How to succeed in franchising

“Some don’t want to worry about a franchisee who becomes so strong that it’s a threat.”…With relationships often tilted heavily in favour of franchisors, anything that gives franchisees more weight is an advantage.

The Globe and Mail
June 17, 1996

How to succeed in franchising
STRATEGY / Owners with more than one location are often most profitable, if the chain allows it.
John Southerst

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Uniglobe Advantage Travel president Michael Merrithew says some franchisors discourage multiunit owners because they believe being on-site all the time generates better results. Catherine Lash/The Globe and Mail

Want to make money in franchising? Meet Michael Merrithew, president of Uniglobe Advantage Travel Group Inc. in Toronto.

Believe it or not, he’s a humble Uniglobe franchisee, not the franchisor. In fact, he owns two franchises and, according to Profit magazine’s list of Canada’s 100 fastest growing companies, he ranks 48th with five-year revenue growth of 1,197 per cent.

Profit reported his sales last year at $17.6-million with net income of $116,550 – after his own management fees. Not bad for someone who bought his first franchise in 1991.

With a background in sales and marketing for Xerox, del Havilland and Northern Telecom, Mr. Merrithew’s success clearly rests on his selling skills. He says he “aggressively” pursues cold calls on potential customers, then makes presentations to those who will listen.

But he is a successful franchisee for another reason: He owns more than one outlet.

It seems to be a business fundamental that you need to own multiple franchises to rise above the much safer wages of employment. But not all chains allow it.

“It depends on the franchisor,” says Calgary franchise lawyer Gail Harding. “Some don’t want to worry about a franchisee who becomes so strong that it’s a threat.”

Ms. Harding has seen some chains undermined by powerful franchisees who unilaterally decide that royalties are too high. And if one of them has financial difficulty, they could imperil the entire business. When one franchisee represents more than, say, 30 per cent of the franchisor’s revenue, it can lead to trouble.

Some franchisors discourage multiunit owners because they believe an owner who is always on-site generates better results. “I am sure they [Uniglobe] looked at whether I’m spread too thin,” Mr. Merrithew says.

“But they also looked at my experience in marketing and sales, by training and background, my record of keeping them informed of what I’m doing and my record of profits and investment in the business.”

Once you pass those hurdles, “it’s easier for the franchisor,” he says. “There are fewer people to manage.”

Fewer people often means more sophisticated ones. Looking for a few franchisees to develop large areas is a market development strategy, Ms. Harding says. “It’s often a way, right out of the chute, to go after someone with deep pockets and a lot of experience. There’s not as much hand holding.”

In fact, sometimes it’s the multiunit owner who does the hand holding. Brian Luborsky, CEO of Premier Salons International Inc. – the franchisor for Magicuts hair salons – began as a Magicuts franchisee 12 years ago. By 1988, the ex-accountant owned 26 salons.

When the three original owners of Premier Salons quarreled and the president departed leaving the two silent partners in the lurch, Mr. Luborsky ran the entire company without pay for three months. “I had a stake in the system,” he says. “I was as concerned as the owners were.”

It’s a good illustration of one of the advantages of multiunit owners. Those with a big stake in the system are unlikely to mess with it – and the franchisor certainly has their attention. “When I had 20 or 30 locations, I was interested in everything they did,” Mr. Luborsky says.

Mr. Luborsky took a minority stake in Premier Salons and ran it as president for two years. He bought the rest of the Markham, Ont.-based firm in 1990, and this year it ranked No. 1 on Profit’s fastest-growth list with $250-million in 1995 sales.

Moreover, he still believes in multiunit ownership. Of Premier’s 400 Canadian shops and 650 U.S. outlets, about 125 are franchised to just 23 owners. One Winnipeg franchisee owns 22 outlets.

Mr. Luborsky offers another advantage to this approach: management crises are fewer. “If you lose a good manager from one store, you often have someone else you can drop inform elsewhere.”

Franchisors get another break when franchisees buy several outlets. There’s less training and explaining to be done and an experienced franchisee can probably choose his new location and a manager for the site.

Good franchisors will pass the savings along, charging a much lower franchise fee and sometimes eliminating it altogether.

If a multiunit franchisee ultimately brings in more revenue, the franchisor tends to listen. Mr. Merrithew’s franchisor, Uniglobe Travel International Inc. of Vancouver, convenes a “chairman’s circle” of its top 40 agencies each year to discuss what they think the company needs to do better and to brainstorm new ideas.

With relationships often tilted heavily in favour of franchisors, anything that gives franchisees more weight is an advantage.

John Southerst is a Toronto business writer who can be reached by E-mail at moc.eriw-eht|htuosj#moc.eriw-eht|htuosj.


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