Retailer profitability and sales Featured

7:00pm EDT February 28, 2007
Franchisors often struggle with trying to run an efficient retail network while increasing market share and keeping their franchisees profitable. Business management has traditionally focused on unlocking the profit potential of an individual site or franchise. But the rich data available can also lead to overall sales improvements for the franchisor, if used correctly in a business management system.

“Not only are business management programs essential to a franchisor’s ability to understand the dynamics of his brand on a retail site level, the quality of such programs significantly contributes to a franchisee’s perception of franchise attractiveness,” says Jim Blades, vice president of European operations at Urban Science, a global Detroit-based sales channel optimization consulting firm. “A business management program can improve franchisee performance and also can inform on profit-critical decisions for the franchisor.”

SmartBusiness recently sat down with Blades to discuss the components — and benefits — of a world-class business management program.

How is business management used to achieve a stable, successful retail network?

The most successful franchisors have a 360-degree approach to retail network management: embracing number, location and performance of individual outlets. In particular, they give attention to understanding the dynamics of their brand on a retail site level, achieving distribution stability by attracting quality franchisees, helping existing partners to reap the benefits of their investment, or identifying sites requiring improvement. Also, increasing competitive pressures and squeezing margins for franchisees point to the need to re-invigorate programs that monitor retail site metrics.

By analyzing key financial metrics across retail sites within a given franchise network, we can understand causal factors behind profitability and sales and benchmark competitive sites against one another. Only the franchisor is in a position to do this. That’s because individual site metrics, in isolation, cannot reveal the drivers of performance that must be understood and monitored. The ability to analyze the sum of all the data from individual franchisees releases valuable understandings for the benefit of all. Businesses that have a robust process — a business management system — for releasing the value of the collective network experience have a significant competitive advantage.

What are the components of a world-class business management system?

Business management programs conduct analysis, create benchmark-facilitating composite reports, reveal best practices and can lead to identifying the key performance indicators that are associated with best-in-class performers. The best programs also pay particular attention to the accuracy of data collection. If data is inaccurate, the conclusions drawn from it will be distorted.

A world-class program will provide expert and quality advice to franchisees in data interpretation and in the implementation of recommended actions to improve their site’s performance. This is key to establishing the franchisee’s confidence and support for such programs.

Experience shows that in successful programs franchisees use the composite reports, best-practice reports and key performance indicators available through business management programs to improve their performance across the board, including areas such as operating controls, departmental profit, sales per salesperson, business planning and increased ROI.

What can the franchisor hope to gain?

Franchisors compare the performance of retail sites in different markets, synchronize the franchisor’s and franchisees’ planning programs, and set targets for improvement based on objective parameters. An understanding of what is driving franchisees’ profitability feeds into the franchisor’s strategic planning for market development. It gives insight into network stability and identifies sales volume at risk. It informs on important profit-critical decisions, such as margins and incentive planning.

Franchisors can expect an important but often-overlooked impact of business management in the field. When the field staff has a proper appreciation of the drivers of their outlets’ business, the quality of dialogue between franchisee and field staff and the robustness of planning is considerably improved.

Releasing the potential of collective network experience through an effective business management program is a goal that more than repays the investment in systems and processes.

JIM BLADES is vice president of European operations for Urban Science. Reach him at site@urbanscience.com. For more information, visit www.urbanscience.com.