I’m an independent operator. Can I survive through conversion franchising?

In the current climate of economic uncertainty, some independent small business operators will be predicting worse to come and considering what options are available to them to increase their chances of survival.

For some, this will include giving up their status as an independent and joining their business to a franchise chain that might previously have been a rival.

This doesn’t mean that the business owner sells, but rather rebrands from “independent” to “franchised”, and can potentially access more benefits through improved buying power, marketing, management expertise and support, and greater process efficiencies through improved IT and logistics, among others.

The idea of moving from independent to franchised brand will be lost on those businesses that have no competition from franchise brands, or whose business model is incapable of being adapted due to a complete incompatibility of offers.

However others may find that this is the perfect time to embrace their franchise competition and join them rather than try to beat them.

Particular types of independent businesses that might embrace franchising include real estate agencies, mortgage brokers, fuel retailers, convenience stores, fitness centres and some home services businesses.

Sectors where customers are becoming increasingly scarce, or where sales volumes or margins are evaporating, are most likely to be open to the idea of conversion.

But once a business operator makes a conscious decision to change over, it is not guaranteed that they will be welcomed with open arms by their nominated franchisor.

For a start, conversion franchising is not something that many franchisors have experience with, especially if they operate in different business sectors from those nominated above.

Also, the business owner may not meet the franchisor’s prevailing selection criteria in their own right, or even if they personally do meet the criteria, the location of their business may not.

The idea of converting an existing business to become a member of a franchise network may suddenly lose its appeal if the business owner is required to relocate and incur substantial costs to source and build or outfit a new site.

Finally, the franchisor may not actually need a franchisee in that location if there are already franchisees operating there. The independent aspiring to convert may then have to consider an alternative franchise brand, or continue on their own and risk slowing going out of business.

However, there are also benefits for both the franchisor and the newly-converted independent business owner if both can come together.

The franchisor will gain access to a heightened level of local expertise and royalty stream from a business that is already generating sales. A sound conversion program can also accelerate a network’s growth, however the length of time to complete a franchise conversion is not to be underestimated and is often longer than that required for acquiring new or “greenfield” franchises.

There are also downsides, one of which might be that a franchisor partners with a converted franchisee who was already destined for business failure, and now has someone to share the journey with.

Converted franchisees will need to be treated differently from start-up greenfield franchisees and may seek concessions such as lower franchise fees, or a contribution by the franchisor to the costs of conversion.

There may also be resistance to the franchisor’s brand in the local market and the franchisee themselves may not be able to fully adapt to the franchisor’s way of doing things and will continue to do things in their own habitual manner, even if these are not compliant with their franchise requirements.

Nonetheless, conversion franchising may offer some business owners an opportunity to join with a strong partner to increase their chances of survival at this time. Franchisors who are positioned to work with both conversion and start-up franchisees will also maximise their growth opportunities in the current environment.

Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 18 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues. In his spare time, Jason is a passionate collector of military antiques.

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