Thursday, May 24, 2018

FRANCHISE: Where franchisees prefer to invest

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

By Wambugu Wa Gichohi

In determining your brand’s readiness to franchise, you need to run some questions through your current operations. The answers will reveal what you need to do before attempting to franchise.

The second area to explore is the market. Is it a wonder the most successful franchises in the world are organized around the basic human needs of food, clothing and shelter? For a franchise network to succeed, its target market should be potentially lucrative and display clear signs pointing towards sustainable growth. Questions to run around the market include the following;

Do you know at what stage of the product life cycle your product is at present? Products go through introduction, growth, maturity and decline stages during their lifetime. A product that is at introduction or decline stage cannot be franchised. Growing and mature products are good targets for franchising but even then, the franchisor must continuously re-invent the product to stay relevant.

Is the market robust and does it show long-term tendency to grow- do the demographics of your target countrywide market make sense? Is the market seasonal, are there substitutes? Do not try franchising a brand selling products needed only seasonally such as during Ramadhan or Christmas.

Is the market immune to fashion vagaries and changes in user preferences? Fashions come and go, so do user preferences. Had you attempted to franchise your hair salon specializing in afro-hair styles, or your apparel and foot ware shop selling “bell-bottom” trousers or “plat form” shoes in the 70s, disaster awaited you. Similarly, though some closed-door discos still exist, most have run out of fashion in many parts of the world, with most revelers preferring facilities with open areas where they can easily interact as they listen to disco-like music from a dee jay.

Is competition strong or united? You do not want to throw your franchisees into shark territory. They will thrive better in a market with many fragmented small competitors than where a strong opposition is united-sharks.

The third area to explore is the current business situation to ensure it is well established, profitable and set for growth. Questions to ponder here include: Has the business survived for a reasonable period? Systems are built over time, at least one year. What a reasonable period is differs between businesses, but you cannot franchise concepts/ideas/dreams and wishes. Trying to do so-some brands are doing this in East Africa-is unacceptable, if not unethical because franchisees would be used to proof your concept while paying you a fee.

Has at least one unit been operated as a cost and profit center away from the mother-business? Running at least one prototype operation this way reveals how markets in different demographics react.

This would independently proof viability or otherwise of running similar units separately and answer the next question. Is the business profitable? Franchisees will only invest where there is proof of profitability experience, preferably for at least the last two years. Also, franchisees seek “quick wins”- how long the business takes to break even, the longer this is, even with high profits eventually, the less attractive it is to franchise.

The writer is a franchise consultant helping indigenous East African brands to franchise, multinational brands to settle in the region and governmnents to create a franchise-friendly business environment.

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