Franchise

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GUEST OBSERVER
Some franchisees of hardware chain Mitre 10 are calling for an end to “company-owned” stores. These are stores owned and run by Metcash, which owns the Mitre 10 brand and is a supplier to the franchisees.
But research shows that brands with a mixture of franchised and company-owned stores are not only more profitable but also more valuable than brands that are purely franchised. Company-owned stores are a win-win for franchisees and franchisors.
As we have seen with the likes of McDonald’s and Bob Jane T-Marts, company-owned stores have various functions. They may be “flagship” stores in prominent locations, making them a marketing tool. They can also be places for experimentation with new products, technologies, store concepts, and prices.
Some franchisors have also used company-owned stores as mini-warehouses to supply other stores within a trade area. Finally, company-owned stores expand the network, lowering costs for the whole franchise and acting as a barrier to entry for competitors.
The benefits of all these measures are not always obvious or measurable by franchisees. For example, the average franchisee won’t appreciate the research and development costs incurred by a company store for a new training program or product. Franchisees only see the final result.
Tensions between franchisees and franchisors
There can be a legitimate tension between franchised and company-owned stores. For instance, company-owned stores may have greater access to resources such as local area advertising and staff training, preferential pricing and access to stock, and even favourable trading terms.
This can be unsettling for franchisees who feel they are not only competing against other brands but also their own. This is called “encroachment” and can damage the brand in the long run.
In a case between McDonald’s and a franchisee, the Victorian Supreme Court found that McDonald’s could open new stores even if they potentially impact the existing franchisee. Opening new stores creates a barrier to entry for competitors, increases sales, and thereby lowers the costs of products for both franchisees and company-owned stores. This shows that even an action that may appear harmful can have wider benefits.
The huge difference in business models between franchisors and franchisees can also be a source of tension.
Franchisees are retailers. They need to buy the products they are selling as cheaply as possible while incurring the least amount of cost. In doing so they will maximise their retail profit. On the other hand, franchisors are like a wholesaler. They rely on the profit they make from selling products to franchisees. So franchisors can afford to lose money in company-owned stores, making up the difference by selling products wholesale to franchisees.
A happy medium
But as the research clearly shows, for franchisees the benefit from company-owned stores - from marketing, research and development, and training - outweighs the negatives. Nevertheless, some things should change to keep the peace.
For starters, every company-owned store should operate like a franchise. Franchisees have been found to perform better than company-owned stores. Franchisees have skin in the game and are motivated by the bottom line of their stores.
What this means in practice is that all stores should make the same contributions to a marketing fund, buy products at the same price, and observe the same retail pricing structure. Company stores should have the same relative local advertising budget as franchisees, have the same stock-holding requirement (quantity and range), and company store managers should face the same performance criteria as franchisees.
Company stores might not perform as well at the bottom line, but overall they add value to both franchisors and franchisees.
<a href="https://theconversation.com/profiles/lorelle-frazer-189491" target="_blank">Lorelle Frazer </a>is Professor and Director, Franchising Centre, Griffith University.
<a href="https://theconversation.com/profiles/maurice-roussety-320016" target="_blank">Maurice Roussety </a>is Lecturer- Franchising and Marketing, Griffith University.
Both are authors for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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Both franchisees and franchisors benefit from company-owned stores

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7-Eleven and its franchisees have been granted conditional interim authorisation to discuss potential temporary store closures or reduced trading hours in light of reduced customer demand because of COVID-19 restrictions.
7-Eleven owns and operates stores in competition with its franchisees in some areas and therefore discussions and agreements between them risk breaching the competition laws.
“We recognise that 7-Eleven and its franchisees are facing difficult trading conditions due to the COVID-19 pandemic, and believe this co-operation could help the network and individual stores to remain viable,” ACCC Chair Rod Sims said.
“Importantly, franchisees are not required to temporarily close or reduce their store hours if they do not wish to. Our decision to grant interim authorisation does not force franchisees to agree to the terms offered by 7-Eleven.”
Franchisees that agree to close temporarily will receive an ex-gratia payment from 7-Eleven to cover certain unavoidable operational costs. For franchisees that agree to reduce their hours, the minimum guaranteed income that the franchisee receives from 7-Eleven would be pro-rata adjusted to reflect the temporary reduction in trading hours.
“Franchisees are strongly encouraged to seek independent legal and financial advice when considering whether to adopt these temporary measures,” Mr Sims said.
Interim authorisation is subject to a condition that requires 7-Eleven to notify the ACCC of arrangements reached with franchisees to provide some ACCC oversight.
“We are going to closely monitor the effect of these arrangements and when it is appropriate for this authorisation to be revoked,” Mr Sims said.
Having granted interim authorisation for the arrangements, the ACCC will seek feedback on 7-Eleven’s application for authorisation. 
Details on how to make a submission and more information, including the ACCC’s interim authorisation decision, is available at <a href="https://www.accc.gov.au/public-registers/authorisations-and-notifications-registers/authorisations-register/7-eleven-stores-pty-limited" target="_blank">7-Eleven Stores Pty Limited</a>.
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7-Eleven and franchisees authorised to co-operate on store opening times: ACCC

