FRANCHISE FILE
RETAILERS NEED TO REVIEW THEIR BUSINESS MODELS TO FIND CUSTOMER BENEFITS OTHER THAN PRICE, SUGGESTS SIMON LORD.
THE MAD BUTCHER franchise is in the news after having had six stores put into liquidation over the past 15 months, including the very first shop that former owner Sir Peter Leitch opened in Mangere. While several of the stores are trading again, overall store numbers are down from 40 to 34 according to the NBR.
The liquidator’s report on the Mangere store blames a flawed business model; the franchisee blames excessive price competition from the supermarkets; while the franchisor puts the blame squarely back on the franchisee – after all, it points out, Mangere was a topperforming store when it was sold to the current franchisee just three years ago.
As always, there is probably an element of truth in all three points of view. The onus, though, is on the franchisor not just to defend its position but to review its business model and support structures to ensure that it really is giving its franchisees the best possible chance of success. There is no shame in this: just like a car, all franchise systems need a regular tune-up to ensure that they really are delivering the performance of which they are capable. It is the duty of franchisors to initiate this, and of franchisees to co-operate fully with the process in order to deliver the best possible outcomes for all concerned.
Of course, where a franchise’s customer appeal is based upon lowest prices above all else, it is always liable to competition – especially in the case of our duopoly of supermarkets. Using loss leaders to attract customers is one thing; using them to drive others out of business is the sort of approach that, if they were Chinese steel manufacturers, might generate accusations of dumping and a public enquiry.
Harried by large competitors and the ever-increasing appeal of Internet shopping, many retailers are constantly looking to cut corners so that they can cut prices. The result, however, is that many are discounting when they don’t need to.
Consider the experience of a friend who bought a kitchen appliance recently. He saw what he wanted in one shop at $195. Elsewhere in the same mall, the same appliance was $165, so he went to buy the item in the second store, only to find that it was temporarily out of stock. He was prepared to wait a couple of days to save $30, but at this stage the duty manager said, “I’m sorry about the wait – look, because it’s just going to be in and out, I can do it for $135.” Another $30 saved. In fact, the item took more than a couple of days to arrive so the store offered to ring him when it was ready. When they did, they apologised for the inconvenience – and took another $16 off the price. As he picked up the item, the manager said, “You’re lucky – you’re getting this at very nearly cost price.”
Consider this: at no point had my friend asked for any sort of discount or compensation for what was, after all, a minor inconvenience. The retailer’s staff had simply given away not just the profit but the contribution to its overheads – including their own wages. I’d like to think that a franchisee would have been rather more switched on to how business actually works.
THRIVING UK EXAMPLE
I recently visited a motorway services area in the UK that took a much more enlightened approach to retailing. It’s too close to the start/end of many journeys to be an obvious place to stop, but it’s made a virtue of its location by offering something different – it’s set among ponds and waterfalls and, instead of the normal mix of shops, features a nice café and a truly magnificent farm shop offering an in-house deli, butchery, cheese counter and a mouth-watering selection of pork pies and other locally-sourced delicacies. I was so impressed, I took photographs!
Talking to friends later, many said, “Oh yes, we know Tebay Services, we always make a point of stopping there. Sometimes, we even make a special trip.” The place is apparently thriving, as it has since 2004.
Truly, price isn’t everything.