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Never mind Encroachment, WE need more franchisees!
Brave New World, or Brazen New World....Its hard to know
Howard Bassuk
Something is troubling me...there is a noise inside my head that simply will not go away. I am sure you know the feeling. It’s that cocktail party, large room, everyone talking, lips moving, nobody really able to hear anything, type of feeling.
You know how it goes. You hear the noise, and sometimes you can make out a word or two, or even a sentence or an idea but you never quite hear enough to be a real party to the conversation.
You have heard enough to know that the topic being discussed is franchising. You’ve noticed that at times the conversation is calm and friendly, and at others, the conversation becomes much more animated, and the noise more grating and hostile.
When the noise is positive, it’s enthusiastic, bubbling, effervescent, upbeat, and optimistic. Sometimes it’s filled with a joyful elation that makes spirits soar. Sometimes it’s the opposite: mournful, ominous, threatening, foreboding, and downright scary.
Despite the passion of the people making the sounds, you realize that there is a problem. When all is said and done, with all the points of view, it’s still just noise! It seems to generate a lot of heat, but not much light! It’s long on passion and rhetoric but regretfully short on solutions. It’s the din that sometimes comes when two decent, but opposite, sides come together to talk.
You recognize that these two different groups, speak the same language, but somehow are unable to communicate effectively with each other. It’s almost as if they were speaking past each other, instead of to each other. Their conversations tend to focus more on what happened in the past, whether good or bad, right or wrong, than what can be done to improve the future.
Listen to how different they are. One conversation revolves around how wonderful franchising is. It talks about the success stories, the growth opportunities, franchising’s record sales volumes and the market dominance that strong franchises can enjoy. It focuses on new strategies, including strategic alliances, co-branding, and internet incorporation. It talks about sales goals met and exceeded, new technologies, brought “in house”, and even about competitive pressures as a positive motivator.
Now listen to the other group. It is just as loud, just as passionate, and totally opposite. Here, the “noise” focuses on what is wrong with franchising. The failures of some units, and of whole systems, lack of good long term planning by some franchises, and the failure of others to properly and adequately implement their existing plans. It talks about one-sided and unfair franchise contracts, the lack of power of franchisees, and the evil of encroachment (putting stores so close together that one affects the sales of another).
It bemoans the fact that sometimes franchisors, just like other businesses, expand until they have expanded too far. It makes it sound like something that is widespread and almost commonplace in franchising.
Geez...there is a lot of hubbub...Lots and lots of noise! There is no question that both points of view are full of meritorious issues. And both topics are debated with the passion that idealists everywhere bring to their causes.
One side speaks eloquently of the need to turn back excessively restrictive legislation that tries to find one nice neat solution for problems that are complex and diverse. It points out that sometimes this “solution” creates more problems than it solves.
The other side speaks with equal eloquence of the abuses that power can, and often does, bring. It points out that without protest, there is no impetus for change. It points with pride and reverence to the strides it has made in “leveling the playing field”.
As you listen, you tend to be a little bit like a weather vane, turning this way, and then that, as the wind shifts direction. You swing one way, and then the other, to and fro, back and forth. Each party makes good points. Each has examples that tellingly make their arguments.
The trouble is that for the typical franchisee, and the majority of franchisors, these issues are very often not the issues that really affect their day to day lives. It reminds me, in a way, of politicians that get so caught up in their own issues that they forget to ask the people what is important to them.
That’s the problem with noise. It can get so loud that it drowns out a person’s ability to think and analyze!
If you read the industry trade magazines, updates and alerts as I do, you would think that the issue of encroachment is on every franchisors, and every franchisees, lips.
It's not! In fact, in most franchise systems, it's not an issue at all. From what I have seen, the biggest challenge facing franchisor and franchisee alike is not encroachment, but the opposite...lack of sufficient penetration of the marketplace. That’s right, the biggest problem for most franchisors and franchisees is not encroachment, but rather it is getting the critical mass needed to succeed in each market.
Let’s get real, and let’s get basic. What is franchising all about anyway? It's a marketing strategy to help capture MARKET SHARE AND MARKET DOMINANCE! Does every franchisor, and in fact, every business chain franchised or otherwise, want it? They sure do. Do most, if not all, franchisees want it too? Yes, they do!
What is necessary for that to happen? A lot of things. Better marketing, better purchasing, better in house systems, better management techniques, better management and better franchise owners. What else? MORE units (franchises) or more unit volume in each market than the competition.
Look around you. Look at most franchisors. How have they grown? They have a bunch of units in one city (typically the one they started in), a few in several others, and a smattering of units scattered around numerous other markets. How many of those markets have they been able to dominate? Oftentimes, except for their original market, few if any!
