Franchisor knows how to turn a buck

Amazingly, he claims he’s never had to take anyone out by force. “We work them out of it,” he says of those who don’t fit into the system or have financial difficulties. “If they’re cooperative, we’ll help them sell the stock and they can get out.”

The Globe and Mail
August 9, 2000

Franchisor knows how to turn a buck
Bud Walker signs on franchisee-agents to expand his chain of dollar stores across Canada
John Southerst

Not many people look at a dollar store and think of trust companies. Bud Walker did, and now he owns a franchised chain of 98 dollar stores that rang up sales of $35-million last year.

He may also have solved a few of franchising’s traditional sore spots along the way.

Mr. Walker knew a thing or two about trust companies when he started the Great Canadian Dollar Store system in Victoria back in 1993.

The former stockbroker had founded Pacific & Western Trust, based in Saskatoon, in 1980, then sold it after quadruple-bypass heart surgery in 1991.

He moved with his wife, Vivian, and their children to Vancouver Island. A couple of years later, a friend recognized Mr. Walker was getting restless and suggested that he take a look at the dollar store concept of discount merchandising. Mr. Walker soon bought the Great Canadian name from a Saskatoon company.

At first, the Walkers kept close to home, selling franchises around British Columbia, especially in smaller towns where rents are lower. Then came a request from Kevin Kane, a potential franchise in Quispamsis, N.B., near Saint John, about 4,000 kilometres away.

It was a typical franchising conundrum. As a small system, Great Canadian’s $60,000 startup cost is about one-quarter the cost of larger, better known systems. Mr. Walker wanted to build his trademark, but he didn’t have the wherewithal to set up an eastern network to help Mr. Kane out.

“I warned him about our ability to service a franchise on the other side of the country,” Mr. Walker says. And then he remembered the trust company.

“At Pacific & Western, we couldn’t afford to build dedicated branches, so we hired agents to sell out [guaranteed investment certificates] and mortgages, usually insurance agents or financial institutions,” he recalls. “That’s what made me think of the agent idea.”

And so Mr. Kane became Great Canadian’s first franchisee-agent – and it seems to be working. In exchange for franchisee training and continuing advice, he gets one-third of the $15,000 franchise fee and one-half of the 4-per-cent royalty stream from every franchise he sells.

Since buying his first franchise in 1997, Mr. Kane has established 28 dollar stores throughout Atlantic Canada, with five more in the works. Each store generates about $350,000 in annual sales – nearly $200,000 in total royalties alone for Mr. Kane. He also owns five stores of his own.

“Initially, I thought it was too good to be true, “ Mr. Kane says. “I was looking for a fault in the agreement. It was very generous on Bud’s behalf, but he said it was a way to expand to the other end of the country without being on a plane all the time.”

Mr. Walker, 64, has now signed four other franchisee-agents – one each for Alberta, Saskatchewan-Manitoba, Ontario and Quebec. “It’s the smartest thing I’ve done,” he says. With so much riding on the success of the franchises they sell, the agents spend a lot of time with their franchisees.

Mr. Kane agrees. His hands-on approach includes trying new suppliers in his own stores before recommending them to the franchisees. “I want to make sure that everyone in the system renews after their five-year term is up.”

Small franchise systems often struggle with on-the-ground franchisee support, and even in larger systems, where in-store consultants are generally corporate employees, franchisees are sometimes sceptical of their value.

“Franchisees often see corporate field staff as outsiders,” says Trevor Walker, 29, the Walkers’ younger son and director of franchise operations. “Ours draw from the real experience of running a franchise. It’s more of a partnership.”

The agency arrangement is only one symptom of an organization that seems to be making an asset of good franchisee relations. For example, franchisees sign the head lease with their landlords. In most organizations, the franchisor signs the head lease so it can evict a franchisee who is terminated, but Mr. Walker didn’t want to be responsible for paying rent if a number of franchisees went under.

“You only need 10 bad stores and you’re talking $40,000 a month in rent,” he reasons. Amazingly, he claims he’s never had to take anyone out by force. “We work them out of it,” he says of those who don’t fit into the system or have financial difficulties. “If they’re cooperative, we’ll help them sell the stock and they can get out.”

Mr. Walker also declines one of a franchisor’s greatest perks, the supplier rebate. He simply negotiates supply agreements, then lets franchisees deal directly with the suppliers to keep volume-purchasing discounts in their hands. “Our theory is that retail is tough,” he says. “The franchisee has to buy at the best prices he can. If we bought on their behalf, we’d have to charge anywhere from another 5 per cent to 15 per cent for that and the warehousing. So we don’t take rebates. If we can’t do it on our 4-per-cent [royalty], we’ve got a problem.”

Gerry Molnar, a retired corporate lawyer who has advised Mr. Walker from the outset, says Great Canadian’s quick expansion is built on the profitability of the individual stores. “For Bud, the franchise relationship is everything,” Mr. Molnar says. “If the stores succeed, so will he. So the driving force is to work with the stores to allow them to succeed.”

He recalls, for instance, that Mr. Walker set up a warehousing and distribution operation at first, but when he saw costs rise and franchisees didn’t have flexibility in stocking their stores to meet local needs, he discontinued it. “He found it too restrictive.”

Last year, the royalties and fees added up to $1.1-million in revenue, up from about $80,000 five years ago in the days before franchisee-agents. As for Mr. Walker, he’s not talking about slowing down just yet. He estimates another 100 stores will open in Ontario and Quebec alone by the end of next year. The United States will come next, with the small towns of Maine and Washington near the Canadian border the likely first targets.

“But I do what I want to do,” he says, and that’s visiting the stores and his five agents while Vivian and sons Trevor and Kevin, 39, split the duties of developing and running the franchise operation. “They do a lot of the things I don’t like doing,” Mr. Walker admits. “I might as well be honest.”

His approach is a worthwhile franchising lesson. In leaving plenty on the table, for his agents and franchisees, Mr. Walker appears to enjoy the best of all worlds – growth, prosperity and peaceful franchisee relations. It’s not an easy combination to achieve.

John Southerst is a Toronto-area writer who can be reached at ac.ratsi|htuosj#ac.ratsi|htuosj


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