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Adrian Lane-Mullins is the incoming chairman of the RE/MAX Australia and New Zealand Board of Directors replacing the late Phil Kirby who stepped down in the past year due to health concerns.
The managing director Michael Davoren was interim chairman.
Lane-Mullins’ is managing director of Customercorp P/L Business Consultancy, a company he began 16 years ago.
Its client list includes RACQ-GIO Insurance Ltd and QBE Insurance Ltd.
RE/MAX managing director Michael Davoren said the board intentionally chose an independent chairman from outside the real estate industry.
Lane-Mullins sat in three board meetings before taking up the chair this month learning the complexities of real estate franchising.
RE/MAX was founded in 1973 by Dave and Gail Liniger, with 100,000 agents and more than 6600 offices provide RE/MAX globally across reach of 100 countries. 
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Adrian Lane-Mullins appointed RE/MAX chairman

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The One Agency Real Estate group, which helps agents set up their own agency for a fee without the traditional franchise model, is targeting 160 offices by end-June, placing it within the top 10 networks in Australia.
It has more than 120 offices across Australia and New Zealand since opening its doors in 2008, with another 20+ businesses scheduled to open their doors before the end of March.
Founder &amp; CEO Paul Davies launched the business model after more than 30 years as a real estate business owner, across both franchise and independent agencies.
“In the real estate industry it’s almost impossible, as an independent agency, to compete with the big franchises in your local marketplace,” said Davies. “But buying into an established franchise is both constraining and costly, so I set out to create a model that helped business owners to keep as much of their profit in their own back pocket and one that allows them to choose how they operate and grow.”
Members of the group have the flexibility to promote their brand with less restrictions than a traditional franchise. 
“The modern world of real estate is forever evolving and One Agency is at the forefront of that evolution which is why I chose to join the group,” says Grant Baker, from One Agency Noosa in QLD, member since 2013. “The business model is perfectly geared towards the self-motivated agent wanting to achieve personal success and retain all the profits of their labour.”
“The whole process, including the initial discussions, the changeover and the ongoing support, reinforces our thoughts that One Agency is the place to be,” says Stephen Johnston, ex-major franchisee, now an owner of One Agency Dunedin in NZ.
“I had a 23 year association with LJ Hooker brand and in April 2014 we made the leap to join One Agency after careful consideration and research into the One Agency Brand. We have saved a lot of money in franchise fees and have the ability to do business in a more flexible manner, no fees on the rent-roll is a great bonus,” says Andrew Johns, the owner of One Agency South. “The transition has been great and the support from the team at One Agency operations team has been efficient, friendly and impressive.”
“When we were setting up in business, we were approached by some big name franchises and the set up costs were horrific,” says Michael Lister from One Agency The Forest in the Sydney suburb of Frenchs Forest, operating since 2010. “We figured ‘why are we going to work so hard for somebody else’s benefit?’ and so we decided to go with the One Agency model which suited us much better and allowed us to steer our own ship.”
According to a recent REB Employer of Choice Report, 65.4 per cent of respondents identified culture as their main motivation for joining their current network or company.
“We attract very motivated agents, some are new to business ownership and others who are already experienced and bring their established franchise agency to us, often because the costs of a traditional franchise suck up their profits. Our members are also able to react far more autonomously and make changes to suit their business in a far more nimble way, without having to jump through the restrictive hoops that a traditional franchise demands.”
Davies says One Agency is growing organically, and not through acquisitions. 
“We don’t use our cheque book to buy members, like some franchises do, and have no financial interest or partnerships with any of our members businesses. They pay us a one off membership fee and then a low monthly fee, regardless of their commission and in return we offer great branding, marketing tools, systems and a supportive culture.”
Despite such rapid growth, the group retains a boutique feel, yet offers the strength of an international brand, he says. 
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One Agency targets 160 franchises by end-June through its new business model

