Franchising is their business… and business is good
September 8, 2003 | 12:00am
Franchising is like a marriage; but in the case of the former, more money is involved and it is ideally a win-win situation (which we can’t say the same for some marriages that start off like a celluloid fairy tale and end up like an absurd Spy versus Spy skit. Have you watched Michael Douglas and Kathleen Turner in War of the Roses, or spied on the couple from hell living next door?).
"Franchising is a long-term relationship between franchisor and franchisee – it’s a commitment," says Alegria Limjoco, president of the Philippine Franchise Association or PFA. The organization, she explains, is tasked with upgrading the industry itself. Its goal is to make the Philippines the franchise hub of Asia, thus helping out small- and medium-scale enterprises on one level, and paving the way for national development on another.
And how the industry has grown. Before the PFA was put up in ’95, there were only 50 business concepts. Now, there are more than 700 and counting. The strange thing is, Limjoco says, franchising does well despite a shitty economy – perhaps, even better. Maybe a clear example of how persistent the Filipino entrepreneurial fire is.
"When people are laid off and receive their retirement package, rather than put the money in a bank or put up a sari-sari store, they acquire franchises," Limjoco explains, adding that in countries like Malaysia and Singapore, there are grants and loans to encourage people to go into franchising – there is much to be desired here in our sad archipelago, however.
Franchising, broadly defined, is duplicating a successful business. Note the word, successful. You see a lot of successful establishments being cloned left and right, with the entrepreneurial Dolly the Sheep having the gall to franchise their copycat businesses, with adverts in the dailies to boot. So, a certain criterion must be set.
"We at the PFA have come up with a fair franchising standard. We need to monitor both parties, and are very careful in accepting members. We make them probationary, at first, and we also give them two to three years to prove they have a really good concept."
Limjoco suggests to potential investors to check first with the PFA, which has 180 franchisor-members, both foreign and homegrown – including the big ones such as McDonald’s, Jollibee, Greenwich, Chowking, KFC, Wendy’s, 7-11, Pizza Hut, Pancake House, Max’s, Goldilocks, Red Ribbon, Bench, Kamiseta, Reyes Haircutters, and Bayo, among others. Another key tip from the PFA president is to know the location of the other franchises and chat with the owners, who may either be floundering in the ocean of loss and zero profit, or sailing the glittering seas of success. And success stories in the sphere of franchising are a-plenty. Just take the case of Reyes Haircutters.
Les Reyes (Ricky’s younger brother) started with a couple of small beauty parlors that catered to the middle-class. They didn’t do well. Beauty product companies before didn’t want to do demos for Les. So, he changed the thrust of his salon (came up with a catchy name – Reyes Haircutters), as well as developed his own shampoo and beauty products. The business grew. That was when beauty product companies started banging on his door to do demos.
"We can cite him now as one of the storybook success stories. Two years ago, the salon had only 20 branches, and now it will be 180 at the end of the year. Fifty of them are company-owned, the rest are franchises," Limjoco enthuses.
Another successful entrepreneur is Charlie Milan, a De La Salle management student, whose Pizzito has done quite well. Milan started with a cart, which offers saucy and cheesy bite-sized pizzas. Now, he has close to 50. That’s the stuff daydreams are made of.
"Before that, Charlie was retailing sports shoes. He ended up with a stockroom full of shoes in the wrong size and wrong style," says Limjoco. Milan, who nearly blew his savings on that venture, decided to pursue a different business and approached the PFA.
"In cases such as this, we tell people like Charlie that they must have a passion for what they are doing. He loves cooking, so he doesn’t mind working long hours in the kitchen. It’s his passion, so he can focus on it." Thus, pursuing a business that had something to do with food wasn’t a shot in the dark for Charlie.
Another successful franchisor is Jay Aldeguer of Island Souvenirs. "Do you know that Jay already has franchises in Singapore, Okinawa and San Francisco? And he has so many stores in the Philippines," Limjoco shares. "And he started with designing shirts."
Milan, Reyes and Aldeguer are just three entrepreneurs who seemingly have found the yellow brick road to success. Pizzito, Island Souvenirs and Reyes Haircutters are just three franchising feats worth emulating.
"The same with the owners of Bayo, Kamiseta and Plains & Prints. They are still very young. They all started with small businesses. Some of them were concessionaires," says the PFA president, referring to Gonzalo Roque III (Kamiseta), Ferdinand Agustin (Bayo) and Ericson Farillas (Plains & Prints). "Their stories are so inspiring. In college, they dreamed of designing and selling clothes. They knew what market they wanted to target. Now, look at how far they have come."
Is a business long enough to project its future success, and large enough to provide a level of earning that would make it an attractive investment?
"Size and longevity is important," says Limjoco. "Sometimes, a business is successful in the first year, and then it just tapers off. It is wise to wait a while before venturing into franchising."
Does the business make money, consistently and predictably?
Money matters, indeed.
Can other people be taught to run the business in the same way that the franchisor does?
This is very important, stresses Limjoco, and this pertains not only to the aspect of operations, but the very culture of the business itself.
Can every task be replicated?
It must first be determined if another individual could produce the same results that the franchisor has achieved. This is where systematization comes in.
Can the business concept be effectively communicated and sold to others?
The marketability of the franchise is another important element.
Can the business work just as well in different market situations?
"The market or the culture in Visayas and Mindanao is different from Luzon," observes Limjoco. "Therefore, adjustments have to be made. Study the market first."
Does the business have a point of difference from its competitors?
Distinction is key. So is originality. "Don’t forget competitive advantage," says the PFA president. "The franchisor must always be on his toes. Look at companies like Bench or Penshoppe – they have branched out into other clothing concepts. They know what the market wants."
Is the business affordable?
Limjoco says, "After a franchisee has paid the initial investment in your franchise fee, the cost of getting into the business, and ongoing royalty, will there be enough profit left? This is one consideration franchisors should never lose sight of."
The PFA president has one more important piece of advice for franchisors: Since franchising is like a marriage, don’t be in a hurry to make the commitment.
"It’s a long-term relationship," she says. "The franchisor must not be dazzled by the money of prospective franchisees. He must study first the profile of the prospect."
Makes perfect sense, since the franchisor, just like the groom or the doting bride, doesn’t want to end up with Freddy Krueger for a lifetime partner.
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