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Published 24 February 2011 05:01, Updated 25 February 2011 09:05
There’s a common thread running through the experience of the new entrants on this year’s BRW Fast Franchises list. To grow rapidly over the past four years, the economic downturn had to be negotiated. Eight franchise systems join the rankings for the first time (although cookie retailer Mrs Fields scraped into the outlet growth list in 2010 in 46th place).
When talking to BRW about the effect of the global financial crisis, some realism when considering the negative effects held but an unswerving ability to see a silver lining was apparent (see “The GFC and me”. page 34) This optimism can be seen in the tenacious young team behind Zambrero Fresh Mex Grill. Chief executive Stuart Cook, 25, and chairman and founder Sam Prince, 27, are the kind of young overachievers who will leave older business owners spooked.
Not only does Zambrero boast nine outlets and revenue of just over $3.5 million, placing it first by outlet growth and fourth by revenue growth just four years after the first outlet opened in Canberra, but the company also runs three associated charities. Prince, who set up Zambrero in 2006 while studying medicine, is also a practising doctor.
The big benefit of youth is that other people are more likely to give advice, Cook says. “When we first started growing rapidly, we would email CEOs of fast-growing franchise companies and they were more than happy to sit down and have a catch-up coffee,” he says. “We’re hitting goals at quite a young age. Sometimes it reminds them of themselves. Mexican restaurant chains have flooded the market of late, including another new entrant, Salsas Fresh Mex Grill backed by Boost Juice’s Janine and Jeff Allis and ranked 11th by revenue growth, with more than four times’ Zambrero’s turnover. Youthful optimism remains staunch in the face of competition.
“The other brands are helping educate the customer about what burritos are and that Mexican isn’t all about meaty, unhealthy, heavy food. Customers will end up choosing the brand they like to associate with,” Cook says.
If Zambrero represent the gung-ho nature of youth, Glen and Kerrianne Hickman show the measured approach that comes after 20 years in business, but the optimism remains. The Mr Rental franchise clocked up $41 million in revenue in 2009-10, with average annual growth of 29 per cent over three years, placing it 27th for its debut on the list.
In 1991, the Hickmans had a video rental store that occasionally rented out TV and VHS machines on Bribie Island, north of Brisbane. A customer inquired about renting a washing machine. The Hickmans obliged and soon realised the potential of appliance rentals. “What makes our business so attractive to our franchisees, and is the cause of our growth, is [that] in rental you make the sale once but you get paid over and over,” Glen Hickman says.
After closing the video store, the Hickmans built their business but didn’t franchise for 10 years. “In 2001, we came to the conclusion that this was a simple business, easy to run,” he says. “We looked at a couple of ways that we could expand … and decided on franchising. All the other methods of expanding took considerable amounts of capital. We had a good lifestyle but not the capital you needed to expand.”
The early growth of Mr Rental was steep, putting on 28 franchisees and a master franchise in New Zealand, within three years. “When we got the 28th franchise, we got to a point where the growth was so fast … I realised I had limitations in my abilities to manage the business, which was a watershed,” he says. “We decided to buy expertise. We put on a general manager with many years of experience in franchising from a legal and accounting background.
“The day-to-day running of an organisation is a completely different skill set than creating a business. I realise that there are people that are better than me at running a franchise system.”
There are now 84 Mr Rental outlets and Hickman sees no obstacles to reaching 100 within two years.
Also with big growth aspirations is the founder of Success Tax Professionals, Darren Gleeson, which is ranked 18th with revenue growth of 42 per cent. Since setting up the franchised tax agent business with co-founder Tracy James in 2003, STP has grown to 42 outlets but Gleeson wants to see 1000. “It may seem big but in Perth we’re thinking of 100 [outlets] and we already have 36 and it’s only year eight,” Gleeson says. “I’ll be doing this for another 20 years, so I think we can get there.”
By focusing on Western Australia at first, Gleeson says the firm’s local footprint and visibility has helped it to gain critical mass and grow rapidly. The company is now branching interstate. Gleeson hopes to have 10 outlets in Victoria (up from four now) by the end of 2011. “We have got inquiries [from other states] every day but we want to get one state up and running and profitable before we move into another one,” he says.
This measured step-by-step approach is in contrast to the early days when Gleeson put on 25 franchisees in a year after placing an ad in the The West Australian newspaper and offering franchises for $500 a pop. “We took on a lot of people who weren’t really suitable,” he says. “At the start you’re so enthusiastic about getting people on board, your standards are a lot lower.”
The STP franchise entry cost has increased to $11,000 and Gleeson is satisfied that the recruitment process has been tightened up.
Another service-based new entrant to the Fast Franchises list is Life Resolutions Australia, ranked eighth with revenue of $3.7 million in 2009-10 and growth of 78 per cent. Jodie Brenton was running three psychology practices with her business partner Mary Magalotti, also a psychologist, when she attended the Telstra Businesswoman of the Year award in 2004, the year of Boost Juice co-founder Janine Allis’ triumph. “I called Mary up,” Brenton says. “We were running those three outlets [and were looking to expand] and I said ‘why don’t we franchise?’ She said, ‘don’t be ridiculous, you can’t franchise psychology’.” Magalotti was brought around and two years later they began franchising. For the duo, the greatest strength of the franchise model is it allows a psychologist to sell a business as a going concern at the end of their professional career.
“It was pretty frustrating that psychs work all these years and then when they have to sell they can’t. By building it under a brand and a system, they’re able to sell,” Brenton says.
Mrs Fields, the shopping centre cookie retailer, licensed from a US parent, has been in Australia since the 1980s, but managing director Andrew Benefield bought the business in 2006. Mrs Fields, ranked 39th with revenue of $9.7 million, has 27 stores. Benefield had hoped to be at 50 stores by now but says the franchise was slowed down by the economic downturn and associated challenges in franchise recruitment. He now hopes to hit the half-century milestone in 2013.
One approach exciting Benefield is a partnership with food and beverage franchise system New Zealand Natural Ice Cream.
Franchisees can share larger and better-quality locations, which solves Benefield’s most pressing concern, a lack of sites, due to depressed development conditions.
Mrs Fields made headlines in late 2010 when Benefield and his silent investors bought Cookie Man, from the failed Allied Brands stable.
While the two brands had never gone head-to-head in terms of market share or positioning, Cookie Man – known for its crunchy biscuits – had begun to put on a more premium offering, stepping into Mrs Fields’ domain, Benefield says.
“If I didn’t buy it, I risked someone else turning it into a fierce competitor,” he says. “There’s room for two brands in the marketplace but you have to separate and clarify the brands.”