What's new in franchising?

Is he worried about competing on-line with his own franchisees? "No," he says, "they're two different sets of customers."

The Globe and Mail
October 11, 2000

What's new in franchising
Emerging concepts show its appeal beyond the fast-food sector and that influences such as the Internet bring constant change, JOHN SOUTHERST writes
John Southerst

If you're looking for the next big wave in retailing, you could do worse than to check out new franchising concepts.

Although overnight success is rare, the past decade has seen the quick ascent of franchises offering frozen yogurt, bagels and alternative education.

New ideas may show changing assumptions behind the franchise relationship and, at best, mark the first swell that will become the next breaker.

The following are three new concepts that appeared at the recent Canadian Franchise Association trade show in Toronto.

Inventory v. competition: Robert Végiard's music and video reseller Recycle Musik looks to be a fairly typical retail franchiser. Mr. Végiard buys large quantities of CDs, cassettes, DVDs and videos from store bankruptcies, overstock and customer collections across North America. He then makes them available to franchised stores for resale at up to 65 per cent below standard retail prices.

But his ace in the hole is a full on-line warehouse inventory, which is set to be launched this month. Franchisees primarily carry the best-selling titles, but using the on-line system, they can also place specialty orders with Mr. Végiard's Montreal-area warehouse, where he has 500,000 items ranging from obscure European imports to long-forgotten gospel recordings.

"It's all real time," says Mr. Végiard, who has seven franchisees in Quebec and is now testing the waters in Ontario and Alberta. "You can watch the inventory go up and down as purchases and sales go through."

For franchisees, on-line ordering and wide selection without in-store inventory costs is a great advantage. But the reality of Internet commerce is that customers will also be able to order on-line. Mr. Végiard even sees independent store owners logging on to order their inventory — in fact, if vendors have negotiated supply contracts, the site will recognize them and automatically register their price discount.

Is he worried about competing on-line with his own franchisees? "No," he says, "they're two different sets of customers."

Besides dealers, he says, most of the customers who use the Web site will be outside Canada or in towns where there is no franchised outlet.

He figures store customers will primarily be students and music lovers who want the best deal. While the prices are the same on the Web site, the on-line customers will pay another 25 per cent in shipping and handling costs.

Web-enabling as a product: The Web opens up all kinds of franchised service concepts delivered entirely through the Internet.

The non-technical franchisee is simply a conduit.

Toronto-based Mycityweb.com, for instance, is a Web-enabling service that designs and hosts sites for small and medium-sized businesses in cities with populations of 12,500 or more.

Franchisees get the right to set up the on-line community "portal" for those businesses. The portal is a Web site with the community's name in the URL, through which local residents, newcomers and visitors can find area businesses under a variety of categories and keep track of local events and activities, from concerts and town meetings to garage sales and children's sports league schedules.

"It's a way to make the community virtual," says company president Michael Drolet, "and it's an invitation to local businesses to be a part of that local portal."

All the technical work and site support is done at the company's Fredericton office.

Mr. Drolet says he has already sold seven community franchises with another 30 applications now in process. He says up to 223 Canadian communities could eventually have Mycityweb.com portals.

The advantages are typical of those for service franchisees: little overhead, the chance to work from home or a small local office and a relatively small franchise fee of just $15,000 to $50,000, depending on the community.

Choose your franchise plan: Hock Shop Canada is another "resale" franchise, which itself seems to be a trend. But it has several differentiating features. Originally a pawnshop in Barrie, Ont., the first Hock Shop made half its revenue from used firearms. Bill Hockley bought the business from his father 10 years ago and took it significantly upscale.

Now with 18 Ontario franchises, Hock Shop Canada resells used jewellery, electronics, musical instruments, sporting goods and other valuables.

Everything is refurbished and carries a warranty, with special attention to high-quality jewellery that is restored through Hockley's Goldcrafters subsidiary. Hock Shop has also moved into the "bank alternative" businesses of cheque cashing, payday advances and currency exchange.

The twist for franchisees is that Mr. Hockley offers two types of franchise plans — one for the full retail and "cash centre" outlets and another for smaller buying centres to feed the bigger retail stores. The full-scale operation costs up to $250,000 to set up, while start-up costs for a buying centre start at about $125,000 in a small-town marketplace.

"The strategy is to put five or six 'buying centres' around each central retail area," Mr. Hockley says.

"This makes sure you have enough inventory for a big retail operation."

These new retail franchise concepts are still in their early stages of development, but they demonstrate the wide appeal of franchising as a means of financing expansion and product distribution far beyond the traditional fast-food sector — and that new businesses and new influences such as the Internet will bring constant change to the franchise relationship.

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

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