Nicola Mills, chief executive of franchise brand manager Pacific Retail Management, has just returned from France, where she has been helping launch the first French store of her company's Go Sushi chain. Pacific Retail, which has turnover of more than $9 million, supports four franchise chains in total, including Kick Juice Bars, Love Coffee & Crepes and Beard Papa.
Today Nicola talks to us about expanding overseas, being caught out in a takeover deal, and how franchisors can do a better job of supporting their franchisees.
Tell us about expanding into France. Are the French big fans of sushi?
Well, two French guys Arnaud and Remi approached us. Sushi is a few years behind in Australia. Australians are adopting sushi; it's almost becoming a part of our everyday food. But the French, it's fairly new.
So they saw an opportunity and came and saw us and said 'can we get involved and can we start it over here'? So we actually own 15% of the company as well as being a master franchisee which is good. They've done a deal with Kinepolis Cinemas over there, which are throughout Europe so it's France and Belgium and so on, so they've got the rights to having sites in all the cinemas throughout Europe and exclusively France.
The first one's been open five weeks and it's doing really well. We sell smaller samples because a lot of people are coming up and saying 'I haven't tried it before and can I try little bits and pieces'. Then they'll come back and say 'that's my favourite and now can I buy the full roll'. And so it's been good, it's been really good. The next step is to open up some more and start rolling them out through Europe.
So how did two guys from France come across this brand?
That's a good question. Our website – how everybody finds everything these days. They liked the look of Go Sushi, they travelled over to Australia, they looked at a number of different outlets, made a few phone calls and we were able to do the deal with them. I mean it took probably about 18 months to do the final deal with them and we could work together. They came to Australia a couple of times and I met them in Hong Kong and it all worked out in the end.
And is this your first sort of foray overseas?
No, we actually have a master franchise agreement with Kick into India, which is obviously a very different market. We did a master franchisee agreement with an Indian partner about three years ago. He's bought five sites in India, but the GFC hit and he stopped building anything. So the site's are actually sitting there at the moment and he's kind of starting to recover, so the sites will now start getting fitted out and start opening.
We don't actually focus on the international business. While it's very nice for the ego to say that we're in France or we've got an international agreement into India, I'm very much into looking after our own backyard first, let's become a success in Australia and then see what we can do internationally. Because you can spend a lot of money on international and you don't have a lot of control and you're so far away.
So can you just give us an idea of the size of Pacific Retail Management now, particularly in Australia?
Well we're actually quite small - we've got 30 outlets. We own three brands and we manage another brand for someone else which is Beard Papa Sweets, but we own Love Coffee & Crepes, Kick Juice and Go Sushi.
We've just taken Go Sushi through a rebranding process, so we've spent quite a lot of money just doing a whole lot of consumer research, doing interviews with our franchisees, doing interviews with our suppliers, with my team, with head office. Go Sushi was a company I bought back in 2008 and it doesn't really have a story or a heartbeat. It has good products and it's fast and quick, but we're not really making enough of an impact.
So the new brand that we've created is very exciting. We launch that to the franchisees next week and I think that will make quite a big impact in the market and it's based on what consumers are telling us they want from sushi and what they want to see and where we think there's a bit of a hole in the market.
Go Sushi will be our champion brand essentially. We've only got three stores of Love Coffee & Crepes and there is an interesting story there. When we bought Go Sushi back in 2008, we thought we bought Go Sushi and a brand called The Crepe Cafe and that was a master franchise. Again we didn't buy the trademark for The Crepe Cafe, it was a master franchise agreement but as it turned out the master franchise agreement had been terminated about three months before we bought the company, but they didn't mention that. So they showed us all the paperwork, did all the due diligence and had all the signed agreements and all the proper documents and so on and so forth and we bought the company, we thought, and two weeks later we got a letter saying who are you and why are you using our logo?
