Growth Hacking F&B Franchising: Smart Mavericks Versus Traditional Partners
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Partner selection and growth hacking are critical elements of any food and beverage company’s strategy. Franchising has traditionally been a proposition based around the idea that someone can buy a “system” that allows them to operate a business, with a proven business model, lowering risk. The value proposition was based around the simple idea that a system was proven and that it could be easily taught to others locally and further afield. At its core, the franchise model is based on the idea that, if provided the tools, the right individuals can do as good of a job at store level, if not better in some circumstances, than the large companies.
Historically, the food and beverage business harnessed this model to achieve staggering growth and created a landscape dominated by franchised brands, based on simple and effective value propositions. Today, the industry and indeed the world is being turned on its head by technology, changing consumer behavior, changing lifestyles and industry convergence - where and what we eat today is not the same as ten or even one year ago. This dynamism creates unprecedented upheaval and challenges for growing brands locally, regionally and internationally – all different beasts in and unto themselves.
Whilst not all equal, today virtually every aspiring food and beverage company offers itself as a franchise, muddying the waters for aspiring candidate partners. There is also typically a staggering misunderstanding that good (or average) operators are good franchisors. There are many pundits and much written about how to seek out and select great franchise partners, however this typically belies the real fundamental nature of the activity- it is a true partnership, based on responsibility, reciprocity and a shared entrepreneurial spirit. What also is clear, is that franchise relationships cannot be static- it must be ever evolving and dynamic to navigate through the changing market conditions and the evolution of franchisor and franchisee capabilities and experience.
This is clearly evident when looking at declining year-on-year chain food and beverage sales in the US, UK and Europe- the world and indeed our industry is changing at unprecedented pace and arguably the most adaptable and dynamic companies will prevail. From the number and nature of unsolicited inquiries we receive on a daily basis, we understand that there is a large market gap with many frustrated franchise and investment seekers looking to partner with what they perceive to be market-relevant, new-age, and capable growth brands. Where historically, many entrepreneurs felt that they could open a restaurant and compete effectively on product and service, today the paradigm shift to delivery and technology in food and beverage is creating what some perceive to be an insurmountable barrier to entry on an independent basis. Fast, casual and more traditional formats are also giving up market share to brands addressing more multi-disciplinary consumer appeal and convenience.
In my estimation, there are two main types of franchise partners in the world today: the Traditionalists- those that are geared to operate a system, heavily reliant on the vision of its franchisors, heavily geared towards systems, structure and scale. Then there are also what I call the Smart Mavericks- the future seekers who are grounded in practicality and who are ready to adapt to change. They seek smart brands, systems and companies that are founded on dynamic, future-geared platforms.
The question is not which one is better, but which one (and possibly mix of the two) is best suited to a particular company at its current stage of growth. Much research is available on the subject and indicates that those companies that utilize a specific methodology for selection typically have more favorable results. Those that map the methodology specifically to their brand ethos and objectives do even better. Most successful brands typically select no more than 3% to 4% of initial inquiries. It is also interesting to look at growth seeking behavior- do companies look for great partners or markets as a first priority?
I will ask your forgiveness for using Freedom Pizza as a real life and close-to-home example to provide a contextual case study but I wanted to avoid the typical platitudes and generalities of ‘what makes a great franchisee’. By way of background, Freedom Pizza has nine company owned stores in the UAE, with strengths in technology, delivery and operations, coupled with a relevant menu and market forward brand. We have recently signed our first multi-unit franchise deal in the UAE and are now embarking on a broader drive to fully expand the company in the UAE and perhaps more interestingly, internationally.
In general, we are looking for Smart Mavericks to partner with for growth. Those individuals or companies who exhibit a strong locus of control (i.e., entrepreneurial, persistent, smart, resilient, dynamic) and most importantly, those that are strongly culturally aligned with the brand- including an unwavering prioritisation and commitment to people. We feel that these are the two best predicators of future success for themselves and for our brand. Perhaps as important, we also feel that we should genuinely like each other...we want to enjoy the ride. After all, we are embarking on a long journey together that will have ups and downs (yes, there are a few) and we need to be able to have honest, constructive and sometimes hard conversations with each other- this is true partnership.
We also look for other things for those that meet the above criteria: financial capability, local market knowledge, financial acumen, previous success, experience and character. In addition, we believe in the value of spending more time with potential partners in advance of decision making and actively create opportunities to interact frequently, and in different environments to understand their underlying motivations, their fears and hopes for the future. It is a two-way process. They need to experience our company, our people and culture- it has to be right for them too.
What’s interesting is that we have different views about growth partners in our home market versus international markets. In the UAE, we are open to franchisee or unit investment relationships, where partners operate as true franchisees or we operate on behalf of an investor. We consider both models as lower-risk as we are experienced operators with full infrastructure in our local market. We are looking to develop four to six stores on these bases in 2018. We view regional expansion as a different beast, different countries with different operating environments. In these markets, we seek local partners with a track record and a platform, who also understand and can execute against our culture and business model. Internationally, we seek passive investment partners that either trust our analysis, capability and planning for a market or who we consider to be strategic investors - i.e. those that add value beyond investment to the venture.
Using the UK and the US as live examples, we are in negotiations with a variety of investor partners ranging from unit-level co-investment to multi-unit to territory and super-territory arrangements. For investors, there are benefits for being early movers and they also get the benefit of a company that is uniquely motivated to ensure the success of the brand. These decisions are clearly important and paradigm events in our company’s lifecycle. Consequently, we have turned down willing investors on the basis of cultural mismatch alone.
I strongly contend that there is a two-way fit, mapping the right brands to the right partners and that one size does not fit all. Cultural alignment, entrepreneurial drive and persistence are paramount and should be prioritized above all other factors and be non-negotiable. Many companies pursue singular strategies for growth and some believe that different solutions are more suitable to different conditions. The nexus of success must be where capability (of both parties), meets cultural alignment, ambition and lots of luck.