Franchise Market Update
Market Research by Texting
Shared information can provide a wealth of benchmarking datas
BY DARRELL JOHNSON
The multi-unit operators highlighted in this issue have gained both
market dominance and respect for their achievements. Wouldn’t
it be nice to follow in their footsteps? How does one go about doing so? Bookstores are full of how-to books on every aspect of strategic and tactical business building. Yet, ultimately, it mostly
comes down to trial and error because the single biggest factor
is you and the people around you in your company.
The probability of success can be enhanced considerably for any given company when you are armed with good information at key decision-making times. In tougher economic times, as we are facing for the
foreseeable future, most companies turn much more strongly to operational efficiencies as a way of preserving profitability. That is natural
when top-end growth is challenged by economic uncertainty.
Every business in the U.S., from Fortune 50 companies to high
school part-time babysitters, faces this challenge. I mention babysitting
because my daughters confront a common business issue: what’s the going rate for their services? The way they solve it is to get on the phone
(okay, they actually use text messaging) and ask some friends. Within
minutes they have enough data to make an important business decision.
So why don’t we do the same thing in our businesses, whether it be pricing issues, cost issues, or operational issues such as how much training
or field staff support is enough? What are the metrics that should be
used for benchmarking?
The usual quick response to the above questions is that babysitting
high school students aren’t in direct competition with each other, so
their willingness to share information is greater. My response to that is
twofold. First, in the franchising community, there are 3,500 brands
and about 200,000 franchisees. Are they all direct competitors? Second,
let’s assume you are all direct competitors at some level. Does that mean
that you can’t find a way to share certain types of information in a way
that others can’t determine the individual source? Wouldn’t you love to
have some of the performance metrics that this magazine’s featured
multi-operators use for success?
As many of you know, I have several decades of commercial and investment banking experience. I had a wonderful vantage point to observe how businesses operated. Among the business types I worked with
were cooperatives (some of which are familiar to many in the franchise
community, like Best Western, Ace Hardware, True Value, and multi-brand franchise purchasing cooperatives).
One of the things that struck me as odd was that while a cooperative
structure was designed to have a shared sense of equality and purpose, it
often stopped short when it came to sharing member data. The same is
true for the franchise structure. In both cases, when it comes to information sharing they are at a significant disadvantage to businesses operating as company-owned chains. A company with 50 company-owned
units has the opportunity to gather lots of decision-making data about
what is working and not working in all 50 units. A company with fran-
chisees operating 50 units all too frequently has a much more limited
understanding of many of the operational and strategic issues confronting the franchisee decision-makers.
Clearly, some franchise organizations do a better job than others of
sharing operational performance data. And size of organization is not an
excuse. For instance, I recently talked with the president of a 6-year-old,
21-unit sub sandwich franchise brand. In their system, sharing operational data is not just encouraged, it’s mandated.
He said two key things drove their ability to benchmark. First, they
required a standard chart of accounts for certain operational line items
so everyone was providing information on an apples-to-apples basis.
Second, they showed how valuable the information was to individual
franchisee performance. Nothing generates enthusiasm more than improving financial results. Rather than having competitive resistance, it
led to healthy competition to be the best. Now that’s the American way.
Of course, it’s much easier to establish a benchmarking program if
you start a brand that way. We continue to identify between 50 and 100
new brands every quarter. Are they paying attention? *
However, you haven’t lost out on benchmarking if you are in an established system that doesn’t emphasize it now. It may be harder because
of a lack of a common chart of accounts, but it isn’t insurmountable.
Franchise systems have lots of performance metrics for which franchisees could supply data relatively easily. There just has to be an appreciation of the value this represents and the leadership to drive it,
whether from the franchisor or franchisees. It can be done with full understanding of whose data is whose or completely confidentially. It can
be done internally or through a third party, which is often how we have
become involved because it puts confidential data in the trusted hands
of someone other than the franchisor or franchisee.
Benchmarking isn’t just restricted to a single brand’s own performance.
There are many performance metrics that cut across brand, and even sector, lines. One of the primary purposes with this magazine and its associated conference is to bring together multi-operators who share their experiences. Isn’t that just another form of benchmarking? By virtue of operating with a common business model, multi-unit franchisees have certain
performance issues in common, regardless of sector, as they expand.
We are clearly in an economic period that puts greater emphasis on
operational performance. Starting a benchmarking program if you don’t
already have one isn’t just a good idea. It may become a necessity to
compete with the chains that already have that advantage.
In tough times, when you focus more on expense reduction, how
much does a dollar saved affect your bottom line? Right. So what are
you waiting for?
Darrell Johnson is president of FRANdata Inc., an independent research company based in Arlington, Va., that has been supplying information and analysis for the franchising sector since 1989. He can be reached at (703) 740-4701
or at www.frandata.com.