Commentary

In 2014 it will be increasingly important for hospitality owners to understand that in order to be successful in the hospitality industry their restaurants will need to standout.

The solution to growing your franchise network profitably and sustainably maybe right under your nose!

When we talk about QSR chains, the consistency and strength of a brand is one of the key ingredients for the success of a business. Growing brand awareness is about customer’s perception and engagement, standardising consumer experiences and maintaining control while growing.

When you think of creating a brand the first things that come to mind are the company logo, the website and advertising.

For franchise marketing campaigns to be effective, franchisees and their staff need to be engaged. Here are five tips to enhance franchisee and staff engagement on marketing and maximise the effectiveness and implementation of campaigns. 1. Engage franchisees in every step of the marketing process

An employer application to change the Fast Food award safety net - part of an initial 2-year review of modern awards by the Fair Work Commission – will soon result in a new payment option for employers and employees for work around public holidays. Fast Food employers and their ‘weekly’ employees – but not casuals - will soon be able to agree to substitute the existing extra time and a half payment for work on a public holiday, with an equivalent paid day off to be taken within 4 weeks, or have an extra day added to their annual leave. Put in another way, currently the modern award provides that employees working on a public holiday get paid a total of 250% of their ordinary rate (275% for casuals). Under the new arrangements, they can work and get paid their standard rate for the day, then get a paid day off to be taken within 4 weeks. If they don’t get to take the day off, they will get paid out the equivalent of the extra day. Cost Reduction Possible – Only By Agreement The upside for employers is that by reaching agreement with a weekly employee, the effective cost to the employer for the work on the public holiday can be reduced to 200%, down from 250%. Some employers have chosen not to trade on public holidays because of the cost of labour, meaning the employer has lost the trade on the day and the employee has not earned penalty rates for the day. The employee and employer are entitled to a fresh choice of payment or time off by agreement on each occasion work is performed on a public holiday. If there is no specific agreement (which should be evidenced in writing for proof purposes), then the default position of the 250% holiday penalty will apply. The change will apply to all non-casual employees covered by the Fast Food Award, but won’t change conditions for employers and employees covered by enterprise agreements, unless the arrangement is already permitted by the agreement. With the decision only handed down on 30 September 2013, at the date of this article the Fair Work Commission is yet to issue the orders making the changed conditions legally effective.  

When asked the question on what are some of the hottest topics in QSR small businesses, one can always stop and ponder, as there are many areas that become the latest hot topic, however there seems to be some basic ground rules that can be forgotten.

Nutrition claims As an industry Dietitian I am always astounded by the number of claims in restaurants that are incorrect or illegal. Choice magazine brought this to light earlier this month with its exposé on FroYo chains. What do you need to know? Nutrition and health claim are defined as statements in relation to a food or property of food. They can be, expressed or implied, via representation, design or information. In Australia majority of nutrition and health claims are regulated under the Food Standards Code (the Code). This year, a new standard governing these claims was introduced. The new standard allows a three-year grace period. During this time both the existing regulations and new regulations are operating. Meaning companies can choose to follow one, or the other, but not both. What can you say? The new standard in the Code splits claims into three categories. Each category has a set of conditions for making a claim. 1. Nutrition content claim means a claim about the presence or absence of, a nutrient, energy (kilojoules or Calories) biologically active substance; glycaemic index (GI) or glycaemic load. For example “low fat”, “Good source of calcium” or “low GI” are all nutrient content claims.

Every franchise is trying to grab media attention, so if you want to see your name in print rather than that of your competitors, you must have a well crafted public relations plan. This needs to cover a wide range of activities across all mediums, and should promote not just you, the franchisor, but also your franchisees, and the company’s products or services. Also, it’s not enough just to devise the plan, it must be implemented diligently and the results should be monitored, so you know what works and what doesn’t.

