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.How franchises are bucking the downturn

Written on the 10 December 2014

The franchise sector is bucking the downward trend, with parent groups hungry for expansion and owners with no print experience finding stability in a network. Is this the future for small operators?

In the new world order, every business model is under scrutiny, with plenty of soul searching among the printing fraternity. Franchising has remained popular, and there are indicators the model is gaining momentum.

Some say it provides a safety net for the entrepreneur. While thats not completely true and some franchisees have failed, specialists within the sector say that to do this, a franchise must make the kinds of fundamental mistakes that would kill any business.

In a sector as rocky as print, the promise of stability can be an attractive prospect, especially for smaller or younger firms. The risk of doing business is clear. Consider these figures: according to the Australian Bureau of Statistics, there was an 84.6% survival rate for businesses in 2007, just before the global financial crisis hit. That had dropped down to 60% by June 2011. It was even tougher for fledgling businesses. The first-year survival rate is about 71.5%. That means almost 30% of businesses - one in three that dont survive that crucial first year of operation.

A reason why start-ups fail is that their owners, wet behind the ears, have not yet been schooled in the lessons of building a successful business. This is where the guiding hand of the franchisor comes in.

Marketing is essential to any business, particularly a start-up, yet it may be put on the back burner because of the regular fire fighting that is standard practice at any commercial operation. Meanwhile, the design costs that go into branding and marketing collateral will also eat into a small companys earnings. Franchise parents provide their new offspring with posters, banners, flyers, and other collateral to help them market their business. They provide stationery such as envelopes, letterheads, and business cards, as well as training and back up.

Another benefit of a franchise operation is buying power. Younger franchisees are benchmarked against more successful franchisees and learn from them.

In this commoditised industry, personal service is one way to add value. Franchises are networks of local printers working within respective geographies. In theory, local and personal service acts as a counter to the margin squeeze of commoditisation.

Steve Wright, the executive director of the Franchise Council of Australia, says franchising and print are a perfect fit. I think whats going on with the big producers of newspapers and magazines is indicative of whats happening across the industry to different degrees.

Usually in those kinds of scenarios where margins are reduced and there is a greater focus on local marketing and distribution, you need to have a local network and manage the costs as an aggregation rather than trying to do big scale production because that will cost you too much.

Franchising fits that bill. If anybody could make a go of it in a tough industry, I would say your franchising model is your best chance.

In Australia, the links between franchising and print run deep. Paddy Thompson, who developed Snap Printing, was a founder member of the Franchise Council of Australia.

More and more entrepreneurs are looking at becoming franchisees. Market research operator 10 Thousand Feet found that across all industries, franchisors have had an 11% increase in queries over the past 12 months. It also found that it takes an average of six months from time of the query for the business to be up and running with all the machinery in place and orders coming in.

Ian Krawitz, 10 Thousand Feets head of intelligence, says the key for a successful franchisor is not how good their printing operation is but how effective their network is. Its about getting franchisees to use the marketing and business building tools.

Its really about getting out there, having meetings with your franchisees and talking through what their goals are from a business perspective and then helping them, Krawitz said.

He says prospective franchisees are always looking for a big brand name and the support they are going to get from the franchisor.

Power players

The Australian printing franchise landscape is dominated by a handful of big names. The main groups are Snap, Kwik Kopy, Worldwide Online, Minuteman and Sign-A-Rama, part of America-based United Franchise Group.

Kwik Kopy managing director David Bell says most of the groups franchisees are not from the printing industry. The people who join come in with no knowledge of the industry. In the majority of cases, they come from an employed, corporate background. They would have had a corporate life. They might have owned another small business. Weve had a few guys who have had other franchises, like a retail franchise and decided they didnt like the hours involved and wanted to be in a business-to-business operation.

In fact, it almost seems as if Kwik Kopy actively prefers non-printers is this the case? In our opinion, the prerequisite for a good franchise owner, whether they come from printing or not, is they need to have experience in business-to-business selling. Thats the single most important prerequisite. And they need to have some sort of general business acumen and they might have acquired that in any number of fields, says Bell.

When I think of a printer, I think of someone operating a printing press, so by definition, they havent come from a sales background. We look for people who come from a business-to-business sales environment and have some sort of corporate experience. People who come from a technical production background will be less likely to succeed.

We recruit the right people because we are conscious they are investing their hard-earned savings and we take that responsibility seriously.

Sense of security

Bell says the franchising model is attractive because it offers prospective business owners some security. You agree to pay a franchise fee and as a result, you incur that additional cost because what youre buying is an insurance policy against your business not succeeding. Youre buying into an established brand, an established system and youre buying a support network. You are not guaranteed success, but the chances of succeeding in Kwik Kopy are significantly higher than if you were an independent business.

Being part of something bigger is one piece of evidence to support his claims that franchisees are on surer footing than independent printers. Another big advantage Kwik Kopy centres have over independent operators is the benchmarking system, says Bell.

