Why a franchise owner needs to be in the store
I recently had a conversation with a franchisee of a popular burger brand, which highlighted the importance of the franchisee being hands-on on the shop floor as opposed to having a manager. She was delighted with her new store, having bought it for a fraction of the retail price, she said. Not only was it a bargain, but it was a great brand in a great location – yet it had been run into the ground by the previous management. The franchisor was willing to make a deal for a new owner to get it run properly and achieving its full potential for franchisee and franchisor alike.
It was not as though the new owners were franchising experts or even entrepreneurs – the husband was retired and the wife had been in financial services her whole career. Their motivation in establishing a new business was not uncommon among people of that age – being both under the same roof all day long for the first time in 30 years or so, persuaded them that at least one had to be someplace else. They were completely untested in franchising or running a small business. But what settled it for the franchisor was they were willing to be in the store throughout business hours.
Nor was the turnover that bad. The problem was that the cost of sales was about 10% or more higher than it should have been and consequently it was making a loss, or close to it. This had come about because the previous owners were never in the store. They had another store in another excellent location which has making money by the truckload and their second store had consequently become the ‘poor cousin’.
Turning the store around took a few months and the dismissal of two-thirds of the staff. The first action of the new owners was to review the recordings of the CCTV – yes, everything was recorded and in full view of any management prepared to spend the time looking. The waiters and some of the kitchen staff were found to be stealing, with no management worth mentioning to supervise. Later it was found that the staff had a scam going to steal cash payments, and this was also uncovered from the CCTV.
With the dishonest element eradicated, a new culture permeated the store and the new owners could now swap their ‘policeman’ hats for ‘business owner’ hats and began marketing the business. Turnover has increased and the margin reverted to the norm – all within about three months. The new owners are happy, the franchisor is happy, and perhaps even the previous owners are happy as they are no longer making a loss.
Owning a franchise is not a passive investment strategy.
Even well-oiled franchises geared for multi-unit ownership require active monitoring and involvement on the owner’s part. In fact, successful multi-unit franchisees often employ their own management teams to mirror that of the franchisor, including operational, HR and training support for their stores. Most franchisors require active franchisees and will include that requirement as part of their franchisee selection process. If you are looking to invest in a franchise, consider the time and commitment it will take to make a success of your franchise.