In a recent decision an agreement approval application was refused by Senior Deputy President (SDP) O’Callaghan, due to concerns that the employees to be covered by the proposed agreement had not genuinely understood and agreed to the terms. The proposed enterprise agreement (ENM Group Pty Ltd AG2013/5581), which would have applied to 7 employees at one fast food site, provided marginally higher rates of pay to the relevant modern award and a casual loading and penalties in line with the transitional provisions. Due to the Better Off Overall Test (BOOT) being a point-in-time test, this meant the proposed agreement would pass the BOOT this year, however the entitlements would fall below the relevant modern award conditions in subsequent years. Of the 7 employees to be covered, five were casual and six were under 21 years of age – likely a significant factor in O’Callaghan SDP’s decision. The Commission was provided with statutory declarations from some of the employees to be covered, which stated that they had genuinely agreed to the proposed agreement. The Company however declined O’Callaghan SDP’s request to present the employees as witnesses, on the basis that as the majority of their employees were university and secondary students, it was not feasible for them to provide evidence. By not facilitating provision of evidence by employees, the employer left sufficient concern in O’Callaghan SDP’s mind that the employees had not genuinely understood the terms of the agreement (and their operation). Despite the Company’s representative providing a number of examples where similar agreements had been approved by the FWC, the agreement application was ultimately refused – with O’Callaghan SDP cautioning both the Company and their Employer Association representative that any proposed agreement, which may result in a reduction of award terms, needed to be supported by substantial evidence that the employees to be covered had knowingly and genuinely agreed to the terms. The Company will need to commence bargaining again if they wish to have an enterprise agreement apply to their site.

From Delhi to Dallas to Durban and Darwin from Da Nang and Dubrovnik to Dundee and Dhaka, familiar franchised food brands dot the planetary landscape in ever increasing numbers. So what is franchising exactly?  In simple terms, a franchise is a successful business concept, which combines the franchisor’s proven product or service, their experience, systems and processes, their marketing know-how and brand, which together constitutes their intellectual property. The franchisor builds a multi-unit network through selling the rights to this intellectual property to investors (franchisees) to operate one or more units. The franchisees in turn operate their businesses under the guidance of the franchisor who is paid an on-going royalty or fee. Franchisees know that if they comply faithfully, the franchise model provides greater certainty than an unproven concept, reduces the risk and offers a higher potential for growth and realising their enterprise value when they sell. This mutually beneficial relationship is secured by a customised legal agreement and maintained by the franchisor’s training, operations and procedures manuals and support. Franchising seems to be growing year on year, why is that? Even when economies are going through tough times franchising remains the growth strategy of choice because it addresses the two fundamental requirements for business growth: raising the funds to expand and finding the right people to manage that growth. As a capital raising strategy franchising is hard to beat. In times when banks are less willing to loan money to small business and venture capital is out of reach for many small operators, franchisee capital comes without loans, interest or collateral, it requires no dilution of ownership and no reduction in control of your operation. And this is just as relevant to established businesses keen to increase sales, expand their reach into new locations, grow their brand and release capital tied up in stock, fixtures, equipment and goodwill. By converting company owned outlets to franchises and offering new franchises, capital flows back into the network, allowing the franchisor to establish new territories, invest in infrastructure and technology and develop the brand.  As an HR strategy, franchising is also hard to beat. In owning and operating their own business, motivated franchisees see the direct benefit of driving sales, managing costs, overseeing their employees and engaging with their customers and their communities. For more on franchising as a growth strategy.  On average, franchisees commit 7 years to the network, which easily outstrips an employee in the food industry who averages less than 2 years’. Hiring and retaining good people in the face of the high cost of training, high staff turnover, workplace relations and escalating labour costs, is the largest challenge facing the QSR sector in Australia today. In addition the right franchisee (and recruiting well is key here) will outperform a company owned and operated outlet in both sales by 15 -25% and profitability by up to 100%1 or even more. But isn’t franchising all about foreign brands taking over Australia? Franchising is a huge part of the global economy. And certainly Pepsi, Shell, BP, Ford, General Motors and McDonalds, Subway and KFC have used franchising as a capital raising, HR, management and marketing tool to span the planet. However over 90% of the almost 1200 franchises in Australia are home grown. Hairhouse Warehouse, Pie Face, OPSM, Total Tools, Boost Juice, Grill’d, Baker’s Delight, Terry White Chemists, Laser Clinics, Red Rooster, Sumo Salad, Zambrero, Coffee Club, Gloria Jeans, Pack and Send and ANZ Mortgage Solutions have all used franchising to grow substantial domestic and in some cases international franchise networks. In fact Australia is one of the most heavily franchised countries per capita in the world. And that’s because we are also one of the most risk averse nations globally, which combined with the fact that Aussies really like to be their own boss, makes franchising such a winner. So where does franchising fit in the QSR sector? Revenue from the franchise sector currently exceeds $150 billion annually or 11% of GDP2. Not only do food operations constitute the largest single segment, half of the all food outlets in Australia are franchised. And even more significantly, there isn’t one large multiple unit QSR food brand in Australia that is not franchised! The entire QSR industry contributes 12.6 billion to GDP3 annually. How is our industry looking within the Australian economy? Despite a slowdown in annualised growth in Australia over the 2008-2013 period to an average of 1.6% across the board and a 7% net decline in franchise systems from 2008 to 2010, franchisor revenue grew by 5% in 2012 with franchisee revenue growth close behind at 4%. This trend looks secure in 2013-2018 with measurable uplift to consumer spend underwritten by a forecast rise in disposable income of 3.4%4 for the period. So QSR and franchising seems pretty compelling Yes, it is, but franchising isn’t a guaranteed formula for success. Not for the franchisor and not for the franchisee. In fact only about 15%5 of franchise companies Australia-wide thrive and reach critical mass. And the reasons are many – so in my next column, let’s look at what creates a successful franchise - one of that elite group of brands you know. 2&4 Source: IBIS World Report – Franchising in Australia March 2013 3 Source: IBIS World Report - Fast Food Services in Australia May 2013 1&5 Source: DC Strategy Research 2012

