Franchising:
saviour of the high street or HR nightmare?
Retail – and growth? When it comes to UK GDP, few economists would put ‘the
state of the retail sector’ in the same sentence as ‘prospects for the growth
of UK Plc’.
The high street
has been shaken, not just by consumer migration to online retail, rather than
physical shopping, but by the lighter wallets of the population as they
struggle to make ends meet. According to a December 2011 report by the
Department for Business Innovation and Skills (BIS), retail spending in town
centres has fallen to 42% of total UK retail spend, from 49% in 2000 - and is
projected to fall further to 40% by 2014.
Manufacturing,
infrastructure, customer services and of course the small and medium-sized
enterprise (SME) sectors are the vessels of hope in the Government's plan to
claw the UK away from the threat of double-dip recession. Mary 'Queen of Shops'
Portas has even been wheeled out in an attempt to bolster the beleaguered - but
still 'good old' - British high street.
Peter Shrimpton,
managing director of recruiter, Randstad Retail, explains: "Oddbins,
Habitat, La Senza and Woolworths are all quite literally not on the high street
anymore. Although overall employment in the retail sector rose by 0.5% in the
final quarter of last year, a total of 42 retailers went into administration in
the same quarter - a rise of 27% on the third quarter.
"And, while
the future of Peacocks in 2012 has recently been secured (thanks to a deal with
Edinburgh Woollen Mill), its reach has been severely curtailed, with the loss
of 224 stores - leading to 3,100 redundancies with immediate effect. Retail
employment accounts for 10.5% of all UK jobs, rising to 40% for all under-20s
in employment. Essentially, retail is a major force for tackling youth
unemployment and future prospects, especially since the sector spends more per
head on training than either the finance sector or manufacturing," says
Shrimpton.
But one branch of
the retail sector is clawing its way out of the ruins of economic uncertainty
and offering jobs to those with the inclination to make it as an entrepreneur.
Yes, franchising is back in vogue.
Buying a franchise
has become a popular route for people hoping to be their own boss - under the
umbrella of a well-known brand. While for corporates, licensing a successful
business model can be a cost-effective way to grow.
Could it be that
this is the answer to the problem? Businesses can grow (franchisors are often
retailers - Body Shop, Benetton and Avon are some of the most well-known);
entrepreneurial spirit is nurtured; and SMEs will spring up, giving the
unemployed local jobs in local areas (convenience stores, including Budgens,
Londis, Spar and Costcutter, operate using a franchise model).
Roy Seaman, MD of
Franchise Development Services, says: "This is a wake-up call for the
Government to make the most of the opportunities that franchising can do to
help the UK economy nationally and internationally. There are 20 MPs who are
supporters of the method of starting a business by owning a franchise, as well
as encouraging owners of successful businesses to expand by franchising."
The majority of
customers will view franchisees as simply 'managers' of company branches, but
the model also means that they are the MD, FD and HRD rolled into one - and not
only will they have the HR policy of their own business to maintain, but that
of a much larger banner to conform to. Yet keeping on top of HR issues and
employment law within a franchise network of individual small businesses is a
challenge, to say the least. For most of the franchisees, it is a question of
moving from employee to employer, overnight.
Whether someone is
running a branch of McDonald's or one of 18 Nicenstripy garden care operations,
the profits will only roll in for everyone if the franchisees can find and
motivate employees at a local level - and they buy into the national or global
brand.
So could
franchising be the saviour of the economy - or is it an HR nightmare?
As soon as a
franchisor licenses its idea, HR support must be available, either in-house or
through an HR outsourcer, to help the business grow and to avoid costly HR
mistakes. The financial damage of losing an unfair dismissal claim, for
instance, will come off the bottom line of both franchisor and franchisee,
while any negative PR that arises for the brand could have a knock-on effect on
other franchisees' businesses.
McDonald's is
taking no chances when it comes to people strategy within its franchised
businesses. Hopeful franchisees have to navigate themselves through 'several'
interviews to ensure they have the right philosophy to run a McDonald's branch
- key attributes include personal integrity and leadership skills.
Then they have to
embark on a training programme, which typically takes nine months. This
involves visiting and working in several restaurants, as well as
classroom-based tuition.
McDonald's offers
no salary or form of payment during this period, so its would-be franchisees
have to support themselves while they learn about the jobs and they have to pay
the company a refundable £5,000 training deposit.
This is before
they have to pay for the restaurant - which will be somewhere in the region of
£125,000 to £325,000. There is also a one-off franchise fee of £30,000 (on top
of the training deposit). While they work under the McDonald's banner and
although they are an SME MD, they are 'encouraged' to commit to the brand's CSR
and community agenda.
But while
franchising has been established in the retail and hospitality sector for
years, it is now moving into the financial sector. Insurance provider WPA has
been selling franchises since 2005. Charlie MacEwan, a director at the firm,
explains: "We used to have a direct salesforce, but began to believe they
were less concerned about the quality of the business they were bringing in -
but were being incentivised on their client wins. Being a not-for-profit
organisation, we decided to move to a franchising model where we would reward
our franchisors for business growth and this culture complements our
philosophy. There are so many high-quality candidates coming out of the rat
race - or indeed who may have been made redundant.