Probably the most powerful tool, apart from the brand and the recognition and assistance, is the benchmarking. You can look at your business and benchmark it against 100 other Kwik Kopys, across any number of performance indicators, work out where you rank and work out what you have to do to improve your performance against each indicator and ultimately your overall performance.

Kwik Kopy has 103 franchise centres, mostly on the east coast, with 44 in New South Wales, 30 in Victoria and 18 in Queensland. Franchisees pay a 7% royalty on turnover plus 2.5% for marketing. The joining fee varies. Franchisees buying an existing business would pay about $37,500. For a greenfield site, they could pay about $60,000.

Bell says the global financial crisis has made growth difficult. People need gearing to get into the business and banks are now more reluctant to lend. Some of our guys are choosing not to sell. They are waiting for times to improve and they want to grow their sales and profits to get better value for their business.

There are signs things are picking up. The watershed was 2008 and in 2009 where we didnt sell any. It has gradually increased year on year to point where we are back to where we were in 2008.

Growing the franchise network is priority number one for rival group Snap. The company, which was started last century, got into franchising in the 1970s. With its well-known brand name and its longevity, Snap is now on a mission to build its market share and recruit franchisees. The history does not only apply to the parent company, but the design and print centres as well.

Raeleen Hooper, Snaps general manager of sales and marketing, says: Weve had people with us for 31 years. In fact, we have second-generation franchise owners now.

Snaps new chief executive Stephen Edwards has rolled out an ambitious strategy to open 120 new stories in Australia over the next five years. Snap is already active in added value services, and the plan will take it further beyond the bounds of print.

We have more than 500,000 clients so we have a big database. We want to take our brand attributes and provide products [other than print] that our clients would find useful with our e-product range, which include websites, email marketing, video, e-publications and QR codes, says Hooper.

The other big push we have is design. We have more than 200 graphic designers in our group so arguably we are the biggest networked graphic designer in Australia. We design for everyone from big corporations down to Bob the local plumber.

Snaps big shift in strategy over the past decade was shifting print production out of the shopfront centres and into hubs located around the country.

The hubs provide offset print and the fulfilment. The e-products are done at centre level from each individual centre and we put a large supply chain in place to support that. So we do all the training, all the supply agreements and manage the suppliers and also we develop our own products as well.

Ramping up

Snap currently has around 150 centres. Ten years ago, there were 127. As part of its ambitious expansion plans, it has appointed a national franchise develop-ment manager to sniff out new prospects.

We have had a push along our acceleration expansion program and that has allowed current franchise owners to be able to open up into greenfield territories that havent had a Snap centre before. We are giving them the opportunity to open up into those areas over the next couple of years, says Hooper.

Its a model that could see Snap centres increasing massively. We are just about to go into our new push for 100 or so territories that we have identified. We know we have 100 or more territories based on our parameters that we would open but we want to make sure we have the new model for the future going forward, she says.

Marketing for the centres is managed out of head office. Each centre pays Snap a royalty fee of 8% of revenue every year plus another 2% for marketing. There is one hub in New South Wales, another in Queensland, one in Perth and several in Melbourne providing offset work.

There is also a joining fee, which can vary from $100,000 to over $1 million.

Hooper says many of the people who join Snap have had some experience in franchising. Some, for example, ran food or retail franchises but chose printing for lifestyle reasons. Unlike food or retail, a B2B printing operation is generally five days a week.

Others come from sales and marketing backgrounds. Some come from overseas. But they all have one thing in common. They need to have some business acumen, and have sales and marketing skills and passion. They have to be good at building relationships, Hooper says.

Sector-wide growth

Other franchise outlets are reporting steady growth. Sign-A-Rama was established in 1986 as part of the United Franchise Group. Its first store was in New York, and it opened its doors in Australia in 1998, with a store in the inner city Melbourne suburb of Preston. The local arm is run by United Franchise Group Australian national director Evan Foster.

Australia is the only country outside of the US that is still a wholly owned division of the US parent. Every other country where Sign-A-Rama is represented is under a Master Franchise arrangement, says Foster.

We have around 850 stores in 50 countries around the world. In Australia, we currently have 90 stores, and looking to break through the 100 barrier in 2013.

The Sign-A-Rama model uses a mix of hub and spoke printing, says Foster. Each location is a production centre. We have a handful of multi-site operators that use one main central production facility. The majority though have their own production capabilities. We have stores from Cairns to Hobart and Sydney to Perth, and many places in between.

Average turnover for Australian franchisees in FY2012 was $638,000. The Australian figure is actually larger than the global figure. Were outstripping our counterparts in other parts of the globe, with the exception of New Zealand, who are neck-and-neck with us. In NZ, our brand is known as Speedy Signs.

Worldwide Online Printing, Australias third largest franchise after Snap and Kwik Kopy, has had a more troubled history. In 2010, the parent entered administration although its franchise stores continued to operate. It was bought out shortly after by an acquisition vehicle of its Western Australian hub, Crystal Printing Solution

Worldwides national marketing manager, Phil Wilkinson, says the group has only this year started advertising sites for sale. The response has been very good.