The Australian Competition and Consumer Commission jumped on claims, this week, by a number of bottled water manufactures that their water was ‘organic’.

Media is important to franchise systems to build image, launch products and maintain the brand. As media exposure is the primary way to reach the public, it is essential to understand how to deliver your messages in a positive manner. Today’s media represents a vast information stream encompassing all forms of communication channels including television, radio, print, video, film, as well as, social internet mediums such as Facebook, YouTube, Twitter, Instagram, Four Square, websites and individual blogs. A company can disseminate a message in the morning and have it circulated globally in a matter of hours. This volatile form of dissemination, called viral distribution, can be a whirlwind of goodwill or a camp fire turned into an inferno. Therefore it is essential for franchises to ensure that their spokespersons are prepared to deliver their key messages correctly; gaining attention whilst growing and protecting the brand. It is important to realise that journalists conduct interviews to get a story and are often searching for a sensational response, incorrect answer or embarrassing moment. Remember the adage “bad news sells."

As a franchise consultant I have been asked many times what are the main causes of franchisee failure in the industry and how to avoid them. Most failure comes back to a couple of industry problems, lack of proper training and undercapitalised owners. Often the basic training is rushed or inadequate and follow up is often very minimal. Many franchisees are inadequately capitalised and have over borrowed either from banks or family either way it becomes a problem in quiet seasons. Most responsible franchisors like no more than 40% borrowing which is a fairly safe margin. There are further reasons of failure. Cost controls being a major problem, with over 20 years in the fast food arena I never cease to be amazed at the number of franchisees that I talk with who do not know what stock level they are holding , what dead stock they have, when ordering they just guess what they need. It is absolutely essential in today’s market with rising costs to know what your costs really are. We all know that a major killer is the cost of labour and rents, which are continually rising. Wages you can control rent is not so easy. With wages employ the minimum of staff and where you can man the fort yourself, I have found over the years that many franchisees want Saturday & Sunday off and once a week some other day off or afternoon. When it is quiet more reason to do the work yourself why pay staff when not needed. The staff you do have ensure they are multi-taskers and very efficient so that they can often cover for another staff member who is maybe busy with a customer. Another cost factor often overlooked is machinery maintenance especially refrigeration equipment. Cleaning grills and air vents can save a heap on electricity alone, clean weekly. Regular servicing can prevent major expense such as new compressors often thousand of dollars, when a 3 monthly service would probably cost you less than a thousand per year. Every dollar wasted is an added cost of sales. One other point I would like to make is retraining. We are never too old to learn and we need to continually train staff and self in all areas of the business especially customer service which is certainly getting better in some parts but still leave s a lot to be desired. Training staff to up sell is also very important but I hardly ever see or hear someone upselling with the exception of say McDonald’s and Hungry Jacks. It has been said that 20% of McDonald’s sales are in fact from upselling. I had a sticker on the cash register, which said “ I don’t pay your wages the Customer does so remember that always.”