So Love Coffee & Crepes was created as a bandaid at that time and we kind of worked through all the legal implications of that. But we're actually now getting a lot of enquiries for Love Coffee & Crepes and a lot of people are interested in it. So we need to start doing a bit of work on that and developing that as a full blown brand. The guy that we bought it off I found out later he'd been in jail for two years for fraud.
Did the episode teach you a bit about due diligence?
Well you can imagine every lawyer I speak to and accountant, I get that tsk, tsk, tsk, you clearly didn't do your due diligence properly. You can imagine what I get. We're about to make another acquisition and that hopefully will go through in the next four weeks. And I've checked that the owner has been in jail for fraud and are we checking all the documents!
But there's just a point that if people lie, they lie. Sometimes you can do lots of due diligence but people lie or they do fraudulent things. So I think it's more about the contracts that you enter into. The next acquisition has a lot more targets built into it and little bit less money up front. A lot more money is based on what you're telling me the stores are doing is actually what happens. If they do, we'll give you more money and if they don't, we won't. So it's just building it into the contract I suppose.
You mentioned the GFC before and how it hit India. What was the effect in Australia on your business? The franchise sector seems to have come through it pretty well.
Sushi was great. Because we were a lower priced product, our sales went up. So the GFC hit and more people were buying sushi, it was good value, it's healthy, you still buy your lunch. So people stopped buying at the higher end, so it actually had a very positive effect on us. So no complaints from me about the GFC.
And are you noticing a further pick up as the rest of the economy hits a recovery?
Because Go Sushi is still in growth we're seeing our numbers improving year on year, our turnover is improving year on year. But having said that, some of our competitors are starting to do a really, really good job and I don't think we're doing as good a job as them. So that's why we've just gone back to the consumers, talking to them, what do you need, what does the customers want?
Like I said we've just done a whole lot of work on that so that we don't get left behind because you can get complacent and because our sales have been going up year on year it all looks very nice on the board reports. But if we don't keep up with what's going on, we'll suddenly ask why have we been beaten?
You're a different sort of outfit I guess in that you're managing a few franchises. You're dealing with a number of franchisees with a number of different relationships and backgrounds. What are some of the keys to managing a franchisee/franchisor relationship well? We've just seen a study suggesting 30% of franchisees don't trust their franchisor. I would have thought the level of trust would have been quite high given how closely both parties rely on each other.
There's a book by Greg Nathan, called Profitable Partnerships. It's an excellent book and I think he addresses the franchisor/franchisee relationship very, very well. And he talks about stages that the franchisee/franchisor relationship goes though. It goes from the really excited to be involved with you to it's all about me, what are you doing to help me and then suddenly why do I need you and now I've learnt all this, why am I paying these royalties? It just goes through all these stages that a franchisee goes through, a bit like growing up as a child; I need you as a baby and then as adolescent I get a bit more independent and then as a teenager, well dad you're stupid, I know more than you and why should I listen to you? And then you hopefully get into that adult relationship where you can relate to each other again.
Franchisors and franchisees are a bit like that and I think probably you find that 30% of those franchisees, they'd been at different stages of the relationship. I think it does come down to all franchisors probably not doing enough at the franchisee selection stage. The people that you bring on board have to actually fit with your culture and your organisation. Do they want to be part of a team or they want to run their own business? Or will they not want to listen, will they want to take your brand, logo and systems and then get on with it and never have to deal with you again?
I think if you were to dig a bit deeper into that survey, you'd find those 30% are probably at those later stages, they're probably at that teenage stage of the franchise relationship. And maybe the right franchisee selection wasn't done at the beginning, enough about well this is who we are and these are the systems we have and these are our expectations and I don't think enough of that is done.
By the same token though, as a franchisor, do you need to try and recognise where your franchisees are in that life cycle, whether they are kids or teenagers?
Yes we do. When they first start their business, they're spending so much money, most of them are just petrified. So they stick with you very closely at that stage because they want to make sure they get everything right.
