Franchising’s evolution and its exciting new phase

Tuesday 28 July 2015

franchising's exciting new phase

Although the franchising model has existed in different forms for decades, it is now entering a really exciting phase in its life-cycle. The well-known, fast-paced expansion model has evolved over time as a result of changing customer demands. There is no better example of these changing demands than the requirements of more recent generations, who emphasise a need for personalised service and individuality. These requirements do not necessarily fit with the existing uniformity perpetuated by franchises. This issue not only extends to customers, but also to franchise partners as they bristle at the idea of being tied down by traditional franchise models.

This exciting era of franchise evolution provides business owners with the opportunity to align chosen elements of existing successful franchise principles with their business strategy. For decades people focussed on the concept that McDonald’s was the franchise system you should replicate (and why not, it is one of the great franchise success stories of all time, if not the greatest). But nowadays, a greater importance is being placed on franchising being a malleable business model, rather than the strict and inflexible model it has previously been known as.

Ferguson Plarre has challenged a traditional assumption that all franchise systems need to rely on charging royalty fees to be sustainable. In order to protect its core strengths in product quality management and innovation from its production house, Ferguson Plarre has used a hybrid franchising model as a way of expanding its reach to customers, whilst also benefitting from having an owner-operator’s motivation to run the business. The franchise model is not designed for creating an annuity stream of royalty payments, but rather for maximising the sales and associated margins from its wholesale business. It is a great franchise model for encouraging franchisees to sell more high quality products without paying royalties and in turn providing greater profitability, whilst protecting and retaining the strengths of Ferguson Plarre’s wholesale business. This model works well when you can achieve significant volume of high quality products and can therefore charge cheaper wholesale prices to franchisees. It’s no surprise that Ferguson Plarre features prominently for franchisees’ passion ratings in the Australian Top Franchise awards.

The franchise model evolving has been the catalyst for recent media coverage on the term “quasi-franchising”. This term refers to a Franchisor focusing on providing traditional franchise support services, such as lease negotiations, marketing assistance, training and staff management, whilst the franchisee focuses on the “front” of store product offering and experience. There is debate over whether this is a new form of franchising or merely an extension of the previous model, but regardless, there is no doubt this model offers great appeal to the new generation of franchise owners.

I like the “quasi-franchising” concept because it offers the autonomy for a franchisee to be creative and provides for a more responsive, customer centric franchise model. There has traditionally been a fine line between quality and product control and allowing the franchisee to introduce new offerings or ways of conducting business. Obviously, Franchisor’s don’t want situations where franchisees bring in last night’s family Lasagne to sit amongst a premium dessert range. However, having a dynamic franchise model with appropriate risk mechanisms can encourage innovation, which is pivotal to the growth in any business. There have been examples of very successful franchisee driven innovations (McDonald’s McCafè and Battery World’s Battery Recycling Scheme) which have been designed by franchisees identifying an unfulfilled customer need. A hybrid franchise model encourages a shift in mindset by both franchisors and franchisees to share responsibility for innovation and adapting to changing customer needs. The versatility of the model and its appeal to the modern day franchise partner makes for an exciting chapter in franchising’s evolvement.