Franchising proves to be great outlet for business

 

The alarm goes off and Penny and Pete hop out of bed. Penny heads for the bathroom where she makes liberal use of products from the Body Shop. Pete fills a bowl with cereal and opens the fridge - no milk - so he pops out to his local Centra store and buys some.

Pete wears his favourite tie from Tie Rack to work while Penny dons novelty socks from the Sock Shop. On their way to work they stop for petrol and Pete pays with his American Express card. He drops Penny off to buy a lunchtime sandwich from O'Brien's Irish Sandwich Bar and stops at a drive-through McDonald's and orders a breakfast to go.

Between waking up and arriving at work Pete and Penny have supported seven retail franchises.

"Franchising as a way of doing business is growing by around 25 per cent per annum in Ireland and there are now more than 130 different franchises operating here employing more than 10,000 people," says Mr Michael Bradley, manager of Ulster Bank's small business unit which deals with funding for franchising.

"People are attracted to franchising because of its established success rate. Those going into business on their own experience a 50 per cent failure rate within the first five years. The rate for franchised businesses is just 7 per cent over the same period. The cost of getting set up in a franchise varies but the average cost is £50,000 (€63,490) and we would typically look for people to have 30 per cent of the start-up costs themselves," he says.

The estimated turnover of the Irish franchise sector is £300 million a year and there are approximately 1,100 franchise holders here. The costs of buying into a franchise vary significantly depending on the type of business. For example, a small service franchise involving one person and a van would cost around £10,000 whereas the cost of taking on a franchise requiring staff and a retail premises could be 10 times that.

The cost of a franchise from O'Brien's Irish Sandwich Bars is £100,000 while McDonald's asks potential franchisees to have £30,000 to £40,000 available in ready cash.

But this is only a small part of the total funding required.

"We have a training period of nine months for potential franchisees and if they are successful we have various finance options they can avail of such as an `earn in' scheme which gives them a capital sum to work with," says Mr Derrik Smith, who heads the franchising function for McDonald's in the UK and Ireland.

"We have a fairly rigorous assessment programme and the people who get through it tend to be successful with their own outlets. High energy types in the 35-45 age group are ideal as we have a 20-year franchise term. We have 45 years experience in the franchising business and the McDonald's franchise tends to attract a lot of interest. Over the past year we've had over 1,300 enquiries about it from Ireland."

Of course franchises do fail and not all franchisees are successful, but it remains a reasonably secure way of getting into business for oneself while having the support and experience of the franchisor in the background.

The big attraction of buying a franchise is that the business idea is tried and tested and that the mistakes have been made by someone else. Ethical franchises offer those buying in four key elements: training, a proper legal agreement, ongoing support and an operations manual which covers all aspects of how to run the business.

"We have had outlets which have gone wrong, but comparatively few, and we've only closed one location," says Mr Brody Sweeney, founder of O'Brien's Irish Sandwich Bars which has just opened its 100th outlet.

"THE PERSONALITY of a potential franchisee is more important than their background or experience. We have all sorts of people on our books from teachers and accountants to bank managers and labourers and it's their drive, tenacity and ability to follow the system that makes the difference."

Mr Sweeney set up O'Brien's in 1988 but it was six years before the first franchise outlet opened. "The idea was good but things didn't start off very well and the business lost money for the first few years," says Mr Sweeney who already had experience of the franchise sector through Prontaprint.

"I was in Prontaprint with my Dad and when he died I decided to do something else. I was attracted to the idea of sandwiches because it was simple food - no cooking required - and I thought the business could work abroad if we could give it an Irish theme."

O'Brien's now has 50 shops in the UK and is developing outlets in Australia and Singapore. The company aims to open 34 shops in 2000 and a further 60 next year.

At one time a large percentage of the franchises operating in Ireland had overseas owners, but there has been a steady increase in the number of Irish-owned franchise operations. For example, Supermacs, O'Brien's, Abrakebabra and Super Valu-Centra are all indigenous franchises.