Lessons from PappaRich, the Malaysian restaurant, which has achieved great early success in the industry
The Australian market has proven to be a happy hunting ground for many international brands. Headlined recently by a number of overseas luxury brands, it has opened the door for many internationally renowned franchise systems to follow. Food retail is one market that continues to thrive, with international cuisines a welcome addition to an already strong food culture. Well-known Malaysian restaurant business PappaRich has achieved great early success in this industry, quickly growing to 20 stores in Australia.
Austrade predicts international visitor spending will reach $42billion in real terms by 2019-20 with China, India and other Asian nations expected to make up the majority of the spend. Consequently, international brands have a great opportunity to capitalise on visitors to Australia who recognise their business and can relate to favourable experiences.
International brands looking to enter the market via the franchising model are greeted with an industry which now contributes $144 billion to the Australian economy. The franchise model is widely accepted in Australia and offers the potential for rapid expansion.
We consider seven key areas for international franchises looking to expand in Australia.
One of the biggest mistakes international franchisors can make is underestimating the financial implications of operating in Australia. It is important to intimately understand the financial drivers that make the business successful within its home country and determine how the business needs to adapt. Australia typically has higher rental and labour costs, which can impact profitability if pricing is not set correctly. The franchisee will expect guidance with the financials and if you get the numbers wrong it can quickly turn ugly for all parties.
The most common way international franchises expand in Australia is through a master franchise arrangement. Selecting the right partner to ensure the business achieves its growth ambitions is vital, along with establishing communication networks between the franchisor and master franchisee. PappaRich Australia’s General Manager, Jian Hui Lee, believes articulating what support will be provided and having clearly identified requirements of all parties allows for open conversations with the Franchisor to resolve any issues.
Several franchise brands have ran into trouble by not having a close eye on franchisee activities. Not only must you have the systems in place to ensure appropriate monitoring, coaching and support of franchisees, but you must also have a thorough franchisee recruitment process to ensure you attract the right people. Establishing a culture of transparency is more likely to encourage the right franchisee behaviours from the outset.
Product quality and availability are usually critical sources of competitive advantage and often it is impractical for international brands to import all products from existing international suppliers. Although it is a challenging and time consuming process to source local suppliers who can replicate product quality and provide the capacity to support the expanding franchise business, it is critical to the franchise’s success.
For food franchises, establishing a central kitchen provides greater control over product quality and can reap significant supply benefits. Lee reflects on the success of establishing a central kitchen as the backbone of PappaRich Australia, “We understand the importance of consistency and establishing a strong quality control procedure. With our central kitchen, we are able to grow the business nationally (even to New Zealand as well). Knowing that we have invested significantly in the facility gives our team and franchisees high level of comfort and confidence in the brand.”
It is extremely risky to enter any overseas market without registering appropriate trademarks. Particularly in the franchising sector, if you sign franchisees without the security of protecting your intellectual property, the ramifications can be very damaging.
Customised Operations Manuals
Operations manuals must take into account the local operating environment (particularly legal implications such as fair work practices and other employment regulations). Franchisors sometimes place a lower priority on updating their manuals and these may not necessarily be relevant for the Australian market. As franchisees use these manuals as their guide for operating the business, incorrect information in these documents can lead to franchisees leaving a bad taste in everyone’s mouth.
Seek out specialists that know the industry well. A solicitor can navigate the Australian legislation (Franchising Code of Conduct) and business advisers can provide guidance on local market conditions. “It was time consuming to identify the right partners, including architects, builders and other suppliers, but it was critical to establish relationships with these partners and ensure they were familiarised with the business model and a good fit for the firm’s culture,” says Lee.
Surrounding yourself with the right partners who want to be a part of your business journey is worth its weight in gold.
International franchise brands who have experienced the most success in Australia have carefully researched their target market and established appropriate infrastructure to support franchise partners. One notion that remains consistent in franchising regardless of what country you expand to is the importance of creating a model that produces sustainable benefits for all parties. As Henry Ford puts it: Coming together is a beginning; keeping together is progress; working together is success. n
The author is a Senior Consultant at Pitcher Partners with 10 years’ experience in business consulting. He has deep expertise in developing strategic initiatives and reviewing business models across a range of industries to help determine the optimal growth strategy for clients. He works closely in the franchise industry and provides ongoing financial and commercial advice to some of Australia’s emerging and established franchise networks. The author can be reached at firstname.lastname@example.org