planet. Then, when the banks started drying up, it was harder and harder for people to get any money.
"Our model is capital intensive in the set up stage. In the US it costs around $250,000, whereas here in the UK it's about $500,000. That's why we're diversifying.
"We've just acquired another brand – a South Carolina business called Nine Round Kickbox Fitness. It's a nine-station kickbox-based circuit training club and it has a much smaller footprint size. It requires an investment of just $50,000-60,000 and, as a result, it's selling like crazy. It involves very little equipment, very little start-up and very few on-going costs."
Even a low-capital outlay franchise is not without its challenges. This is especially true when trying to transplant a proven model from one national market to a region where the concept is entirely new.
One franchisor keen to export its business model to the East, though, is Visiting Homecare, a Florida-based health care service for the elderly and infirm. Fabio Scocimara, the company's Director of International Development, said: "I've been in the franchising industry for 20 years and I've seen many trends come and go. I think this kind of concept, though, the homecare-type business, is here to stay.
"For any market unfamiliar with this type of business, there's a little bit of ground breaking to do, a little education required. There's also tremendous potential. Being the first, being the leader in a market, has definite perks.
"It does require a little more pro-activity, but it's nothing that our individual franchisees don't have to do when they go into any untapped market. As a Master Franchisee you just have to do it on a grander scale.
"We're keen on Asia because of its very large urban markets. We're currently talking to people in Beijing and Japan. We've also had a few approaches from Singapore."
As well as tapping into the huge Asian market another – equally predictable – trend at this year's show was the continuing pre-occupation with all things digital. Online franchises, though, create a whole new range of challenges for both the franchisor and the franchisee.
London-based Property Search TV was seeking franchisees for its online TV presenter-led estate agency film service, but was only too aware of the difficulties involved in launching an esoteric concept.
Explaining its franchise concept, John Hammond, the company's Operations Director, said: "What we're doing is an absolutely new concept. Nobody has done it anywhere in the world. The problem of having something so fresh and so new, though, comes when trying to communicate it to potential franchisees. Then we have to train them, in turn, to communicate it to their own clients.
"In line with our model, initial property viewings should take place online. This is why we do presenter-led presentations, pointing out all the potential benefits of ownership. Vendors should be aware that this is a 'qualified viewing', conducted by someone who already knows the house and knows about the benefits of ownership."
With taking wholly new concepts into wholly new markets probably a gamble too far for many, a safer bet would seem to be transplanting proven formulas into territories where there is a clear gap in the market. This, at least, is what Florida-based Plan Ahead Events (PAE) is banking on, as it eyes China as fertile territory for its event organisation franchise.
Addressing his hopes for the Asian market, Tipton Shonkwiler, the President of PAE, said: "I am interested in looking at China, in particular, because festivals are so much part of its culture. We're keen to take the Plan Ahead brand over there and we think we could establish a real presence.
"We have a proven system. In light of that, we have a process that we go through with all of our franchisees. I think the biggest mistake franchisees can make – both at the single unit level and at the master level – is to try to re-invent the wheel.
"We look to localise in every market that we enter into. We know that there will always be an element that needs slightly modifying. At the same time, though, there is always the danger that newer franchisees will get bogged down with things that are not revenue generating. This means they are not focused on going out and building the brand successfully."
Shonkwiler is not alone in his concerns over franchisees 'departing from the script'. Vasic, over at the Snap Fitness stand, was also keen to emphasise the importance of sticking to the franchise plan. He said: "If you're buying into a franchise, you're buying into an established system. There's no need to re-create the wheel. It's there – do it in the way that it's set out.
"Obviously, every single market is going to have its own nuances. In this regard, we want to partner with franchisees and have them bring their experience – their knowledge of their particular culture – to the table.
"We want to work together to tweak the formula and make sure that it's applicable to India, to Mexico… If there's something that might work well in a particular country, then we want our franchisees to highlight that. If you look at our overall brand, however, no matter where you go, it's virtually the same."
Brand consistency is also important for Nomasvello. Emphasising this aspect of the company's business, Simmonds said: "We're a global brand. We have a strict marketing operations manual. If franchisees don't adhere to that, then we bring them back in line. If they can't do that, then they're not right for the business.
"All of the branded material is ordered online. Franchisees go into the CRM system, choose which poster they want for their centre, press 'order' and it's delivered. All of their details are auto-filled, so they can't amend or update anything themselves."
Although the principle of following a proven, successful pattern is clearly intrinsic to any franchising model, not all franchisors are quite so prescriptive. Clive Smith, Managing Director of Magic Man Global Licensing Limited, a Brighton-based surface cleaning and restoration business, believes in giving his franchisees a little more leeway.
He said: "Our approach is master licencing and, in some cases, in particularly large markets, we approach it in terms of a joint venture. In overseas markets in particular it needs good professional local management to ensure that the service is of a high quality.
"We can export the expertise that we've developed to those individuals, ensuring they're able to build a network. They can then, in turn, franchise that model themselves or go down the subcontracting route. We're not prescriptive about what model they ought to use in any particular country. We're happy as long as we've got committed partners overseeing the service within any given territory."
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The Franchise Show 2014 was held at London's ExCeL Exhibition Centre from 14-15 February. The event attracted some 112 exhibitors and hosted more than 60 seminars.
James O'Donnell, Special Correspondent, London