"Franchising
allows them a 'half way house', where they can have much more control than an
employee - but they are not on their own."
WPA offers
franchises (based on a geographical area in which to sell insurance) at a cost
of between £7,500 and £10,000 and this includes WPA's training, examination, IT
support and a local mentor to help them grow their business. While MacEwan
maintains that franchisees are self-employed, he adds: "We say no to more
people than we take on. But we don't necessarily need any experience - we
recruit people for their attitude and we do the rest. And while the franchisee
is responsible for his or her own business, from an HR perspective we have to
ensure they are behaving as we would expect."
Responding to the
trend, the British Franchise Association (BFA), whose members include
Bathstore, Mail Boxes Etc and Snappy Snaps, is also increasing investment in
the amount of HR training it offers, including providing more legal advice.
BFA marketing
manager Tom Endean encourages HRDs at its franchisor members to communicate
regularly with their franchisees.
"Guidance on
recruitment and disciplinary issues from a franchisor can be extremely valuable
and HR support is usually included within the licensing fee, because the
franchisor does not want a people management issue to damage the brand,"
he says.
Working closely
with franchisees is the policy at Cash Converters, which buys and sells
pre-owned goods. It began as a single store in Perth, Western Australia in 1984
and is now an international brand with 210 stores in the UK, of which 155 are
franchisee-owned.
Rachael Franklin,
head of HR and training at Cash Converters, joined in 2010, at which time the
HR function was outsourced. She immediately brought it in-house and asked
franchisees what support they wanted. Top of their list was more help to ensure
they had the correct employment policies in place and advice on recruitment.
"By listening
to them and acting on what they said, we built trust, because you cannot tell
them how to run their business, you can only encourage and persuade them,"
she says. The company has an HR training programme for managers and the
one-store and multi-store franchisees meet every quarter. "Because we have
company-owned as well as franchised stores, we can share best HR practice with
our franchisees," says Franklin. "We share our policies and
procedures with them and this stops any knee-jerk reactions to people issues.
The secret is to make sure they know we are there as an HR resource."
She recalls how at
one regional meeting she met a husband-and-wife franchise team who were
struggling, despite putting in the hours. She spent time with them and advised
them on how they needed to give their staff more responsibility and adjust
everyone's working hours, so the business would become more profitable.
Cash Converters
has a strong relationship with local Jobcentres and has created standard job
descriptions, which franchisees can use locally. Vacancies across the network
are shared, so talented people can move if there is an opportunity to advance
their careers.
US-based
restaurant multinational, Yum! Brands, which owns household names such as KFC
and Pizza Hut, has more than 80% of its stores owned by franchisees and plans
to grow that figure. James Watts, vice president HR and chief people officer,
KFC UK and Ireland at Yum! Brands, says there must be a culture of
collaboration with franchisees when it comes to HR. He knows he cannot dictate
what storeowners do, but he can, in his words, "strongly recommend".
"We have a hiring management software system and online recruitment, selection
and screening tools they can use," he says. "We make sure we put
forward a sound business case for why they should be using them."
Head office also
advises franchisees on what their organisational structure should look like and
it expects most franchisees to have their own training budget and training
managers.
They are expected
to assess what training their staff need and ensure they attend Yum! courses,
including the organisation's 'Developing Champions' training programme. An
online training system called Learning Zone launched last month.
"The
customers don't know who owns our stores and regard it as one company and
brand, so we make sure we promote our 'How we win together' cultural values and
our franchisees follow these in their restaurants," says Watts. "We talk
about the capability of our people all the time and our franchisees need to
have the same mindset as we do. We help them to see there is a clear link
between having the right people, managing them well and a healthier bottom
line."
The CIPD says a
franchised business will only succeed if there is consistency in terms of
customer service and culture, so consumers have the same experience wherever
they are in the country.
"Franchisees
need to gain knowledge and skills and often want to be helped by the franchisor's
HRD and their team with the basics, such as how to recruit and manage
payroll," says CIPD adviser, Angela Baron. "They also need to learn
the 'whys' - why they should keep staff engaged, for instance." She adds
outsourcing the HR function can mean HR processes are more consistent across a
franchise network. It is also one way to manage employee data and ensure
compliance around employment law. "But this by itself will not mean you
have smiling staff in a store. Additional work needs to be done to show
franchisees how their staff are crucial when it comes to adding value to the
business."
The HR Dept is a franchised business with 45 franchisees
across the country owned by HR professionals. They in turn provide SME
franchisees of other brands with telephone-based and on-site HR support.
"The franchisees soon realise employing the right
staff and taking the right decisions on people issues is crucial to making
their own business a success," says director Tom Doherty.
Doherty says HRDs must be aware of common mistakes made
by franchisees. These include failing to find the right people to fit the brand
culture or to provide a career structure, so people can grow with the business.
"Franchisees tend to fall down on HR processes, rather than not having the
will to do things properly." One franchised business to use The HR Dept is
Nicenstripy. There are 18 Nicenstripy franchises that control a holding
company, which pays The HR Dept out of the collective franchise management
fees.
