Cannibalism, rigidity and the future of franchising
27.10.2011 6829

Cannibalism, rigidity and the future of franchising

More than 70 representatives of retailers, associations and small businesses gathered on October 29 at the Second ShopAndMall.Ru retail franchise conference. The leitmotif was the discussion of the prospects for franchising in 2011 - both for franchisors and entrepreneurs-franchisees. They also touched upon topics that are burning for the owner of a store of any type - rent and calculation of the efficiency of purchases. Despite the fact that the number of franchisors among shoe companies increased by an order of magnitude this year, they did not reach the conference. Obviously, considering that the shoe trade has its own specifics, or hoping to resolve all issues on their own. For those who are still hungry for comprehensive information about the present and future of franchising, we share our impressions.

IMG_0099-1.jpgMoreover, we have much to strive for both in terms of quantity and in terms of the quality of franchises. For comparison: in the United States for 310 million people there are 750 thousand franchise points where more than 9 million people work, in Russia for 140 million people there are 20,7 thousand points and 277 thousand jobs. But the dynamics of development are amazing: for three years the franchising market has grown by 98%, here we are far ahead of the rest. In second place in terms of growth is Poland - with some 47% growth. And what’s important, through the 2008-2010 shake-up, most of the franchisors in Russia went through without dramatic complications. Foreigners look at the Russian market with hungry eyes. Those who came in the 90's are already feeling well. Those who ventured into the 2008 crisis of the year are also on their feet. But many are still waiting for their finest hour.

The conclusion suggests itself: tomorrow we proceed to the development of a franchise program or buy a franchise.

Where to lay straws?

Possible difficulties were shared by Svetlana Yarova, Head of Astera Realtor Real Estate Agent, and Anton Korotaev, Head of Analysis and Consulting at RRG.

Sharp moments that were, are and will be: the lack of retail facilities or the wrong choice of the facility, complex relationships in the "love triangle" of the franchise-franchisee-broker, restrictions on the development of the network, associated with the indifferent position of the franchisee, who has enough money to live and operating outlets ...

Place under the sun

Each franchisor is very demanding on the choice of store location, sometimes making very stringent requirements. “Yes, to open a multi-brand boutique from the end in the basement is not good,” Svetlana Yarova agrees, “but you always need to look at the neighborhood, what is the future profitability of the point, evaluate cross-country ability and be more flexible in the face of growing competition.”

Anton Korotaev spoke of the same rigidity: “Beautiful and correct marketing plans suggest that if you go to Moscow, then you need to open the store first of all in the Metropolis shopping center, and if in Yekaterinburg, then in Greenwich. However, real life makes its adjustments to the calculations. You can wait an infinitely long time until you will be taken to the Metropolis, because according to the calculations this is correct, but this does not bother the owners of the shopping center, which has its own ideas about occupancy. And because of endless waiting, other development opportunities can be missed. ”

The inflexibility of the brand’s position or the projection of ideas about the capital or foreign retail real estate market, the strict policy of selecting stores according to corporate standards in the absence of an offer at the current time, are often one of the insurmountable restrictions in the development of the franchise network.

You can search for premises for the future store through the development department of the franchisor, through a broker or using your own franchisee. The most effective ways to find out unique offers are from an existing landlord or through a broker. In the latter case, it is very important to give the broker clear information on what criteria you will make the decision. Franchisees often look for places for shops themselves. Experts at the conference concluded that it is still better when the process is centralized and the franchisor is engaged in the search for premises. Alternative opinion: if the franchisee does not hesitate and prowls in search of a better place under the sun, then the franchisor will not insist on the place too much.

Franchising Stop Crane

Svetlana Yarova drew particular attention to the timing of the decision to sell the franchise - sometimes large grids take a very long time to calculate the opening of a point, and good rooms go away in the meantime. Now the owner of the retail space has 5-6 applicants for a place, and decisions must be made in 2-3 days. A similar situation with the trading equipment. Astera sometimes has to deal with a situation where the franchisee says: “I can repair the premises in 20 days, and your equipment from France goes 4 months.” It’s also time to change this situation - speed, speed and speed again.

