Company owned stores: are they necessary in a franchise?

Should you or shouldn’t you? Is it worth the hassle to run a corporate store when you’re so focused on boosting the franchise network? 

Franchisors have a variety of reasons for investing time and money into the retail scene through operating their own outlets.

Professor Lorelle Frazer, director of Asia-Pacific Centre for Franchising Excellence at Griffith University says most franchisors keep their corporate retailing to a minimum.

“Franchisors typically have only a small number of company-owned units, in addition to their predominantly franchised outlets. This is highlighted by the findings of the Franchising Australia 2016 survey undertaken by Griffith University’s Asia-Pacific Centre for Franchising Excellence,” she explains.

“Whilst some very large retail brands have more company-owned units, the survey shows that the median number of company-owned units across respondents was just one unit, increasing to two company units in retailing. One third of brands (35 percent) are fully franchised, with no company-owned outlets at all, according to the survey.”

The Grill’d burger chain has developed with a strong corporate line-up of stores balancing the franchised outlets as part of its strategy.

Another retailer has chosen recently to lessen its corporate presence and step-up its franchise focus. Vacuum cleaner retailer Godfreys is turning to franchise expansion to deliver stronger financial results in the group, it announced in October last year.

The company plans to have 140 franchised stores in its 244 network within three years. That means up to 60 company-owned outlets will be sold off to give greater emphasis to the franchising model – 18 of these in 2017, the majority in the second half of the financial year.

Chairman Rod Walker says “This streamlining of our store portfolio will enable greater management focus on our more profitable larger format stores. It will also deliver medium and long term improvements to both profitability and the balance sheet.”

Some franchise chains choose to keep the balance between corporate and franchised outlets fluid, opting to step in to run high-value sites or key locations when no franchisee is available. These may then be franchised at the right time – or they may stay as big income earners for the franchisor.

Frazer says “It is generally considered to be best practice in the franchise sector for franchisors to have a small number of company-owned units. Not only does this help to keep a franchisor in direct contact with their customers, it also provides a valuable ‘sandpit’ or ‘innovation hub’ for a franchise business to trial and ‘test-run’ new products and services, without having to rely on franchise partners.”

Greg Nathan, founder of Franchise Relationships Institute, echoes this view.

He says "This is extremely useful for three reasons. Firstly it keeps the franchisor team more in direct touch with the customer, instead of getting indirect intelligence from franchisees.

“Secondly it enables the franchisor to pressure test its own operating procedures to ensure things are working the way they are supposed to.  

“And thirdly, it gives the franchisor added leadership credibility that it can practice what it preaches. This last point is not easy, as our research shows franchisees usually run a more efficient operation in terms of driving sales and controlling wages and stock."