white paper international performance survey may 21 2013

International Franchise Performance Survey White Paper May 21, 2013

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International Franchising Performance Survey

White Paper

May 21, 2013




Introduction In international franchising, all is not well with the relationship of the Franchisor and the Master Licensee. A recent study conducted by Franchise Mind™ finds that 50% of Master Licensees say they would not acquire the master license again from the franchisor. Half the franchisors say that the performance of their Master Licensees was just ‘average’. What causes two parties who created a business relationship for the purposes of expanding a brand to not be fully enthusiastic about their results? What are the potential issues that cause this dissatisfaction? What are possible solutions? This white paper reviews this problem using qualitative data based on the perceptions of the Franchisor, Master Licensees and Consultants to show that this problem is indeed wide-‐spread. The paper also offers possible solutions as well as the Franchise Mind™ approach to create a win-‐win for all parties concerned.

Franchisors not happy with results

+ 50% of Master Licensees would 'not do it again'

Two unhappy parties! WHY?




Methods of Inquiry While conducting educational seminars across the world, Franchise Mind™ works with hundreds of Franchisors and Master Licensees. In these sessions, many of the same concerns are discussed:

• Franchisors are complaining that Master Licensees are not following the system

• Franchisors are complaining that Master Licensees are not growing fast enough

• Master Licensees are complaining that Franchisors are not supporting them and making too many changes too fast without understanding the local market

Franchise Mind™ designed and conducted the International Performance Survey of Franchisors, Master Licensees and Franchise Consultants from March-‐April 2013 to collect more substantive data. Responses were received from 13 countries and represented 9 different sectors of business. The sample size of 50 respondents comprised of the following:

While Franchise Mind™ considers the results of the survey to be good indicators in confirming its premise, scientific and/or statistical methods were not used. The data give insight into potential opportunities for improvement and expansion for all parties in the franchise eco-‐system: Franchisors, Franchise Consultants, Master Licensees and suppliers.

Franchisors (49%)

Franchise Consultants (41%)

Master Licensee (10%)




Key Data The data from the International Franchise Performance Survey have been categorized into three groups: Franchise Consultants, Master Licensees/Country Manager, and Franchisors. The key findings from each group have been highlighted.

Franchise Consultants In many international countries, Franchise Consultants are the first step in the process of international franchising. The perceptions of consultants will likely be based on the performance of their many clients or their observations of the strengths and deficiencies in the Franchisor-‐Master Licensee relationship.

Key Findings Top five challenges faced by clients that franchise internationally:

• Franchisor-‐franchisee relationship • Operational performance

• Financial performance • Leadership & management • Recruitment of franchisees

Franchise Consultants Data gathered to better understand Franchise Consultants who responded. Clients

§ 89% of consultants work exclusively with Franchisors

§ 47% work with both domestic and international clients

§ 24% work only with international clients

Services offered to clients

• 82% Strategic and management consulting

• 59% helping companies become Franchisors

• 59% SOP development

• 59% Operation manuals




Master Licensee & Country Manager We have grouped Master Licensees and Country Managers (either as an employee of the Franchisor or as an independent entity) in the same category as their experience would be similar in nature.

On the satisfaction scale of Extremely Satisfied to Not Satisfied on different criteria Master Licensees answered in following:

Support during launch

Satisfaction with business

Performance of company outlets

Performance of franchise outlets Overall growth of Master License

100% 'Somewhat Satis2ied'

to 'Satis2ied'

On going support from Franchisor

50% 'Not

Satis2ied'

Master Licensees Data gathered to better understand the background of Master Licensees who responded to the survey

§ Have been Master Licensees for 4-‐7 years

§ Affiliated with one brand only

§ Operate less than 5 company owned outlets

§ 50% have 2-‐5 franchise outlets

§ 50% have 21+ franchise outlets




50% would NOT acquire a master license from the same Franchisor

Key Findings When Master Licensees/Country Managers were asked the areas that would lead to improved performance for their outlets, respondents pointed to the following:

o Operational improvement strategy for

franchise outlets

o Mentoring & coaching for the Master Licensee from the Franchisor

When Master Licensees/Country Managers were asked the areas where Franchisor support was lacking, the following major issues are cited:

o Relationship management with franchisees

o Training to become a better Master Licensee

o New products and services specific to the market

o Franchisee recruitment strategy and support

o Customer service

Support Required

Operations

Mentoring & coaching

Support Lacking

Relationship management with franchisees

Training to be better Master Licensee

New products & services speciVic to market

Franchisee recruitment strategy & support

Customer service




0% 10% 20% 30% 40% 50%

Franchise within 1 year

Franchise within 3 years

Franchise more than 3 years

% of franchisors intending to go international

Franchisors intending to go international Franchisors intending to franchise internationally were invited to take the survey to gain insight into their perceptions of international franchising. Could these initial perceptions be a cause for future problems?

