The Power of Branding. How joining a national franchise network gives your business the edge

In a recent survey* of franchisees, 19 per cent revealed that their primary reason for selecting their franchise was the 'well known brand'. This sentiment is echoed by O2 franchisee Chirag Patel (see page 16 for the full interview) who, with business partner Simon Wayne, invested in the nationally branded opportunity because: 'We understood the power of branding. By investing in O2 we could guarantee customers from the first day of trading because the name is well known and has positive associations. If we had opened by ourselves we would have had to build up brand awareness and trust within the local community and would not have been able to expand as quickly as planned.'

It is the ability to leverage the costs of a national marketing campaign across a large network which singles large network franchisors out in terms of added brand value. Brian Lewis, Founder of Cash Generator which has over 60 franchised plus 13 corporate-owned stores operating in the UK, reveals: 'Our network size has enabled us to appear on national and regional TV as well as nationwide radio and newspaper coverage. No small operator could achieve this and over the years our brand grows in the UK market thanks to our investment in marketing.'

O2's 68 franchised stores slot into a national presence covering a total of 478 locations, which creates what the company calls a 'brand halo effect'. O2 UK Franchise Marketing Manager Nikki Cooke explains: 'We've got a fantastic brand which is evolving all the time. What we ask of franchisees is they use the 'halo effect' created by our national campaigns to drive their own local marketing.'

Essentially, by combining a national marketing programme with local promotional initiatives controlled by the franchisee, O2 is utilising the strengths of being both a large national organisation and a chain of locally-focused franchisee-owned outlets. This approach is echoed by Domino's Pizza, whose Business Development Director Andy Emmerson reflects: 'We have always tried to make our franchisees' money go further by investing in effective marketing campaigns that will have an impact on our customers. This includes working with stores to balance the national Domino's message with supporting local activity. After all, no one understands the needs of individual customers better than our local franchisees.

'Being part of a franchise offers business owners the opportunity to operate under a consistent and often high profile brand at all times, gaining advantage over their independent competitors. As well as giving them a greater return on their marketing investment, it allows franchisees to tap into a wealth of national marketing expertise. For example, recently Domino's announced its national sponsorship of reality TV show Britain's Got Talent.'

ECONOMIES OF SCALE

Being part of a national network of outlets also offers cost-saving advantages in many areas of expenditure. The ability to obtain preferable product prices through group ordering is an obvious one, as Andy Emmerson illustrates: 'Being part of a 500+ network of Domino's Pizza stores run by nearly 150 franchisees in the UK and Ireland provides considerable economies of scale. Domino's commissaries source quality ingredients and equipment in bulk, which are delivered to every store three times a week.'

With a network approaching 380 franchisees across the UK, ChipsAway is another franchise which is able to pass on significant cost savings. 'A large network equals strong purchasing power,' says Chief Executive Lloyd Evans. 'From negotiating with VW on our fleet of vehicles to purchasing consumables such as latex gloves, we can achieve more competitive prices because we buy in volume, all of which helps our franchisees provide better services and achieve increased profit margins.'

'A good example is national Yellow Pages advertising. This causes smaller franchise networks with limited coverage problems in that the various regionalised editions rarely coincide with defined franchise territories. Even when they do, taking individual advertisements for separate franchisees can be very expensive.'

Even in a business where the customers provide the bulk of the products, such as pre-owned goods retailer Cash Generator, there are plenty of cost savings to be made. Brian Lewis reveals: 'We achieve economies of scale in many areas including purchasing new retail stock, advertising, stationery, and uniforms. The franchisees obtain the strength of being part of a large organisation without the costs of doing it themselves.'

Belvoir CEO Mike Goddard provides some specific examples of savings passed on to franchisees: 'Our franchisees can obtain a discount of up to 50 per cent on insurance and significant discounts on property portal sites, plus they earn 25 per cent higher commissions on insurance and financial product sales.'

When O2 won the rights to be the exclusive network provider for Apple's iPhone, the knock-on effect for franchisees was to become the go-to outlets for this incredibly popular new product. As well as being able to access better deals, large national networks can also sometimes open up new avenues of business for franchisees that would just not be available for single-unit operators or smaller chains.

'Our franchisees can obtain a discount of up to 50 per cent on insurance, plus they earn 25 per cent higher commissions.'

Belvoir CEO'Mike Goddard

'There's no way a smaller operation could procure a deal like the iPhone contract and our new broadband offering by themselves,' says Nikki Cooke. 'Joining the O2 franchise offers an opportunity to be part of these bigger deals on a global level.'

PREFERABLE FUNDING RELATIONSHIPS

Franchises in general can often be easier to borrow for than other business start-ups, as recognised by Lloyds TSB Head of Franchising Richard Holden (for his full article turn to page 21), who reflects: 'Banks regard franchising as a less risky way of setting up in business, which usually means that they will provide preferential terms for franchisees.'

