Thursday, May 10, 2018

Franchising: What ails indigenous brands

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

By Wambugu Wa Gichohi

Results from a Baseline Survey on the State of Franchising in Uganda that I recently conducted (thanks to the Ministry of Finance, Planning and Economic Development for financing this) indicate that a good number of indigenous brands are ready to franchise but owners simply do not know where to start.

The situation is the same in other EAC countries.

Upcoming articles will hopefully convince brand owners seeking to franchise for the first time against taking shortcuts under illusions of overnight success, that often lead to collapse of their franchise systems, if not the brands altogether.

The survey also reveals that traditional businesspeople-particularly of African and Asian origin-are reluctant to pay for professional advice yet hope to reap benefits accruing from such advice, so they take disastrous shortcuts, and have to pay higher later to stay afloat. Others blindly copy what they see elsewhere and hope for similar results.

Some years back, an acquaintance, owner of a local successful school, attended a franchise exhibition in the US and quickly advertised to sell her school franchise in Tanzania.

Her lawyer quickly prepared a franchise agreement which she would use to recruit franchisees.

Needless to say, she wasted resources selling nothing, a fact that would-be franchisees thankfully realized, thus rejecting the invitation to invest. She listened to my advice to withdraw the campaign until we could put her house in order, which never happened and she later asked me to help her sell the business.

After considering other available growth strategies and settling on franchising as the preferred option, you should avoid future failure by taking the challenge of franchising professionally so as to secure the long-term benefits of the model. 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. This and the next few articles will run through these questions.

The first area to explore is the product you have on offer. Questions here include whether the product is unique in some way and of high quality (causing it to have adequate demand necessary to make the business more predictable) and whether some kind of barrier to entry-such as rare skills, expensive equipment etc-exists because low barriers mean overcrowding-and price wars-and vice versa.

Is an on-going supply of the product or its inputs at realistic prices assured? You need to be assured that there are enough suppliers who can compete for your franchise network’s business.

Does the product command sustainable reasonable margins since returns for both franchisor and franchisees are long-term?

Does the product appeal to several market segments, sectors or industries-and does it appeal to several demographic groups within the target markets-the wider the appeal of a product the larger will be its potential target market?

Does it lend itself to ongoing improvements/further development-to keep franchisees interests hooked to the network?

Does it have repeat sales potential? With few exceptions like in the real estate sector where franchising thrives yet only few individuals can buy more than one home in a lifetime, seasonal businesses are difficult to franchise.

Can sales be monitored effectively-you earn monthly royalties based on turnover or mark-ups, hence need to easily monitor what franchisees sell.

The writer is a Franchise Consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment

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