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Independents 90 - Franchises 2

Written by: Colin Mackie

Article Overview: The failure rate of independent business continues to rise. The tougher economic times are putting even more pressure on single outlet small businesses. But, in Australia, and we believe other counties in the west, franchised businesess are not failing anywhere near the same rates. The publisised rate for franchises was a mere 2% over a five year period. Figures from the USA suggested that as many as 90% of all new food/hospitality businesses failed or changed hands because of poor profits. The reasons are many....

Independents 90 - Franchises 2

Independents 90 – Franchises 2



In my role as a franchise consultant, I was recently invited to speak at a networking event on the Gold Coast exclusively for the hospitality industry

It was a fairly informal event and, in these circumstances, I usually simply ad-lib my presentation depending upon the mix of attendees and the mood of the group. The person who spoke immediately before me presented some statistics regarding the Hospitality Industry and, particularly, the number of new start-ups that either changed hands because of unprofitability or closed down within the first five years of operation: He quoted a massive 90%.

To say the least I was shocked initially and, after a few moments of digesting this fact, realized that personal experience confirmed that this number would have to be large with the number of new coffee shops, restaurants and wine bars that I had noticed opening and closing in my own little patch over the years. At times I would see a new business open up and a year later it would have “Under new Management” plastered across the window. A year later it may change hands again and then close. It is amazing how ‘hope-springs eternal in the heart of man’. The second and third owners believe that they will make the business work where others before then had failed. I cannot recall having ever seen one of these ‘walking-dead’ businesses actually ever become successful without a major overhaul.

When my turn to speak came along I reiterated this frightening statistic and then went on to say that in the franchising sector the failure rate was a mere 2% in 2007 (the last date for this I could recall) for all businesses in Australia. I then asked the question “Why should the difference be so dramatically different between franchise operations and independent businesses?”

As the question was primarily rhetorical, no one attempted to supply a reason and I am sure that they were as astounded by my franchise statistic as I was with their frightening independent business statistic.

The answer is simple; franchise business do things that independent operators don’t (generally), do. Franchise systems are ‘systemized’ – every aspect of the operation is tried, tested and then the best possible practice for that function is documented.

Take a simple cup of coffee for instance; I recently found a nice clean shop with a spectacular view of the ocean in Coolangatta, on the Gold Coast. My large cappuccino was OK. Not the best and not the worst. A few days later I visited with a friend. My coffee was lukewarm and her Earl Grey tea could have been mistaken for an iced version.

The next time I was in the area I decided to try the place once more as the ambience in this coffee shop was certainly exceptional. Too bad, I thought as I left the shop for the last time “They had so much going for them but they just could not duplicate the making of an even reasonable coffee.” This isn’t just the loss of one cup of coffee to their business but a possible regular customer. One coffee per day on average of 5 days each week over a twelve month period is $1,000 pa. And I usually partake with a business associate.

The systemization of all functions and the policing of the procedures is possibly the main component in the low failure rate for independent businesses, however, it is a number of other things that may be more subtle than just a consistent coffee but just as important. For instance; colours, lighting, furniture choices, uniforms, customer handling procedures, customer loyalty programs, menu choices, a distinctive USP and many more aspects of the operation of the business need to be looked at critically, analyzed and the best possible practice decided and documented – simple.

I enjoyed my lunch and the networking event. The number of people who approached me with a plethora of questions about franchise operations was significant. As I left the venue I realized that I had uncovered a new additional service to add to my business portfolio – helping independent businesses become more ‘Franchise-like’ and perhaps this may help to reduce this frightening 90 to 2 statistic and give independent business owners the opportunity to survive the difficult times ahead.

Colin Mackie. Managing Director, Enterprise 21

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