Preparations required prior to franchising internationally Franchisors were asked what preparations they needed prior to going international. The responses

0% 10% 20% 30% 40% 50% 60% 70% 80%

Strategy

Legal

Foreign regulations

Localization

Development partners

Operations

Preparation required to go international




50% of Franchisors rank Master Licensee performance as

AVERAGE

Franchisors currently with international operations

Key findings

§ 33% of Franchisors had 5 outlets in their home country

§ 33% of Franchisors had 51+ outlets in the home country.

§ 72% of Franchisors had an average of 10 outlets per country

§ 50% considered the number of outlets per country to be ‘lower than expected’

§ In ranking the performance of their Master Licensees, Franchisors said:

o 50% ‘average’

o 33% ‘above average’

o 17% ‘excellent’

§ In ranking the performance of franchisees operating under the Master Licensee, Franchisors said:

o 59% ‘Average’

o 41% ‘above average’




Top 5 challenges faced with international operations:

§ 75% Recruitment of franchisee

§ 42% supply chain issues

§ 34% performance of franchisees

§ 25% on going training of franchisees

§ 9% initial training of franchisees

50% 'Average'

33% 'Above average' 17% 'Excellent'

Master Licensee

59% 'Average'

41% 'Above average'

Franchisees




0%

10%

20%

30%

40%

50%

60%

70%

80%

Recruitment of franchisees

Supply chain Performance of franchisees

On going training franchisees

Initial training franchisees

Challenges per Franchisors




Number of employees dedicated to international operations:

Methods chosen for international franchising:

0% 20% 40% 60% 80%

Master Licensee

Direct franchising

Joint venture Country manager

Methods of international expansion

Franchisors Data gathered to better understand the background of Franchisors who responded to the survey § 58% of franchisors have been

franchising internationally for 3 years or less

§ 42% were franchising for 4 years or more

§ 67% had operations in less than 3 countries

§ 33% had operations in 4 or more

countries

§ 92% had international development done by internal staff

§ 8% had retained a consulting firm

2-‐5 employees 6-‐10 employees

0 employees 1 employee

0% 10% 20% 30% 40% 50% 60%

Employees dedicated to international operations




Conclusion From the International Franchising Performance Survey several profound conclusions can be drawn. Franchisors are focused on recruitment of franchisees as an unduly weighted measure of success. Master Licensees are seen simply as a vehicle for recruiting franchisees. What gets forgotten in this race for increasing outlets, is the development of the Master Licensee business which includes training, supporting, coaching and mentoring Master Licensees to their fullest potential. It is a problem that can be solved if there is an organizational commitment of time, money, dedicated resources and resolve on the part of the Franchisor. In essence it is a commitment to build a successful Franchisor-‐Master Licensee model. Most Franchisors will agree that the game of franchising is a game of patience, tenacity, persistence, hard work, a long-‐term view and doing many small things ‘right’. When this game moves to the international arena, the same elements are magnified multi-‐fold. As such, success in international franchising can only be achieved by addressing the disconnect between the Franchisor and Master Licensee as evidenced by 50% of Master Licensees saying, given their experience with the Franchisor, they would not be a Master Licensee again and 50% of Franchisors saying that their Master Licensee are average. We summarize the top concerns with international franchising as articulated by each of the three parties: Consultants, Master Licensees and Franchisors.