The second serious limitation on the development of franchising is the smooth interaction between the franchisee and the franchisor. One of the painful questions: many franchisors keep potential partners and brokers unaware: “You call, you call, and in response, we discuss”. Svetlana Yarova advises adding a bit of respect and a bit of information - at what stage of the discussion is the project or what is not enough to speed up the discussion: maybe photos of objects, maybe attendance counters. Only a clear interaction of all interested parties, the franchisee, franchisor and broker, will ensure the opening of the point accurately, on time and in a good place. ohm, and with a broker, accompanied by a rental transaction. Only good feedback will help maintain good relations on all sides.

And finally, the third limiter is the unmotivated regional partners. Even with retail space, not all franchisees want to open new points. Naturally, you need to find out the reasons. According to Astera, there can be at least four of them: no money, the brand has a weak brand position in the region, the franchisor has a weak position in the region, lack of support from the franchisee of the franchisor in the region and, finally, the lack of financial and other benefits from opening new points . Other options are possible: the franchisee has no internal motivation, existing retail outlets are already enough, or competing projects are artificially weakened (especially if the franchisor has its own shopping centers).

Anton Korotaev developed the last topic in particularly detail, because for existing networks the cannibalism of outlets is one of the urgent problems. Cannibalism Anton Korotaev calls three variants of competition:

- sales facilities of the parent company - sales facilities of the franchisee;

- shopping facilities of two franchisees operating in the same city / region;

- franchisee retail facilities - a competing network / non-network facilities.

As a solution to the problem, the RRG expert offers a cluster approach to territory planning.

A cluster is a territorial unit of geographical zoning, limited by physical transport “barriers” and taking into account the uniformity of its socio-economic and geodemographic aspects. With a cluster approach, it is simple enough to predict the volume of future sales. As an example, Anton Korotaev gave calculations for a supermarket in the Taganka region (a similar approach can be used for shoe stores).

Cluster characteristic

The Taganka cluster is located in the central part of Moscow. On both sides it is limited by rivers. A feature of the cluster division of the central part of Moscow is that the clusters here are smaller in area. The Taganka cluster can be called a business district, since a large number of office centers are concentrated in it.

Predominant Function - Business Cluster

Cluster Area - 231 ha

Population - 63 082 people

Number of households - 20 221

The average age of the population is 47 years

Average income - 34 800 rub.

Average Housing Year - 1960

The volume of new housing construction in the cluster since 2003 of the year amounted to 12% of the total housing area or about 2,5 thousand apartments, which indicates the low pace of housing development in the cluster. This is due to the fact that in the central part of the city, point residential development is limited. The cluster is characterized by the high cost of both residential and commercial real estate. Near the metro, the average rental rate for retail premises is more than $ 2000 per sq. m per year.

The main trading objects of the cluster

The cluster is almost completely absent network grocery supermarkets. Food retail is mainly represented by small non-chain stores and tents. The probability of consumption in the supermarket by the population from the coverage area, calculated by the Huff method, is 69,35%. Due to the presence of an obstacle (Taganskaya Square) in the pedestrian access area, the estimated turnover can be reduced by 10%. But at the same time, a high pedestrian flow along the street. Marxist and Taganskaya, as well as a high number of “daily” population (high business activity in the region) will add to the estimated turnover of about 20%

One of the important details discussed at the conference is so far this is only a small touch, which may become a trend in the future. The fact is that franchising is undergoing a transition to a new level of development. At the first stage, there were simply franchisees on the market who bought the right to sell the brand. At the second stage, professional franchisees appeared who buy franchises in bulk and work with several franchisors at once. The next stage is that franchisees will buy broken points and bring them back to payback.

More than 70 representatives of retailers, associations and small businesses gathered on October 29 at the Second Retail Franchise Conference ShopAndMall.Ru. The leitmotif was the discussion of the prospects of franchising ...
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