So, why do we hear a lot more about encroachment, than we do about achieving the necessary critical mass needed to help dominate a market to maximize the chances for the franchisor and the franchisees to succeed? That’s a good question!
With all that we hear about encroachment, it surprises me that we hardly ever never hear anything about cluster marketing. “Cluster marketing” is the strategy that calls for building dominance market by market rather than having a more scattered marketing approach. It focuses a franchisor on a select group of markets rather than the more wide open “grow anywhere” strategy that many companies use. I think that this “market specific” approach to building a system makes great sense.
There are so many franchisors...literally thousands, and most have fewer than 100 units. They are fighting to grow, and fighting to capture the dominant position in their respective markets that each of them and their franchisees covet. But it is not easy. Becoming a giant in any industry is a rare occurrence.
Certainly encroachment can become an issue. But think about it. WHEN does it become an issue? Typically it’s after a system has grown tremendously, and very often after great fortunes have been made by both the franchisors and their franchisees.
Don’t get me wrong. I’m for reasonable and adequate territories for all franchisees, and I think encroachment, when it does occur, is wrong. BUT, there’s a delicate balance that needs to be struck between maximizing market share, and protecting a franchisee’s rights. There’s a fine line between having too many locations, and not having enough.
For most franchisors and their franchisees, encroachment is an issue that is remote and unfamiliar. To me encroachment is the disease of the rich and successful. little bit like gout. Too much rich food and over indulgence. Too much good living, and too much success. Never quite knowing when enough is enough. Encroachment typically occurs only in those systems that have grown tremendously, and have run out of places to grow. How many systems are there like that? Precious few.
Of course, because encroachment issues are often associated with very large organizations, it can be very visible when it does occur.
On the other hand, lack of clusters and adequate market penetration is the disease of the masses. It more closely resembles malnutrition or starvation than over indigence. With lack of “critical mass" there is little opportunity for optimal brand recognition, and little chance for the effective utilization of available media. So there is little chance for either the franchisors or their franchisees to enjoy maximum success.
To me, encroachment is a little like smallpox. It is a disease that was incubated in the past. We still have to be mindful of it, but it is not really germane to most of today’s growing systems.
Today, most franchisors grant reasonably large, geographically defined territories that prevent a franchisor from encroaching. I actually see more franchisors that grant territories that might be considered too large to properly utilize, than those who give territories that are too small.
So while encroachment is an issue for some franchisors, it is not an issue for most. It’s a tough issue. Franchisors and franchisees must find a balance between optimal market penetration and individual franchisee’s needs and rights.
However, we can’t lose sight of the fact that markets dictate need, and failure of a chain to maximize on sales could easily leave it in a non-competitive position downstream. If a major competitor increases market share at your expense, the result can be even more disastrous for the franchisees, and can be fatal for both the franchisee and the franchisor.
Lack of adequate growth is far more the common issue to most franchise systems. Yet neither side of the table seems to be championing more of an emphasis on cluster marketing. Doesn’t it make sense to build strength in a select group of markets before moving on to the next market or markets?
It’s a sound strategy to get to critical mass in a market. It allows a franchisor to provide local support in a very meaningful way. It accelerates building brand awareness.
It targets the dollars available for advertising. It makes it easier to afford radio and television and gives the franchisor and the franchisee a real chance at “owning a market”. You’d think that clustering would be a very common strategy. It’s NOT!
Admittedly there are franchise systems, that can grow without limiting the number of markets that they can grow in at any given moment in time. Additionally, some franchisors use “regional development” programs to grow, and still provide support and focus. Some need to grant such large territories that neither encroachment nor clusters are feasible.
But there are thousands of franchisors, and most, particularly those in the food, auto, and retail sectors need to stay more focused if they are to ultimately maximize their successes.
Want to know if I’m right? Talk to any franchisee that is one of just a handful from that same system in a particular marketplace as they try to compete in that market. Ask them how they feel about having 3 stores in one market, 2 in another, and 4 somewhere else, but nowhere enough to dominate!
Then ask them about encroachment. They will tell you that their problem more closely resembles abandonment, than encroachment. They will tell you that they need, and would welcome more franchisees in their markets.
For the great majority of both franchisees, and franchisors, the big challenge is to provide for continued growth in a way that makes both franchisees and their franchisor stronger. Franchisors need to be more market specific, and franchisees need to welcome that growth.
I hear it said that our politicians argue about things that are not critically important to the electorate. Politicians are not alone in this regard.
Franchising is like politics. It has differing points of view, and there is legitimacy to both perspectives.
The pity would be if we let old questions block us from seeing and working on current realities. I believe that’s the danger. It's where the “noise” gets on, and I get off.
So, be careful of the contract you sign when you purchase a franchise. Make sure it does grant you a protected territory that is sufficiently large to have a good business within it. Then, BRING ON THE CLUSTERS!
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