Achieving and Maintaining Robust Growth in a Sluggish Economy
Constantly reinvent to stay relevant, profitable and continue to grow.
The quickest road to defeat for any franchise brand, no matter which segment, is to wait and conduct “business as usual” in an economy that calls for new and innovative ways to thrive.
During the past five years of challenging economic times, instead of stressing over skyrocketing operating costs and market conditions, it was refreshing to observe a wide variety of franchisors across multiple categories being innovative, standing out and marketing their products and services in an entirely new way. It seemed that more franchise systems were seeking ways to do things better and differently to get through the storm, as opposed to burying their heads in the sand.
While some brands weathered the recession better than others, the overall lesson learned was to never be complacent – to constantly reinvent to stay relevant, profitable and continue to grow. At Marco’s Pizza, some of the system’s strongest growth occurred during the economic downturn. In fact, in a one-year period alone, more than 100 locations were added, eventually achieving the 400-store milestone in 2013.
The question is often raised, “what is the secret sauce for those who not only sustained, but attained significant growth during the downturn?” More importantly, franchisors wonder how they can duplicate that growth during any economic climate. The answers are not so much a secret recipe as they are fundamental, smart business practices. Here are some ingredients to consider when it comes to creating and sustaining growth, regardless of the economic state:
- Leadership is priceless. The presence of a strong leader becomes absolutely critical when economic challenges test the strength of a franchise system. During tough times, employees at the home office of a franchise begin to stress and panic over job security and the long-term effects of financial strain. It’s important to be transparent and honest about the financial stability of the system, yet remain optimistic that its positive efforts will play a key role in helping the system to face the economic conditions head on. Senior management should play on the strengths of other team members to reinvent old ways and use outside sources to evaluate the working and non-working aspects of the franchise system. Part of being a great leader is to hold a vision and have the ability to delegate. It’s critical to keep your promises.
- Build a culture of accountability. To successfully grow a franchise system, a franchisor will want to recruit and retain employees who take responsibility for their work, which includes both their successes and mistakes. While building a culture of accountability starts with a leader taking ownership, that sense of ownership will transcend to employees − making the business leaner, more efficient and fiercely competitive.
- Find your niche. Understanding what differentiates your brand comes back to knowing its strengths and weaknesses. Turn to your customers and outside experts for a thorough evaluation. Whether it’s your fresh never-frozen products, 1920s design or in-home specialized service, find a niche and capitalize on it. By defining your niche market, you have the ability to be extremely strategic and maximize your marketing budget by targeting a particular market. All messaging should revolve around whatever the unique factor is that gives your brand the upper hand. For example, all direct mail, email, ads and text messages are crafted specifically to strike a chord with the niche you have established and the target customer you are trying to reach. This approach has a direct impact on sales.
- Create financing options for potential franchisees. According to IFA’s recent 2013 Franchise Business Economic Outlook report, access to credit remains limited, with 52.9 percent of franchisees indicating that the lack of lending is having a negative impact on their business. A franchise system can’t continue to grow without adding new franchisees; however, an inability to secure loans creates a barrier to growth. This is an example of an area where franchisors truly needed to get proactive and innovate during the recession − and will need to continue to do so for many years to come. Strategies include private-equity funding to assist operators with down payments, securing lines of credit and offering franchisees financing options through the franchisor, or building relationships with local community banks with more flexible lending policies. These types of strategies allow new franchisees to get into the system, as well as giving existing franchise owners the opportunity to open additional locations.
- Franchise Business Partners. Franchisors live in a symbiotic relationship with their franchisees and therefore play a crucial role in growing the brand. As the franchisor, it is your job to make sure you stay focused on what matters to them – the profitability of their stores. When store profitability is up, they grow. That is the circle of life in the franchisor-franchisee world.
- Act locally, not nationally. While national and global goals may be something to aspire to, in a tough economy, market share is won on the local level. A motivated franchisor helps franchisees get active with local businesses, schools and charitable organizations, especially in targeted franchise development markets. Creating a strong brand name in a local market will build reputation and lead to potential growth opportunities. Even as a franchisor, establishing the brand as the neighborhood favorite holds superior value for long-term growth.
- Small changes, big difference. While many franchisors surrendered to economic despair, laying off employees, closing locations and cutting budgets, others grew their brands without painful sacrifices. Evaluate expenses at every level and start small. For example, by simply redesigning packaging to a thinner box, Marco’s Pizza was able to reduce shipment space substantially, creating savings up to 25 percent. The same is true for printing costs. By finding a way to systemize the printing process, for example through predesigned templates and bundled print runs, $5,000 to $10,000 can be saved per franchise.
Loyalty is everything. Customer loyalty becomes critical during tough financial times. Hire smart and spend time with store employees to ensure customer service is up to par. While honesty, integrity and sincere kindness are obvious characteristics of successful customer service, a franchise system will not be able to build customer loyalty without a strong product. Not only will customers benefit from high-quality service and products, but the franchise system will reap the benefits of a successful business. For example, this year, the Marco’s Pizza franchise received more than 27 percent of new restaurant applications from Marco’s Pizza customers. Additionally, 30 percent of applications came from referrals of existing owners who sought to share franchise opportunities with ambitious entrepreneurs.
Overall, continued growth for a franchise system requires a proactive approach. The lesson learned in the down economy was: never be complacent. A combination of strong leadership, accountability at all levels, franchisee support, financing options for expanding your system, cost efficiencies and a strong focus on customer service and loyalty at the local levels all contribute to the fate of a system. None of these strategies is rocket science − they are fundamental best practices that should be employed as a franchise system’s way of life, not just put into play when times get tough for “survival mode.”
John Butorac is president and CEO of Marco’s Pizza, which operates more than 425 stores in 32 states and the Bahamas. Find him at fransocial.franchise.org via the directory.