Franchise operators must be able to adapt to remain competitive in a challenging business environment where consumer confidence has yet to fully rebound to levels seen before the economy fell into recession, said attendees at the International Franchise Association convention this week.
Franchisors and franchisees from across the country gathered in Orlando, Fla., at the IFA’s 52nd annual event to discuss such topics as how to grow in a sluggish economy, why it is important to communicate with elected officials about business-unfriendly legislation and the need for easier access to capital.
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Yet, even as franchise businesses are forced adjust to new operational and economic realities, participants at the IFA convention also voiced optimism about the future.
“The [American] dream, the excitement, the commitment to the journey, resides in each one of you and in the business of franchising,” said Jim Amos, chief executive of frozen yogurt franchisor Tasti D-Lite and the 2012 inductee into the IFA’s Franchising Hall of Fame. “We are a problem-solving community.”
Changing for the better
Both franchisors and franchisees said restaurant brands can make important changes that allow for system growth and improved profitability, which is of particular importance in a weak macroeconomic recovery.
Don Fox, chief executive of Firehouse Subs in Jacksonville, Fla., said establishing a clearly communicated set of expectations for a brand’s corporate culture lets it grow sustainably, even during tough economic times. The 490-unit sandwich chain added 80 restaurants in 2011, and has a goal to reach 2,000 locations by the end of the decade, he told attendees during the “Franchise Sales Success Secrets” panel.
“I’m about 25 percent of the way there, and my success depends upon my people,” Fox said. “So if my success depends on my people, then my whole future is in the hands of three out of four people I’ve never met. If we haven’t set up a culture and processes that allow a net 75 percent of our system to operate at this level, we won’t succeed.”
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Fox said Firehouse franchisees are coached first to have a solid corporate culture that recruits the right staff, to focus on operational excellence and to drive profitability. His operators then look to optimize the restaurant’s potential by donating to Firehouse’s public-safety fund.
“There’s no doubt customers reward you for conspicuous giving in your community,” Fox said.
It also is important to prove major changes within the brand’s company-owned system before mandating changes from franchisees, Fox added. Before Firehouse required franchisees to increase their marketing fund contributions 2 percent to a total of 5 percent of sales, the brand first did so in its 30 corporate locations. After demonstrating double-digit sales increases in most mature markets after the contribution increase, Firehouse was able to get buy-in from its partners.
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That willingness for shared sacrifice and openness to change is a major source of trust for franchisees, said Aziz Hashim, chief executive of NRD Holdings, a multiunit franchisee of Subway, Popeyes, Domino’s Pizza, Moe’s Southwest Grill and Checkers. Speaking in a panel titled “System Change is the Key to Success in Today’s Economy,” Hashim said franchise operators want reassurance that a restaurant company listens to its partners.
“As we make decisions to invest in different brands, we ask, ‘Are the brands capable of change?’” Hashim said. “If I sign a 20-year franchise agreement … that should be an absolute factor in the DNA of the brand that allows it to keep up.”
Franchisors also should collaborate with franchisees by involving them in reinvestment initiatives, like new prototypes and test marketing, he added. Not only does that solidify the working relationship, he said, but it also supplies the franchisees with data that can assure their banks and lenders that initiatives are viable.
“As a franchisee who’ll be asked to convert a location and foot the tab, or build a new unit under a new model, I’ll be looking for some testing that’s been done or some commitment being made by the brand,” Hashim said.
That cooperation and willingness to make improvements can create some tension between franchisees and franchisors, but they only will become more important in the near future, experts said.
“Change is tough,” said the “Franchise Sales Success Secrets” panel’s moderator Geoff Hill, vice president of Roark Capital Group. “But if you look at those companies that are evolving, they win. Those that don’t, don’t, and some literally go away.”
Partisan problems persist
Political roadblocks also will challenge franchisors and franchisees this year, conference speakers said.
IFA chief executive Steve Caldeira said during his “State of the Association” address that “partisan rancor” in Washington, D.C., was leading to division and gridlock that complicates the search for solutions to challenges in the franchising community, like restricted access to capital and a lack of clarity in tax and healthcare policy.
During his keynote address, Bill O’Reilly, author and host of the Fox News television program “The O’Reilly Factor,” said the presidential election of 2012 has large implications for whether the business climate improves or deteriorates for franchise operators. Franchise operators could face undue hardships if they don’t unite to support pro-business and pro-growth candidates for higher office, he said.
“The problem with the business community is that you’re scattered all over the place,” O’Reilly said.
Small-business owners like restaurant franchisees won’t get any help battling regulations — like those in the Patient Protection and Affordable Care Act they deem to be onerous — from the big-business community, he added. Operators must get active at the local level if they wish to fight for business-friendly policy, O’Reilly said.
“You have to operate as very sane people in your own community,” O’Reilly said. “When you have the opportunity to go on TV or say something in your community, you do it in your own personal way. You make an example. Say: ‘I own this store. Here’s how this [regulation] is hurting me. I can’t hire the 10 people I want to, because I’m afraid I’ll have to pay all these ‘Obamacare’ mandates, so I’m not hiring.’ That’s very personal, and it has to be to get your point across.”