Recent press exposure regarding allegations of significant underpayments to staff have once again displayed the serious risk to brand equity that can result from franchisees not complying with Australia’s industrial awards and wages system. It has been has been reported that a La Porchetta franchisee believed he could ‘top up’ their sub-minimum wage pay packets by providing pizza and soft drinks. The case will appear in the Federal Circuit Court in Melbourne for a directions hearing on September 18 later this year.

Industry Trade Shows (ITS), what are they, who attends them and why? Are they important to a Franchisor for recruitment lead generation, useful for building the brand, a good public relations exercise or just a huge waste of MONEY!!!! ITS events are conducted over one or more days concurrently, by almost every industry sector and are conducted annually, bi- annually, monthly; locally, regionally, nationally and internationally. Usually comprised of an exhibition supported by information dissemination activities such as conferences, seminars, workshops, forums focusing on relevant themes, an ITS also has business and social networking opportunities and entertainment activities. Whether open to the public or exclusive to a sector, ITS’ can take months to organise and affect tens, hundreds or even thousands of stakeholders, who have their own expectations and reasons for attending. Professionally organised ITS’ supported by key industry players, addressing relevant themes can be exhilarating, motivating and are excellent vehicles for meeting a wide range of expectations. So, who are the stakeholders at an ITS and what are their expectations? • A leading Industry Group usually owns the event, as they act on behalf of the sector (an association/government oversight group) or for a group of interested parties. • Event organisers appointed by owner to run the event. • Exhibitors who display their goods and services to the industry are the backbone of every ITS and because of a monetary investment, they have a number of expectations. o To positively showcase their offer to the relevant audience o A chance to benchmark the company against others o An opportunity to show industry support by event participation o Especially for franchisors, recruitment marketing activities and franchisee lead generation opportunities are key. • Sponsors sourced from key industry participants look for credibility, by being seen as an industry supporter and friend, whilst building brand awareness through cost effective exposure to the industry. • Speakers sometimes augmented by celebrities and VIP’s are mostly industry experts and recognised market leaders, willing to share information and business wisdom through activities such as seminars, workshops, forums and conferences. • Delegates, the audience of every ITS come from all areas including; industry leaders, media, businesses, personnel, relevant associations or governing bodies and the public. Delegates attend for many reasons; to learn about the industry, to hear the speakers, to purchase from exhibitors, to buy a franchise, to find a new career, to network, to compare competitor offers, to benchmark their endeavours against competitors, or just to have a good time. These simple guidelines will help determine if participation in an ITS will be of value: • Identify where the franchise system is in its development; an emerging or mature franchisor? • Assess the ITS to ensure the vehicle can deliver desired opportunities • Identify the ITS target audience • Who will be attending and is it the right target audience for you? • If so, what part can you play in the ITS; an exhibitor, sponsor, delegate? • Identify, enumerate and prioritise reasons for attending and expected outcomes • Prepare an accurate budget for participation, including internal costs • Prepare an accurate measure of participation benefits that would be considered successful enough to offset participation costs. Now make a comparison between expectations versus achievable results. Then compare the success required to the financial outlay and it will be clear whether or not attendance will be worth the investment of time, effort, resources and money.