Derrick Swain owns the franchise for a large area of Kent
covering 230,000 homes and he employs three people. "Areas such as health
and safety can seem very complicated, so we need defined HR policies,"
says Swain. "HR is not always something you can do yourself, especially if
it comes to employment tribunals or questions over maternity pay - where you do
need advice."
Many first-time
franchisees have never had to employ people before and to them HR can be a
scary distraction from the core day job. Regular communication with experts at
the franchisor or externally is vital to ensure their dreams of running their
own business - or the franchisor's brand - is not damaged by poor people
management.
Additional
reporting by David Woods
Top
20 franchises in the EU
·
7-Eleven (37,496 outlets) - retail
·
Subway (35,000 outlets) - restaurants
·
McDonald's (32,805 outlets) - restaurants
·
Kumon Institute of Education (26,311
outlets) - education
·
KFC (22,000 outlets) - restaurants
·
Europcar (13,000 outlets) - automotive rentals and leasing
·
Pizza Hut (12,700 outlets) - restaurants
·
Burger King (12,000 outlets) - restaurants
·
Mexx (11,600 outlets) - retail
·
Jani-King (11,000 outlets) - hygiene
·
Curves International (10,000
outlets) - health and beauty
·
Domino's Pizza (9,000 outlets) - restaurants
·
Dunkin' Donuts (8,835 outlets) - restaurants
·
Century 21 (8,500 outlets) - estate agents
·
Re/max (7,500 outlets) - estate agents
·
Yamaha Music School (7,200 outlets)
- education
·
Dia (Carrefour) (6,475 outlets) - retail
·
Fornetti (6,464 outlets) - distribution
·
Benetton Group (6,200 outlets) - retail
UK
statistics
·
Estimates of the net worth of the UK
franchise industry vary. The British Franchise Association (BFA) puts the
figure at £12.4 billion, but according to the Norwich Business School at the
University of East Anglia, the franchise industry could be worth as much as £20
billion a year
·
The British Franchise Association
(BFA) estimates there are more than 521,000 people working for about 900
franchised brands
·
The overall number of franchise
systems in the UK is 897
·
The number of UK franchisee outlets
is 36,900, 90% of which are profitable, according to the BFA
Case
study: Domino's Pizza
Pizza chain
Domino's has about 130 franchisees and 21,000 staff working across 720 stores
in the UK and the Republic of Ireland.
Recruitment and HR
are handled locally by franchisees, but the head office provides training,
technology and HR tools to help them manage their people more effectively.
"It can be
difficult to guide and advise a franchisee and to get them to manage their
people in a particular way, if there are cost constraints, or the owner does
not have the same agenda," says UK HR director, Jane Franks. "As the
master franchisee, we have a significant influencing role to play and need
strong communications skills to convince franchisees of the best course of
action. We have to build trust."
She says all HR
decisions across the franchise network must be taken in the context of
developing the employer brand, protecting the brand's reputation and supporting
the growth of everyone's business.
Domino's Pizza was
founded in Ypsilanti, Michigan in 1960 by Tom Monaghan. His goal was to have
three stores, hence the three dots on the company logo. Today, the company has
more than 9,000 stores in more than 60 countries.
"The
partnership relationship we establish with franchisees means having minimum
standards and procedures, which we audit regularly. We work closely with the
franchisees when there are areas of concern and help them strive for
improvement in how they manage their people," says Franks. "There
also needs to be an access point for the franchisee's employees, so we have a
team member careline."
She is keen for
her head office HR team to help every franchisee become more profitable.
"We can do
this by improving any HR process. This way, the employer brand grows and it
attracts a bigger pool and a better choice of candidates," she says.
"The franchisees
that are known for taking HR and their people processes seriously can be
approved for expansion within the franchised estate."
Case
study: Signs Express
Ken Bevis has
owned the Signs Express signs company franchise for northeast Lincolnshire for
20 years and is grateful for the HR support he receives from the franchisor's
head office in Norwich.
His is one of 75
Signs Express centres across the UK, with a combined staff of more than 500. He
employs more than 20 people at his centre in Grimsby and as an SME he gets
assistance when he needs it on potentially complex HR areas such as employment
contracts, health and safety compliance and staff disciplinary procedures.
"It is
important that as a small local business we can have bespoke employment
contracts and not just generic ones downloaded off the internet," says
Bevis.
"There are
many HR issues that come along from time to time and which I need help with.
There can be sensitive issues to deal with, such as an employee's mental
health, or theft in the workplace."
Signs Express's
head office pays Norwich solicitors Leathes Prior a retainer to have
24-hours-a-day access to its HR specialist lawyer, Dan Chapman. It means action
can be taken quickly to avoid any legal action because a franchisee has acted
improperly.
"I would
initially speak to our head office and they would email Dan with brief details
and he would confirm in writing what action we need to take," says Bevis.
"We effectively get talked through any HR issue, so we can concentrate on
our core business."
The Signs Express
head office also helps franchisees find staff through an active vacancies
section on its website.
Source: Steve Hemsley
www.HRmagazine.co.uk
More information about the HR Dept
http://www.hrdept.co.uk/se_london.htm