Then I've got a franchisee and she's got two stores and she's been in the group five or six years. She's very opinionated but she's very constructive, she has a very adult relationship with us. I talk to her quite a bit because she'll tell it to me straight, other franchisees will speak to her and she'll talk to me.
And then I have those that are in the "teenage space" and it's just communication, communication, communication.
So I think you can't treat every franchisee the same. They're all at different stages and their businesses are at different stages.
Tell us a little bit about yourself. How did you sort of get involved in the world franchising? Are you a former franchisee?
No, I was actually the Marketing Director at 2Day FM for many, many years and Assistant General Manager. In fact I was with Austereo for 14 years and in Canberra, Melbourne, Adelaide and Sydney. But I did my MBA through that time and at some point I just thought I just want to run my own business. So I did my real MBA by starting my own business with not knowing a lot and I learnt most of what I know now through actually going and running a business and going through all the pitfalls and dangers of actually running it.
So that was a juice bar?
That was Kick Juice. So started that and then essentially closed it down. I mean we still have a Kick Juice but we don't actually sell it as a standalone concept any further. The rent and turnover just doesn't justify it. But we do sell it as a back-to-back with a Go Sushi. So for example in Broome we've got one site and he pays one lease but we put Kick on one side and Go Sushi on the other. Kick basically pays the rent and Go Sushi is all the cream on the top. But that's where I learnt a lot of my lessons about business, negotiation, contracts and all that stuff you're probably not exposed to when you come out of a corporate job in marketing or whatever you might be in.
Looking forward, I guess the implementation of the Go Sushi rebranding would be an immediate challenge, what about some others? We do keep hearing recruitment of franchisees is an issue for a lot of franchisors, is that the same for you?
Definitely. I think there are a lot of franchisors that are in that 20 to 30 store number and they stop. You'll see a lot of franchisors, they'll get really fast growth, they'll get to 18 stores or 20 stores and be doing really well and then they get to that kind of 20 to 30 stores and it just seems that everybody stops. But I think what's happening there is a lot of franchisors are going out and they're not reinvesting money into the business. So they're not reinvesting into the profitability of the franchisee. If you're a new franchisee and you want to join a group, you talk to the other franchisees and if they're doing okay but they're not doing great or they're not making a lot of money, the prospective franchisee is not going to buy.
I think recruitment of franchisees comes back to the business refocusing on their existing franchisees and making sure that they are doing really well and that they're really profitable. It makes it so much easier to recruit new franchisees because you've got a good story, you've got a good system and people are profitable. But a lot of franchisors are focusing on spending more money on advertising and all of these different things to try and bring more people on. But then they're missing the point which is people will naturally come to the group when you're getting the current franchisees to do really well. So again the whole rebranding, what we're doing is going back to consumers and talking to our franchisees is about making our current franchisees profitable and the rest will flow on from there.
So do you have a target where you'd like to get to from 30 to X number of stores quickly or are you prepared to sort of wait?
I do have a target for pure economics, having 50 stores or more means that the franchisor can turn a profit; having 25 stores or less means you're not. If you're a good franchisor. And good franchisor means that you are actually supporting the franchisees and doing the right thing. You can make money out of having 25 stores or less but that means you're taking all the money out of the business and not reinvesting in it. So franchisors need to have 40 or 50 to actually start being profitable themselves.
Beyond that kind of 50 store number I suppose for me it's actually not about store targets, I don't actually want a lot of stores, I would just like all my stores to be profitable. So if that means we have 60 stores then that's what we have; it's better than having 200 stores and 100 of them are dying or not doing well
Is the percentage of the franchisees that are profitable; is it far off where you want it to be?
The franchisees we've got at the moment, some of them are doing very, very well and some of them are doing okay, but most of them are doing fine. But I'd like to see them all doing really, really well. It works for everybody and that's what our team is focused on.
Source:James Thomson Wednesday, 28 April 2010 09:45
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