FEEDBACK REPORT
Networking Breakfast: Johannesburg 3 April 2008

Panelist : Richard Carr (Wimpy)

Question:
Talk us through how you got involved with franchising in Africa and perhaps some of the practical realities that you have been facing.

Response:

  • Initially operated from South Africa in Namibia and Zambia
  • This was not as effective as Wimpy had hoped – lost focus and growth potential
  • Now operate very successfully with Master Licensee relationship in Angola, Botswana, Namibia and Zambia
  • It is difficult to find the right person to operate in a particular country
  • Expecting to open another 2 stores in Zambia and 3 new stores in Namibia in the near future.  This will bring our total to 20 stores

Question:
You spoke about the Master Franchising route, what does that involve from a Head Office perspective?

Response:

  • We get a lot of enquiries from people already based in a country who would like to own or operate the Wimpy brand.
  • Finding the right person to own and operate your particular brand is always a challenge – whether it is in South Africa or in another country.

Question:
Do you find that it is better to get a local to operate, or do you sometimes export a South African to run the master franchise?

Response:

  • It is best to have a local person as they know how that country operates and what is entailed with the importing of certain products.
  • In Zambia, the Master Licensee is based in South Africa with the proviso that within the next year there will be a local person based in Zambia to look after their business interest.

Question:
Do you give rights to an entire country or an entire area?

Response:

  • Rights are given to an entire country.

Question:
Do they then sub-franchise?

Response:

  • The best way to grow the business is to have a Master License in a particular country who becomes the franchisor and who franchises from there.

Question:
Do you set goals for the Master Licence, in other words do you say that you have to open a certain amount of franchises?

Response:

  • In Wimpy Master License agreements we have perhaps a 3-6 store growth over a 3 year period.
  • We may insert a penalty structure into the agreement for a growth rate, but this is problematic to enforce.

Question:
How long is your Master Licence agreement?

Response:

  • Normally 5 years with an option to renew.

Panelist : Albert      (Nandos)

Question:
Can you talk us through what representation you have at the moment and some of the challenges that you have been facing in terms of your African development?

Response:

  • The Nandos model started in the forecourt of petrol stations which did not work for us.
  • In the last few years we have been pulling these out, revising the model and then going back into these countries again.
  • We are in Nigeria, Botswana, Namibia, Malawi and Uganda
  • We are going into about 6 other countries this year.
  • Learning curve – ensure that the model is correct from the start.           

Question:
Talk us through that model

Response:

  • We appoint a Managing Director/Owner in a specific country who buys the rights to that country.
  • We then reproduce ourselves in terms of the managing, operational, marketing and financial structures in that country.
  • All those staff members are trained in South Africa and then return to their country to set up.
  • The owner decides how the company is going to grow on a company owned store basis and this is written into the Franchise Agreement.
  • If the company is not growing according to the agreement, penalties may be imposed.
  • The success rate of the company owned stores is monitored before franchising becomes a possibility.

Question:
So there is a stage process based on performance criteria?

Response:

  • The correct infrastructure has to be in place.

Question:
How do you find, screen and appoint the right person?

Response:

  • We are represented throughout the world so we get a lot of applicants.
  • We have an extensive “courting period”.
  • We invite them to visit South Africa for 3 to 4 days for us to get to know them.
  • We then go to their country and spend time with them there.
  • We build these relationships with about 2 – 3 parties and choose from there.

Question:
Do you enforce a Royalty Fee to be paid to the mother company?
           
Response:

  • We have a considerable joining fee to cover the infrastructure and to get a serious commitment.
  • Royalties are then charged on turnover as well as a fee per store that he opens in that country.

Question:
Is it a percentage fee or a flat fee?

Response:

  • It is a percentage fee.
  • When he sub-franchises he will add onto that percentage fee so we get a percentage out of the franchise unit as well as the company owned stores.

Question:
What methodology or formula would you use in determining a master franchise fee, and how do you go about doing that?

Response:

  • It depends on the size of the country and how many units can be put into that country.
  • It also depends on the infrastructure costs that will be needed in that area.
  • Travelling costs also need to be taken into account.

Questions from the floor to the Panelists:
 
Question:
Do you supply from your central kitchen within South Africa up into Africa?

Response:

  • We have a list of licensed products that the stores have to adhere to.
  • In some countries, it is difficult to get these products across the borders, so in those instances we source a local supplier who would pass our standards of operation.
  • They would then have to sign a confidentiality clause and would only be able to supply that particular brand for Wimpy.

Question:
One of the challenges noted was the tax on royalties.  How do you handle the exchange of funds and the tax implications of this?

Response:

  • Each country has their own rules and regulations and they have to operate within the constraints of that particular country.

Question:
Do you undertake to have the same level of commitment to your franchisees in Africa as you do to your local franchisees from a Head Office perspective?

Response:

  • The countries are visited at least twice a year.
  • We have an Assessment Review which assesses what the Master Licensee has achieved in that particular country.
  • They are assessed on that based on the criteria from the Master License Agreement.
  • We make store visits as well as get the mystery shopper results.
  • The standards of operation are basically the same.

Question:
Nandos has international representation.  How would you compare the challenges facing you with respect to Africa, visa via your international challenges?

Response:

  • Some countries in Africa, Congo for example, import every product.  The first thing we do is analyze what is locally available and then look at importing the rest.
  • The road structure and infrastructure in Africa in some instances is very challenging.
  • The costing needs to be carefully examined so as to not outprice your product.
  • The upside of Africa is that the products are very expensive.
  • We guage the market and try to undercut that i.e. cost our food and then add on all other expenses.
  • We sometimes set up chicken production plants in the country which is an additional cost that the franchisor will have to incur in that country.
  • The franchisor can then supply that country and can also do a few other products.

 Question:
And internationally? Is that less of a challenge?

Response:

  • Yes, for instance in Australia and the Middle East, we do not have to import anything from South Africa other than marinades and sauces etc.  All shop fittings, equipment, carpeting etc are available in these countries.  In Africa pretty much everything has to be imported.

Question:
Could you warn us of some of the risks involved in taking a franchise internationally?

Response:

  • You need to be a very solid franchisor in South Africa before you start looking to go overseas.
  • You need to be able to devote financial resources as well as people resources to it.
  • Even some of the first world countries are very different to South Africa in many ways.
  • You have to go into that country to learn about those differences, understand those differences and adapt your business model in such a way to suit that market and therefore be ready to expand.
  • It generally takes longer than you might think and involves more money and resources than you originally imagined so it is not a situation for the franchisor to expect to make quick and easy money.
  • People generally do not know your brand overseas and so you go into a new country starting from a virtually zero base.

Question:
What are some of the risks to avoid when looking at franchising your business outside of South Africa?

Response:

  • To decide what license route you are going to take.
  • To make sure that your licencee/franchisee is well screened. Having the right operator is key to the success – even if you have to spend additional time finding that person.
  • Have a good look at the competition, at the problems and the volumes that the competitive outlets are doing to assess whether your product could be successful in that country.
  • Do not compromise on your product that is successful in South Africa.
  • Don’t be scared to walk away if it doesn’t feel good – you will save yourself a lot of pain at the end of the day.  Once you have chosen the right people you will make a lot of good money – Africa’s not that bad!!!!