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Get With the System

How It Works

Franchisors set strict specifications for products and services used by store owners. In most cases, however, owners can do business with any vendor that meets those specifications.

"We don't have many standardized products, except for wheat, which must be purchased from our approved vendor list to maintain quality control," says Janet Tatarka at Great Harvest Franchising Inc., a Dillon, Montana, bakery franchise that posted sales of $62 million in 1997. "Otherwise, we don't tell our 133 owners whom to buy from. They decide on their own."

Giving store owners the freedom to choose their own product lineup is an extension of Great Harvest's philosophy of developing a network of bakeries that reflect owners' individual personalities and communities. "We want Great Harvest stores to be known as community stores," Tatarka explains, "so we encourage owners to do business with their neighbors by using, for example, a local printer or honey supplier."

At AlphaGraphics, a Tucson, Arizona, printing services company with 360 franchises worldwide, franchisees enjoy similar freedom. "The store owners prefer corporate-approved vendors because it takes the worry out of the selection process," says Emmy Carter, AlphaGraphics' vendor services manager. "They're not obligated to use vendors from our list, however. They can choose whomever they want."

To help store owners make the best selections, AlphaGraphics has developed a three-tiered vendor list, an approach offered by many franchise systems. At the lowest rung are vendors whose product samples have been reviewed but not necessarily approved by the franchisor. Next are approved vendors--those whose products or services have been used successfully by store owners for at least six months and have passed the franchisor's quality tests and reference checks.

"If a franchisee wants competitive bids, I'll offer names off our approved-vendor list. I might also give out names of other vendors if I've reviewed their product samples," says Carter. The advantages of having your name on AlphaGraphics' approved-vendor list are worth noting: easier communication within the franchise system, access to a list of its franchisees and an invitation to participate in trade shows at annual franchisee meetings.

On the top tier are designated suppliers, vendors who've passed a franchisor's rigorous examination for product quality, customer service and reliability. Some franchisors require store owners to purchase from designated suppliers. At AlphaGraphics, owners are only encouraged to do so.

"In product categories where franchisees make repeated requests for vendor referrals, such as three-ring binders, labels and presentation folders, we've established national agreements with the vendors we feel can do the best job," Carter explains. "Franchisees aren't obligated to buy from those vendors, but we don't actively promote any other vendors in those product categories."

Naturally, exclusivity as a designated supplier can do plenty to boost sales. Notes Arledge, who got the corporate designated-supplier nod in AlphaGraphics' label category, "Individual store owners can choose whom to use, but when you get [the franchisor's] blessing, most store owners follow it."

It is the degree of freedom around the lower rungs, though, that allows suppliers to get into the system. Getting your foot in the door of a franchise system often starts with convincing individual franchisees--not the franchisor--that your product or service will make his or her business more efficient, more profitable and more customer driven.

On the way to earning designated-supplier status from AlphaGraphics, Arledge built one-on-one relationships with approximately one-third of the company's franchisees, showing each owner a detailed plan of how Discount Labels could handle his or her needs. With the backing of such a large number of franchisees, Arledge approached the franchisor's corporate office to show how his company could improve operations systemwide.

"Have a plan," advises Arledge. "If you're going to do nothing more than beg for sales, you'll have a hard time with a franchise company."

Another way to get inside a franchise system is through a purchasing cooperative organized by franchisees within a particular system. The co-op buys products in bulk at a lower unit cost and resells them on a national basis to its members.

"These purchasing groups are well organized and deliver huge numbers of purchases," explains Andrew A. Caffey, a lawyer in the Washington, DC, area who specializes in franchise law and a former general counsel of the International Franchise Association. "They're very competitive and are, of course, looking for the best price and delivery terms." Purchasing groups also have strict quality standards and product specifications that mirror those of the franchisor.

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This article was originally published in the April 1999 print edition of Entrepreneur with the headline: Get With the System.

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