M&M Meat Shops chain bolsters weaker links

There’s a lesson here for franchisors that profess to offer a higher profitability of success than independent business. The proof is what they do when a franchise is in difficulty, as well as when times are good.

The Globe and Mail
March 30, 1999

M&M Meat Shops chain bolsters weaker links
Through its targeted store support programs, head office invests funds to boost sales of its least profitable outlets.
John Southerst

M&MMeatShopsMacVoisin.jpg

'It costs a fortune for a store to close down or change hands,' M&M founder and president Mac Voisin says. 'It's a lot of time, money and aggravation. We'd rather put our money into keeping stores alive than closing them down.'

Eric Dickson’s first year as an M&M Meat Shops Ltd. franchisees were a financial flop. Sales at his Brandon, Man., outlet – located in the downtown of a city with 40,000 people – ranked near the bottom of the 266-store chain.

“It’s a conservative, rural area,” Mr. Dickson explains, “so you fight awareness problems from the start. People are older and more cautious around here.”

Some chains might have waited to see whether Mr. Dickson would sink or swim. Others might have cut their losses and tossed him out of the group.

But in August, 1996, M&M’s head office in Kitchener, Ont., stepped in with its targeted store support program, or TSS. Using an amount roughly equal to the royalties it receives from the bottom 10 per cent of its stores, M&M re-invests from $3,000 to $20,000 a year on its least profitable franchises. The money doesn’t have to be repaid.

“It’s socialism,” laughs Greg Voisin, M&M’s vice-president of franchising, “but hopefully, we make more money than if we didn’t have the program. If we didn’t support the bottom 10 per cent we’d lose that money anyway.”

In Mr. Dickson’s case, the socialism worked. M&M ponied up $10,000 in each of the next two years. Mr. Dickson and his local field consultant decided to spend the money on doubling the frequency of biweekly flyers during the slowest months, sending out additional direct mail, and buying a commercial barbecue for promotional events.

Today, the Brandon store is nearing annual sales of $1-million after two successive years of 18-per-cent revenue increases. It came off the TSS program in 1998. “We’re definitely profitable and showing signs of continuing to grow,” Mr. Dickson says. “Everything we did on TSS was successful. From the standpoint of a franchisee, the support of head office was incredible.”

M&M’s support program is an umbrella that isn’t reclaimed on a rainy day. During the past two years, M&M has supported between 5 and 20 per cent of its stores with TSS grants. Now, 11 per cent of the chain – 30 stores – is on the program. Of the first 40 stores that took part, slightly more than half are standing on their own.

M&M’s scheme is unusual in the franchising sector. Franchisors routinely tell prospective buyers they have a better chance of survival by running a franchise than by owning an independent business. Franchised trademarks, training and business systems are advantages not available to independents.

But franchises are as vulnerable as any business to locations that don’t fly, new competition, changed traffic patterns and unforeseen idiosyncrasies of the local market.

In these situations, franchisors’ claims are truly tested. Some disgruntled former franchisees say that when their store began to stumble, their franchisors cut off support rather than helping them – banning them from regional meetings when they missed royalty payments, withholding supplies or redirecting customer inquiries to other franchises.

Despite Mr. Voisin’s jokes about socialism, however, M&M’s store support program isn’t a giveaway. First, M&M makes sure a store isn’t faltering because of franchisee negligence. “We’re not going to pour money into the franchise if we’ve got the wrong person,” Mr. Voisin says.

Moreover, the money doesn’t go into cash flow, and the company won’t subsidize labour, rent or fixed assets with it. “If the sales level is unprofitable, it doesn’t make sense to subsidize expenses at that level,” says Kerina Elliott, M&M’s vice-president of human resources. “The issue is how to grow the business.”

The local field officer and the franchisee first conduct a store analysis, comparing it with similar – but profitable – outlets, and studying costs, work schedules and orders. “Variances often dictate the business plan,” says Ms. Elliott, to bring spending in line and identify areas of possible growth.

Once they have a plan to increase sales, the company sets a budget. The franchisee doesn’t see a cheque or money in the bank; the company pays charges against the franchisee’s TSS account.

M&M runs the risk of throwing good money after bad by investing in its worst performers. But that risk appears outweighed by the benefits it gains.

“It gives them a much better chance of weathering any storms,” says Ian Hamilton, senior manager of national franchise services for the Bank of Montreal. “It makes them a better risk.”

M&M founder and president Mac Voisin says that supporting the poorer stores also builds loyalty and team spirit on the front lines. “We started with the philosophy that we don’t want our franchisees going out of business,” he says. “Many of them put their life savings on the line and we decided we should invest in the people who have confidence in us.”

But he also acknowledges the tangible payback for M&M. “It costs a fortune for a store to close down or change hands,” he says. “It’s a lot of time, money and aggravation. We’d rather put our money into keeping stores alive than closing them down.”

There’s also the testimonial value when prospective buyers call existing operators when investigating the chain. “It pays off in spades,” the president says, “because they say real nice things about us when they talk to new franchisees.”

There’s a lesson here for franchisors that profess to offer a higher profitability of success than independent business. The proof is what they do when a franchise is in difficulty, as well as when times are good.


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