Part one of a two-part special, Michael O’Driscoll chairs an in-depth and honest discussion with two franchisors who are not only leading brands during a global pandemic but have been operating in a sector battling decade-long disruption.
I talk to a lot of franchisors, franchisees and suppliers in the course of my work. I’m always looking for insight into how leaders are managing right now and what they are thinking about when it comes to the future. What particularly caught my attention was a discussion I had with two franchise leaders in the same industry sector, confronting not only the current global disruption but how they had already been confronting and leading through their own sector’s disruption well prior to the pandemic.
It was a privilege to have an in-depth discussion with Rob Dallimore, the managing director of Worldwide, and Richard Thame, the chief executive officer of Snap Print & Design. Both are Australian-headquartered franchisors that operate in the print sector with mature franchise systems and close to 200 franchise units between them, with one trading in three countries. Worldwide has been trading for 25 years and Snap has a history going back 140 years.
Talking to these experienced franchise executives led to the discovery that prior to the pandemic, they have been leading through years of disruption as their sector’s margins have been steadily eroded year-on-year due to the massive shift to digital. You can also pair this with factors like independent trade printers entering retail print along with independent printers continually dropping prices to prop up their businesses while all the while continuing to ignore – or be clueless – about how to make themselves relevant in the digital age, and a focus on adapting those business models by offering non-traditional services and products to remain relevant – with apologies to those that are running thriving businesses.
Both Richard and Rob agreed that margins have been steadily declining for close to 10 years and digital disruption has been affecting them even before that. As Rob says: “There will always be a need for print but if people could save a dollar on print, they will. We have a saturation of printers in Australia and when you have many selling at wholesale prices to clients, then you know you’re heading in the wrong direction.” Richard agrees and adds: “The whole supply chain in printing is disrupted and has been for some time. Equipment suppliers have financed printing products which reduced the barriers to entry. This led to a proliferation of printers but in a declining market. This will continue to cause problems as we become a commoditized market in which no one adds value.”
Digital disruption of print franchising
Before we even get to more of their thoughts on digital disruption, let us reflect on how digital disruption has affected their franchising programs and how these two franchise leaders are approaching this change. Rob Dallimore pulled down the company’s franchise opportunity website nearly six years ago as the brand did not feel right about selling new print franchises in a declining market sector. “We had to make the franchise model we had better,” says Rob. “We had to strengthen our market proposition so we could at least offer resales when they came up. Since introducing software we have been able to attract a small number of franchisees who are interested in running something more diverse than a print business. When we have a resale opportunity, we focus on marketing a digital business, not just a print business.”
The Snap network has consolidated 15 to 20 per cent of its network over the last 10 years. This is different from closures. It has been about combining units and remapping some territories to account for changes to the print sector for demographic reasons. In both businesses, they have multi-unit owners but are not huge fans of this franchising trend in the print industry. The best way to drive profitability at the unit level is to have owner-operators who believe in print and digital services combined with a strong, hands-on sales focus.
According to both Rob and Richard, the core challenge is finding buyers for existing businesses as they have an aging franchisee network that will look to retire or experience a sea change over the next five years. They must have a strong, future-proofed franchise offer. “We don’t want printers to buy our franchises, we want salespeople with a true growth mindset who embrace the blended model of print and digital services,” says Rob.
Richard also believes that having owner-operator franchisees will help with a focus on innovation at the customer interface rather than focussing on production efficiencies. He says: “This will only get you so far. A stronger focus on customer marketing, service and problem solving will help us sustain profitable units into the future. By far our toughest assignment is managing the expectations of our older franchisees who may find it difficult to adapt to new business methods.” Both believe this is the most delicate of balances to maintain. A strategic eye on the future and the ability to bring the franchise network with you on the journey.
Richard states: “We believe – even with industry decline – printing franchises are still making good profits compared to the margins in other sectors, but this is a false sense of security.” Rob agrees: “Look, our latest resale of a profitable franchise was sold for a multiple of less than two and it’s likely that future print franchise sales will be at even a lesser multiple. This tells you how challenging it is even though it is a business that is profitable. We have to change the way we do business to lift this multiple.” Richard also agreed with this point and said some print franchises would be lucky to see a multiple of two or two-and-a-half times earnings at the moment, regardless of how profitable they are. Innovation and constant change are being embraced to keep the franchise program attractive. But this has proven to be very challenging to fully realize, as we will discover later on.
Disruption to franchising in Australia
The 2018 Australian Parliamentary Inquiry into the Franchising Code of Conduct has disrupted the franchising sector due to the significant negative media coverage leading into and during the inquiry, which still persists today. Although organizations like the Franchise Council of Australia have worked hard to help facilitate reasoned debate and balanced media coverage, there is no doubt the sector was tarnished. This does not mean every franchise system suffered or people stopped buying franchises. There were bigger headwinds such as high employment, rising property prices, and a Banking Royal Commission which made it more difficult for people to borrow to buy small businesses. This combination has made it particularly challenging to keep scaling at pace in Australian franchising.
This, of course, is beginning to change since the pandemic and economic recession. Traditionally higher unemployment can be good for the franchise sector as people seek to change their career and buy a business to be their own boss. Franchise inquiries tend to rise during these periods of economic decline. This has been the case in Australia and elsewhere but conversion to new franchisees is inconsistent at best.
Rob says: “We didn’t really feel the backlash of the Parliamentary Inquiry. We have always tried to go above and beyond to support our franchisees. We don’t always get it right, but we are a relatively small network and ultimately if we don’t support our franchisees, we won’t survive. We haven’t been actively franchising for some time. We rejected a candidate even though he was a great candidate as we didn’t feel right selling him a new, non-established, franchise in a sector that is so disrupted. He wasn’t happy about it but I feel strongly it was the right thing to do.”
Disclosure: The author is an advisor to one of these franchise-related businesses.
THE AUTHOR
Michael O’Driscoll CFE has been in the franchising sector for 30 years. He has been a CEO, COO and board director of several franchise systems. He is former director of the Franchise Council of Australia and holds an MBA in International Franchise Strategy.
Read part two in the next edition of Global Franchise, available after April 26.