Summary of top challenges

Challenges per

Consultants

Franchisor-‐franchisee relationship

Operational performance

Financial performance

Leadership & management

Recruitment

Challenges per Master Licensees

Operational improvement strategy

Mentoring & coaching

Relationship management

Training to be better Master Licensee

New products speciVic to market

Franchisee recruitment support

Customer service

Challenges per

Franchisor

Recruitment of franchisees

Supply chain issues

Performance of franchisees

On-‐going training of franchisees

Initial training of franchisees




1. Disconnect on what it takes to be successful. Both the Franchisor and Master Licensees are on different pages in terms of what is important for the success of the business. To franchisors, recruitment is the most important for the success of the business (75%), while Master Licensees consider operational improvements strategy as the most important. This disconnect, on what each party believes it takes to be successful as a Master Licensee, sets the tone for their relationship and leads to 50% of Master Licensees saying they would ‘not do this again’. The responsibility to remove this disconnect and create a shared vision (addressing the balance between recruitment and operations) for the brand must be addressed by the Franchisor.

2. Master Licensees not satisfied with on going support. 50% of the Master Licensees say that they are ‘not satisfied’ with on going support. The evidence is clear on this: Master Licensees want training to be better Master Licensees as well as on going mentoring and coaching. Franchisors on the other hand don’t see these items as being important. As such the entire relationship will be seen through the prism of “I am not receiving the support I require in order to succeed’.

3. Performance of franchisees is ‘average’. 59% of franchisors say that franchisees operating under their Master Licensees are ‘average’ yet aside from identifying initial and ongoing training of franchisees no other items are mentioned as challenges that would solve this issue. While further examination is required to understand why training is a challenge, clues for improving the performance of franchisees may be available from what Master Licensees have listed as challenges: Operational improvement strategy, new products appropriate to the market and customer service.

4. Master Licensees want operational focus to grow brand. Looking at the

seven challenges identified by Master Licensees, we see four being operational in nature, one focused on recruitment and two focused on being a better Master Licensee. This suggests that Master Licensees believe that if operational issues are addressed first than the issue of recruiting franchisees will become easier.




5. Master Licensees want greater focus on their training to be better Master Licensees. Franchisors see the training of franchisees as important while Master Licensees do not see that as an issue but rather their own training as a challenge. This suggests that franchisors who are accustomed in their own countries on franchisee training continue to project the same thinking when going international—a continued focus on franchisee training without the realization that Master Licensees need to be trained to be a ‘Franchisor’.

6. Franchise Consultants have a clear picture. We believe that Franchise

Consultants collectively have identified the correct challenges facing international franchising and have also placed the right priorities to address those challenges.




The Franchise Mind™ approach as a solution Based on the results of the International Franchise Performance Survey, we see several confirmations for our programs, opportunities to emphasize other programs as well as new program development:

1. The Franchise Mind™ curriculum is based on the 4 Pillars to Building a Successful Franchise System. This comprehensive program is the only one of its kind which addresses the exact issues being raised by the survey by all parties. A methodical study under the guidance of an experienced franchise executive provides Franchisors with practical and essential tools for success.

© Franchise Mind Corporation

Successful Franchise System

Replicable system

Dynamic organizational

culture

Success oriented leadership

Six core areas

6 Core Areas

Creating loyal

customers

Successful franchise recruitment

Focused training & support

Franchise unit

excellence

Effective franchise

relationships

Growth oriented business & Vinancial planning




2. The Franchise Mind™ program “Going Global” should be considered by all Franchisors thinking of going international as it provides a systematic approach to prepare for the international journey ahead of taking the plunge.

3. The Franchise Mind™ program “Choosing the right master for me”, for potential Master Licensees to help them evaluate potential franchisors as well as have a clear understanding of their role as a Master Licensee thereby making them better prepared candidate for the Franchisor.

4. The Franchise Mind™ boot camp on “How to operate a successful

Master Licensee” is essential for all Master Licensees as it teaches them how to be a “Franchisor” in their Country. This boot camp covers in great detail the six core areas of the Franchise Mind™ system.

5. On going Franchise Master Mind™ program for Master Licensees

customized for each Franchisor. Through expert facilitation, Franchise Mind™ can mentor Master Licensees to operate at global standards, achieve improved operating results and accelerated growth.

We sincerely thank those that took the time to share their views by taking the survey. We commend them for their interest in improving the performance of international franchising. We hope that you have the opportunity to reflect on our conclusions but at the same time draw your own conclusions for the benefit of your own company.

Franchise Mind Corporation www.FranchiseMind.com

Questions, queries can be directed to: Mr. Harish Babla, Managing Director

[email protected]

white paper international performance survey may 21 2013

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