'Domino's is able to provide further funding support for franchisees in the form of guaranteeing the lease of equipment and assisting them in applying for the Government's small business loan scheme.'

Domino's Pizza Business Development Director Andy Emmerson

Large networks not only have more examples of successful franchises to present to the lender, but are often also able to negotiate preferential relationships with specific banks. 'The banks like us because we have proven ourselves over a long period of time and they understand the strengths of Cash Generator,' explains Brian Lewis. 'Due to the success of so many franchisees we are fortunate to have a number of banks who wish to provide finance to our franchisees at preferential rates.'

Lloyd Evans adds: 'Our longstanding reputation has enabled us to negotiate preferential loans through Lloyds TSB and indeed approximately one third of our network has been put through Lloyds TSB. The bank is able to monitor the financial performance of those franchisees on an ongoing basis and so has hard evidence of the continued success and viability of the ChipsAway franchise opportunity. That in turn reflects well on our credibility and reinforces our relationship with the bank, who are pleased to support ChipsAway and its franchisees. Everyone wins!'

In some cases, such as with Domino's Pizza, the franchisor is even able to act as a guarantor. 'Domino's is able to provide further funding support for franchisees in the form of guaranteeing the lease of equipment and assisting them in applying for the Government's small business loan scheme,' reveals Andy Emmerson.

COMPREHENSIVE FRANCHISOR SUPPORT

The sheer scale of an organisation with a national spread of franchised units means the resources are available to provide first rate support to franchisees, whatever stage they are at in their business. 'The large size of our operation enables us to have many highly qualified directors and managers who bring enormous depth of knowledge to our training courses as well as the day-to-day running of the Cash Generator franchisee business,' agrees Brian Lewis.

'We offer excellent advice and support in areas including: management training, sales, buying, valuations, internet usage, advertising, recruitment, bookkeeping, taxation, customer service, licensing requirements plus many other necessary areas that enable each franchisee to make a great success of running their own business. In addition our large network of franchisees enables us to access their innovative thoughts on a frequent basis and they provide many great suggestions for improving the profits of the stores.'

Belvoir is another example where the established franchisees provide an additional source of report. Mike Goddard reveals: 'As well as benefiting from a dedicated new business mentor at central office, franchisees gain membership of regional Belvoir Networking Groups which meets quarterly.'

ChipsAway exploits the amount of established franchisee experience by hiring senior franchisees to encourage continuous support. 'We recruit established, experienced franchisees as Business Developers who provide hands-on support to new franchisees during their launch period and one-to-one mentoring thereafter until the new franchisee feels sufficiently confident to 'go it alone',' reports Lloyd Evans. 'Often this results in long-term mentoring and friendships whereby franchisees have a 'mate' to call for any ad hoc advice (or just a chat and exchange of ideas), in addition to continued access to the Franchise Support Team and the Technical Team at head office.'

ChipsAway also interacts with its network in order to provide research support to maintain its franchisees' position in relation to market trends and development. 'The size of our network is an advantage in terms of research and development,' continues Lloyd. 'We can understand and identify market trends or changes in customer demand very quickly based on feedback from a wide geographical spread of franchisees. We have the advantage of being able to test new products in pilot areas before rolling out to the entire network and then, once we launch a new product, the sales generated by orders from our network quickly deliver return on investment.'

AVAILABILITY OF TERRITORIES

As national consciousness of a brand grows, more opportunities develop and population centres are able to support additional locations, increasing the opportunities available. Despite the size of their networks, the franchisors interviewed are all still recruiting franchisees. For example, with an established network of 125 locations Belvoir still identifies a further 200 opportunities in the UK, while Lloyd Evans estimates 'currently, ChipsAway services less than five per cent of the potential marketplace and many of our franchisees are simply too busy to meet local demand for their services. Therefore, we are committed to continued expansion and there is plenty of scope for new franchisees in most areas of the country.'

Domino's Pizza is bent on doubling its 500-strong network over the next five years, which Andy Emmerson reveals will 'create a multitude of opportunities all over the UK for both current franchisees, as well as new franchisees.'

For O2, any location which the demographics show can support a successful store is considered. 'There's still opportunities out there,' says Nikki Cooke. 'We recruited very heavily in Northern Ireland, the North West and the South East, but there are still plenty of areas to expand into. As long as the location can secure enough business without taking away from existing stores, we will look at it.'

Of course, in any maturing network there will also be a number of existing franchises becoming available for re-sale. 'We still have a number of territories available to open a new store and also, on occasion, have a re-sale available,' reveals Brian Lewis. 'We make extraordinary efforts to find buyers for these re-sales even ahead of selling a new territory. When a franchisee wants to sell it is good practice to help them achieve their exit as quickly as possible. This is greatly appreciated by the network.'

Reported by Stuart Anderson

*The British Franchise Association/NatWest 2008 UK Franchise Survey