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The Australian Financial Review has obtained a leaked letter highlighting the concerns of franchisees at the listed real estate group McGrath.
The March letter was sent to management outlining a range of concerns about the outlook for the company.
The group of 13 McGrath franchisees said they were supporters of management, but warned of the need for investment in customer management software.
They complained of an increase in franchise fees despite head office running a poorly performing system.
They also complained that the brand's marketing "needs to show understanding for different markets and adapt much quicker."
It suggested the franchise services team lacked autonomy to make decisions, leaving simple requests taking "over two weeks and more difficult ones six months or more."
They asked for an overhaul of the recently relaunched company website which is viewed by users as pretty but disfunctional.
The letter preceded the appointment by the ASX-listed company of former Chandler Macleod boss Cameron Judson as its joint chief executive in July, alongside founder John McGrath.
John McGrath stepped down as chief executive last week, assuming the role of executive director. 
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McGrath offices complain about website relaunch

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Stockdale &amp; Leggo has got expansionary plans with NSW agents and offices being approached by its chief, Peter Thomas.
It has been a major force in Victorian real estate since 1936.
With its strongest presence by far in Victoria, its 90 offices span the CBD, metropolitan areas and regional centres.  
<img src="/images/2016/07/27/Screen%20Shot%202016-07-27%20at%2010.53.26%20AM.png" alt="">
Stockdale &amp; Leggo have expanded beyond Victoria, to have offices in New South Wales, Northern Territory and Queensland.
It has recently employed Andrew Lane, as its NSW Franchise and Business Development Manager to further grow into NSW beyond its current Albury and Corowa offices.
Andrew, who went to school in the Albury district, has had over 20 years in the industry with the last seven being in similar corporate roles at Raine &amp; Horne and The Professionals.
"His experience and dedication will ensure Stockdale &amp; Leggo NSW offers not only an alternative when thinking about your future, but ensures it becomes your number one choice," Peter Thomas said.
"We’re constantly on the hunt for eager, ambitious operators keen to succeed alongside us," he said.
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Stockdale and Leggo want NSW offices

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Cleaning franchise group James’ Homes Services are launching a commercial cleaning arm in October targeting high rise offices and apartments, hotels, schools and aged facilities.
Mike Dowling, CEO and master franchise owner said more than $25 billion worth of commercial property changed hands each year creating enormous demand, particularly for end of lease and ongoing cleaning services. 
 “There is a major gap in the market and I believe James’ Commercial can fill it, and fill it well,” he said.
  “We are excited to be expanding into the commercial arena.
 “Commercial cleaning often means bigger jobs and can frequently be done after hours so there is huge scope for new franchisees interested in working flexible hours and taking on staff.  
"James’ Commercial will take on long-term contracts as well as one-off jobs.
  Mr Dowling purchased the master franchise in October 2015, throwing the business a financial lifeline.  
He said his ambition is to build the group and to make it the best in the business.
"I want to leave a positive mark on the industry and to see all of our franchisees succeed because when they do well, we do well also," he said.
 “It is a very different company today which is a direct reflection of the way we operate and the values we bring to the market. At James’, we care about people and we really understand our market.
"Cleaning is all about service so we work closely with our franchisees to ensure our customers have an exceptional experience.
 “It is this personalised approach that makes us stand out and we will be extending the same attention and support to our new commercial clients.  
“James’ Home Services is going from strength to strength and that is a reflection of the culture as well as the many new processes and procedures we have put in place to support our franchisees and deliver excellent service to our customers.  
<a href="https://www.jameshomeservices.com.au/" target="_blank">James’ Home Services</a> provides a wide range of cleaning and maintenance services from interior and exterior cleaning to mobile pet grooming and has operations throughout Queensland, Western Australia, Victoria, Australian Capital Territory and New South Wales.
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James’ Homes Services to launch commercial cleaning arm

