Franchises require hard work to be a money-spinner

Colm Ward finds out what it takes totake on a franchise and make it a business success

What's in a name? Well, some names can be priceless. Just ask the people behind McDonald's, Supermacs, Burger King, the Body Shop, Subway or any of the other successful franchise brands that are dotted along our main streets.

Consumers know what to expect when they walk into a McDonald's anywhere in the world. The food will be pretty much the same, the signs will be the same, even the seating will be the same.

That is the essence of a successful franchise - in an uncertain world, it offers the customer a guarantee that whatever else is changing, they will still be able to buy a burger and know exactly how it is going to taste.

The concept of franchising is believed to have originated during the 12th century in France.

The Catholic church gave certain people permission to collect tax and, in return, these tax collectors were allowed keep a portion of what they collected. Later, people were granted franchises to run markets and fairs.

The modern version of franchising began in the US in the 19th century and is typified by McDonald's, where the entire business system, from the menu to staff uniforms and décor, is replicated from outlet to outlet.

In a typical arrangement, the franchiser - Supermacs or McDonald's, for example - will sell the licence to trade under their name to another business person - the franchisee.

Certain conditions will be set down which govern the operation of the business and the franchisee will pay a fee to the franchiser.

Such an arrangement can benefit both sides. For the franchiser, it is an opportunity to enter new markets without having to take on the risk and expense of opening and operating a new outlet.

For the franchisee, it means an instantly recognisable name as well as support in areas such as marketing, business advice, and research and development.

But a franchise is not a licence to print money. Like any business venture, it requires hard work and expertise to be successful.

"I think the person has to look at their own area [of expertise]. The franchise must fit with themselves. It has to fit with what you can identify with as an individual," says Mr Sean McGarry, founder and managing director of Franchise Direct, a web-based service that aims to connect franchisers with potential franchisees.

Mr McGarry advises anyone considering buying a franchise to first consider the market for that business and the cost of running a franchise in a particular area. "You have to really check out the market potential in your area."

The success of Franchise Direct is testament to the growing popularity of franchising.

Established in 1998, the Dublin-based company now operates a number of separate franchising websites for the US, Canada, France and Spain as well as the UK and Ireland.

"We would be considered to be one of the players the franchisers would look at to promote their franchise," says Mr McGarry.

He believes that the franchising industry is one that is in a good position to weather any downturn. In times of economic uncertainty, a franchise can often seem like a lower-risk investment than a new business.

Although many of the well-known franchise brands in Ireland are foreign-owned, a number of indigenous franchises have also become successful, notably Supermacs, Bewleys, Abrakebabra and Golden Discs.

Some, like O'Briens Irish Sandwich Bars, have begun licensing the franchise overseas.

O'Briens now has 220 outlets in the UK, the United States, Australia and Asia as well as the Republic of Ireland. Last year, the chain opened 47 new stores. "We make about 80,000 sandwiches every day," according to O'Briens chief executive Mr Brody Sweeney.

The O'Briens concept is based on a healthy image, with sandwiches prepared in full view of the customer using good-quality ingredients.

Of major concern for O'Briens, in common with other franchisers, is maintaining standards in all stores. Because it has no direct involvement in the running of individual franchise outlets, it is more difficult to ensure that quality does not slip. If, however, there is a lapse in one outlet, this can have the effect of tarnishing the image of the entire franchise.

The best protection against this, according to Mr Sweeney, lies in training. "The quality comes down to getting the right people in at the beginning."

All potential franchisees must go through a rigorous training regime, which includes in-depth examination of their financial plans, interviews and a spell working in an existing outlet.

Those who go on to acquire a franchise are subject to regular inspections to ensure they meet the requirements of the agreement with O'Briens.

Mr Sweeney believes it is important to make people aware of what they are getting themselves into when taking on a franchise. Franchising is not a fool-proof means of making money and requires good business acumen for it to be a success.

"The people we get through the process are generally very pragmatic people," he says.

"It is a truism in our business that the franchisees who do well and make money are good business people in their own right."

A good franchising arrangement is "like a marriage" in which both sides will benefit if they work together, he says.

He identifies the three key elements of a successful franchise as a good concept, a good retail location and a good operator. A certain degree of flexibility with regard to the formula is also important.

In response to dietary concerns of some sections of the population in Malaysia, the O'Briens outlets in that region started offering halal meats on their menu.

As a result, the past few months have seen the company "inundated" with interest from potential franchisees in the Middle East.

In the case of O'Briens, franchising has proven a success.

Last year, the company had turnover of €45 million and Mr Sweeney expects that this will increase in 2003 to about €65 million.