Few bakers in the UK run a franchising operation and those that do, such as Wm Stephens in Scotland, Muffin Break, BB’s Coffee and Muffins and the various pasty franchises, are in a small minority.
In January 2006, Euromonitor International reported that the ’bakery products fast food’ category, which includes sandwich chains Subway and Quiznos as well as Krispy Kreme, witnessed value growth of nearly 5% between 2003-04 in the US, whereas the burger and chicken fast food sectors showed only 1.6% and 2.8% value growth, respectively.
"The high growth achieved by bakery fast food is even more remarkable considering that it is the second-largest fast food sector, following only burger restaurants," it said. The most compelling reason for this was the ability to easily open new outlets. So, is there an untapped opportunity for bakers to go into franchising in the UK?
"There have been bakeries that have tried franchising but it has never really taken off," says Chris Dabner, parliamentary officer for the National Association of Master Bakers (NA). But with modern bake-off techniques it would be more feasible, he notes; all you’d have to provide would be a bake-off oven and product could be delivered frozen, if production and distribution are already in place.
But its not just a case of "driving up and dropping off the product", says André Sarafilovic, MD of Wm Stephens, which has 24 bakeries set up in Scottish convenience stores. These outlets require a separate management team with dedicated in-house telesales, to help with ordering, returns and sales projections, marketing and point-of-sale.
"There’s a lot of back-office service work involved," he says. "The big issue is the amount of time spent training the people at the sharp end on how to handle your product properly.
"You have to bring your retail expertise to the customer. You have to convince the franchisee, or in our case, the convenience store operator, that you have a successful record in bakery retail before anybody will take you seriously."
Franchising is very much about repeating a successful model, rather than coming up with a notional model, agrees Phil Craston of Quiznos. "It’s about branding," he says. "There might be a natural evolution where there is a bakery company with a name that’s recognised, which they could franchise off the back of. For every franchise there is a royalty to pay, so you need to be building a store that can operate well beyond its break-even point."
The initial outlay of anything from £50-£150,000 - for market research, pilot schemes and promotional material, training, forming a central management team and equipment - would put some bakers off. "Long-term, it can be very profitable, but there can be periods of negative trading at the beginning of a franchisor’s life, where there are a lot of costs to put the system in place and to support franchisees, while those franchisees are not sending a huge amount of money back to the franchisor," says Dan Archer, head of marketing at the British Franchise Association. "If your aim is two to three outlets, then you’re better off borrowing the money; but if you want multiple units across the UK, franchising can help a business grow quickly."
What is franchising?
Franchising involves granting a licence to others to sell your product or service. The term "franchising" has been used to describe many different forms of business relationships, including licensing, distributor and agency arrangements. ’Business format franchising’ is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the name of the franchisor. This comprises an entire package to establish an untrained person in the business and to run it with continual assistance, and involves charging an initial fee to set up and commanding continuing fees for the support.
So why expand through franchising? The franchisor retains control over his products and services. Since franchisees invest their own money, they are likely to be highly motivated to succeed. Centralised costs and overheads are usually lower for a franchise network than for a network of company-owned outlets. The downside is that the franchisor will need to commit substantial amounts of time and money before the income stream begins.