There are 52 franchises in the Worldwide network. Joining fees start from around $150,000-$200,000. Franchisees pay a 6% royalty on revenues but another 4% for IT and marketing.

Creative independence

Wilkinson says that under the Worldwide model, franchisees can run their own campaigns if they wish. We have a system where the franchisor devises a marketing campaign every month and the franchisee can purchase into that and use that in their territory.

We come up with the basic campaign and all the creative work and they get an opportunity to join in with that. Some centres choose not and do their own thing and thats fine. They just have to adhere to our national branding guidelines and make sure its on brand.

That means the right use of the logo and colours and the right fonts. If they have their own tactics, thats fine but we provide a basic marketing campaign for everybody if they need the help.

As with Kwik Kopy, there are not that many ex-printers in the fold, although he says there are a spattering.

We like to think our systems enable anyone to run a centre, as long as they have a bit of nous. You certainly dont have to have been a printer.

At the same time, however, nothing is guaranteed. You cant say its 100% foolproof. We can help them and guide them but in the end, they are the ones building the relationship with the customers, they are the ones offering the customer service.

You have to be in there with your sleeves rolled up and running it. We dont run their business for them. We give them all the tools, support and back up but in the end, its still a small business.

Wilkinson says there had been a few failures but not many. There had been a variety of reasons why people didnt make and often, he says, it comes down to personal issues, such as health.

Difficult to fail

Nevertheless, franchisees say the system works well; they argue it is difficult to fail.

Andrew Robertson, who has three Worldwide franchises operating out of Brisbane, puts it: My personal opinion is you would have to work pretty hard. You would have to make some silly decisions and not be in communication with the franchisor.

He says franchising offers a perfect model for printers. For me personally, the biggest advantage particularly over the past four years is that my fixed costs are a lot lower than my competitors. All the infrastructure and equipment, the bulk of it is in those centralised hubs.

I dont have a $1.5 million five-colour press out the back of my office that I have try and cover the payments for and I dont have 600m2 of factory and office space to cover so when things get tough financially, we are a lot more nimble and more flexible.

Our overheads are lower so when times get tough, we can tighten our belt further, more easily, adds Robertson.

Still, the back-up from the printing franchise can be a double-edged sword. CBD Print Group, the largest company within Snap franchise and one of the most successful, told ProPrint last year that Snaps need to look after and nurture the entire network could sometimes hinder CBD Prints growth.

Clive Denholm, who founded Worldwide Online Printing and now runs trade printer CMYKhub, says some entrepreneurs might regard being located in a geographic area as a constraint. That could be considered a negative. You couldnt go and sell outside of that area. Sometimes a franchise owner can be so keen to look for greener grass just over the fence so they dont maximise the work within their territory.

At the same time, he says, there is a good reason why franchises work locally: it builds the clientele. The best printers know how to work their local area.

If they arent happy to conform and fit within a brand structure and work with them system thats been presented, then they shouldnt buy a franchise. They should start their own business. But that has greater risk.

Anita Lennox, who runs a Minuteman franchise out of Brisbane, says that working the local area is critical for success. The franchisee needs to have close relationships with the community movers and shakers, and even do some free jobs just to get the exposure.

If local government is having an event and approach you to print it, you can donate the job and get your logo on it. We do printing for a couple of local churches and put our names on that. Its just about exposure. The community we are in is proactive in promoting the people who look after them.

And that is the key to success for any print franchisee: work your territory, knowing you have the safety net of a big brand behind you.



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FACTFILE: FRANCHISES IN AUSTRALIA

SNAP

Established 1979 as a franchise but the company dates back to 1903, as the Imperial Printing Company

Headquarters North Ryde, Sydney

Number of stores 150

Turnover Snap would not provide the overall turnover of its network. However, according
to ASIC, the parent company turned more than $12.7 million in 2010-12, not including centres.

Hubs one each in Queensland, NSW, and WA and several mini-hubs in Melbourne

MINUTEMAN

Established 1974

Local headquarters Melbourne and Sydney with plans for one in Brisbane

Global headquarters New York, USA

Number of stores 47

Turnover $40 million

Hubs No hubs. The model is to encourage franchisees to make relationships with local printers for offset work

KWIK KOPY

Established 1985

Headquarters Northern Sydney

Number of stores 103

Turnover $100 million

Hubs No hubs

WORLDWIDE ONLINE PRINTING

Established  1994

Headquarters Alexandria, Sydney

Number of stores 52

Turnover $50 million

Hubs one in WA

SIGN-A-RAMA

Established 1998 (Australia)

Owner United Franchise Group

Local headquarters  Sydney

Global headquarters New York, USA

Number of stores 90

Average turnover per store $638,000

Hubs Each centre has its own production equipment, such as wide-format printers


This Feature appeared in the SEPTEMBER 2012 issue of ProPrint Magazine


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