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The Better Homes and Gardens Real Estate brand is set to enter the Australian real estate market after a master franchise agreement was completed between the Realogy Holdings Corporation and CT Investment Holdings Pty Ltd.
CT Investment Holdings chairman and owner is Charles Tarbey, who is also the chairman and owner of Century 21 Australasia.
It operates in around 40 states across the USA.
It is not the first time the publishing/real estate linkage has been tried in Australia as Belle magazine teamed up with a property syndicate to launch the Belle property group, which has had erratic progress following its 2000 launch headed by former politician John Hewson, estate agent Chris Meehan and Peter Hocking.
Supported by Better Homes and Gardens magazine, the company will provide lifestyle, styling, renovating and gardening content, as well as traditional real estate sales and leasing services.
The Better Homes and Gardens magazine’s multi-media lifestyle brand print edition is read by nearly 40 million people per month in the US and Australia.
In Australia, Better Homes and Gardens magazine boasts a cross-platform reach of more than 3.5 million people across print, digital and social, with Better Homes and Gardens being the most read magazine in Australia.  
Sherry Chris, the global President and CEO of Better Homes and Gardens Real Estate, said the announcement marks a "momentous point in Better Homes and Gardens Real Estate’s strategic growth story."
“Better Homes and Gardens’ lifestyle magazine brand has an unparalleled scope and reputation in Australia, as it does in the United States.  These benefits pave a path of competitive advantage for the Better Homes and Gardens Real Estate brand as it launches in Australia and New Zealand, and there is no better person to oversee the brand’s strategic growth and development than Charles, a seasoned and respected leader in the real estate market.”
There has been strong interest in the Better Homes and Gardens Real Estate opportunity in Australia and New Zealand.
Tarbey said that the Better Homes and Gardens Real Estate brand will have a very different offering than other real estate brands throughout Australia and New Zealand and likely appeal to a very unique demographic.
“The franchisees affiliated with the new business will not only offer traditional real estate services but also what I would describe as a ‘complete lifestyle experience’, that leverages lifestyle content that complements and relates to Better Homes and Gardens magazine.
“Whether it is helping people prepare a home for sale or assisting them in their search for a new home, the Better Homes and Gardens Real Estate brand will enter Australia and New Zealand markets with an exclusive offering.
"This offering, combined with the power of the media brand and the experienced real estate practitioners we expect to attract, gives us a high degree of confidence that the Better Homes and Gardens Real Estate brand will succeed in real estate like it has in so many other domains,” said Charles Tarbey.
The Editor in Chief of Better Homes and Gardens magazine in Australia, Julia Zaetta, welcomed the news.
“We are very excited to have the Better Homes and Gardens Real Estate brand in Australia. Better Homes and Gardens’ magazine media brand is a large, much loved and highly trusted multi-platform offering and it is great news that the real estate brand is expanding.
“We are thrilled our wide audience will now be able to enjoy real estate services as they undertake some of the most important activities of their lives: buying, selling and renting their home.” 
Julia Zaetta paid $1.45 million for her Neutral Bay unit in 2016.
The growing Better Homes and Gardens Real Estate network includes more than 11,500 affiliated sales associates and hundreds of offices serving home buyers and sellers across the United States and Canada, Jamaica and the Bahamas.
It is expected that the first Better Homes and Gardens Real Estate offices will open their doors in Australia towards the end of 2018 and in New Zealand in 2020.
 
 
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New belle of the property ball...Better Homes and Gardens brand comes to real estate in Australia

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Accusations from Mortgage Choice franchisees accusing the aggregator of running a harsh business model and remuneration structure have triggered a promise to change its remuneration model.
Mortgage Choice released an announcement on the ASX yesterday in response to an investigation by Fairfax Media and ABC’s 7.30. The investigation had been looming for some time among tweets as franchisees readied to set up a fund to take legal action.
Towards the end of last year they agreed to commit $200,000, but put this on hold after Mortgage Choice said it would review the structure.
The media report outlined how the broker previously employed an up-front commission model and changed this to a performance-based model based on loan targets in the wake of the 2007-2008 Global Financial Crisis. 
But it never changing back to the original structure once the crisis had passed.
The recently appointed Mortgage Choice chief executive Susan Mitchell admitted the model was “outdated.”
In the ASX statement from company secretary David Hoskins, Mortgage Choice advised it would be working closely with franchisees about a more “competitive remuneration model”.
The statement said the purpose of this would be to “increase franchisee remuneration and reduce franchisee income volatility to allow them to grow their business and assist more customers with their home loan needs”.
CEO of Mortgage Choice, Susan Mitchell, said she anticipated the changes would support the long term sustainable growth of Mortgage Choice.
“We want to continue to help Australians with their financial services needs for many years to come and having thriving, growing franchisees that have the confidence to invest in their business is critical to achieving this.”
Mortgage Choice expects to finalise a new remuneration model in this coming July and implement an opt-in basis across the network in August.
Documents suggest almost half of Mortgage Choice’s franchisees were considering legal action to get a better and fairer remuneration scheme.
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Mortgage Choice saw its shares plunge 40 per cent on Tuesday after Fairfax and the ABC reported 173 of its franchisees were considering a fighting fund to take on the home loan giant. Shares were up 1 percent in Wednesday morning trade.
<a href="http://www.abc.net.au/7.30/" target="_blank" title="www.abc.net.au">On ABC’s 7.30</a>, a number of struggling Mortgage Choice franchisees spoke about having to sell their houses because of their financial struggles brought on by the business.
Franchisees are reportedly being pressured to sign $1.5 million in loans per month, much higher than the national average of any other company.
If brokers fail to meet that target, Mortgage Choice takes a greater section of the franchisee’s profit.
Melbourne franchisee Russell Chellew told the program he’s become physically sick since owning his own Mortgage Choice franchise.
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Mortgage Choices advised shareholder that change in the remuneration model does not affect the FY2018 cash result.
"Market updates will include guidance on a one off adjustment to the FY2018 IFRS result based on the change in the average payout rate to franchisees once this is known."
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