Retail news. Semester 1 of 2014 table of contents

Franchisor, franchisee relationships - getting it right. By: Dale Audagnotti | 14 Nov 2013

The five stages in the franchisor-franchisee are well documented with good franchisors ensuring they add value to the relationship at each transition stage of a maturing relationship. In our experience, the only time the relationship goes wrong is when people get into the restaurant business for the wrong reasons, seeing it as a social business rather than a way of life that takes commitment and hard work.

We have refined our processes to the degree that we can anticipate each phase in the relationship and proactively address it.

For instance, there is the well-known 'glee' or 'infatuation' phase that we call the honeymoon period. We know from experience that this lasts six to 12 weeks, depending on the size of the town and variety of competition - and we know that this early success can easily go to the head of the franchisee. Sometimes the franchisee can believe it is all his own doing, forgetting the novelty factor and the franchisor's reputation typically precedes it.

Apart from inflated expectations, it can also allow a degree of mismanagement to seep in as franchisees lift their foot off the pedal. In addition, without constant micro-management and controls, gross margin can fail to live up to expectations. It is human nature perhaps then to blame the franchisee for false promises. After all he or she has no control over his gross margin and has to sell at a designated price. However, experience suggests the usual culprit is pilferage resulting from poor controls, or failing to cut staffing levels after the honeymoon is over.

We anticipate each of these issues - usually just in a small minority of cases - and ensure we are in constant communication with franchisees to advise them as we see issues materialising. In fact, any difficulty is easy to manage with our systems and controls - provided the owner is prepared to accept touch conversations.

We guide and train the franchisee on controls, which is a massive aspect of his scope of management. We show him and implement the systems, but they thereafter must be maintained. The secret is daily stock takes, tight control of receiving and both regular and random inspections to keep staff on their toes.

We take franchisees through our rigorous staff selection process and screening checks - once again, this discipline has to be maintained. Of course, managing a store is not all about checks, controls and micro managing - a manager will also not succeed without some empathy for his staff. An ability to listen is one of the most under-rated management skills, as this establishes trust. If staff believe the owner is on their side, they will assume a greater sense of duty.

The franchisor-franchisee relationship similarly works better, where both parties can also have open dialogue. Some franchisees like to keep a closed book, not wanting the franchisor to know how well he is doing. This is to totally misunderstand the nature of the relationship. The franchisor only does well where franchisees do well, so our interests are fully aligned.

We go to a great deal of trouble to select the franchise manager carefully, as he is the fulcrum of the relationship. We ensure we appoint individuals with an empathy and understanding of entrepreneurs - who look at problems not just from our perspective but understand the owner's point of view. This is no checklist-relationship, but based on understanding and a willingness to point out to owners what could happen if they fail to follow our tried and tested systems and controls. The consumer expects a certain experience based on what the brand stands for. We have a combined 200 years' experience in this business, which franchisees can learn from.

We are clearly in a challenging economic cycle and the key to the relationship is for management to remove as many barriers as possible to the owner spending as much time as possible on the shop floor with diners.

Owners are going through a challenging time. We are pleased that despite these difficult times, the number of feet going through our shops is increasing - but revenue is not increasing at the same rate, meaning owners are having to work much harder. In this environment, a store can attract both millionaires and the penurious - and it is the owner who determines whether they become repeat clientele.

For this reason, our policy is to ensure our franchise managers do not rotate regions before they have developed a solid relationship with franchisees, yet one that does not induce complacency.

The most important method of avoiding complacency is for the owner to be on the shop floor - it is his investment and he will ensure systems are implemented and staff trained.

Loyalty programmes must make 'cents'. By: Jolande Duvenhage. 28 Sep 2012

The increase in rewards programmes in the market and a greater commitment from the companies that run them, has matured the sector and created some healthy competition in the South African loyalty market.

In addition, consumers are becoming more savvy and knowledgeable when it comes to joining and using rewards programmes - and tend to use them to extend their purchasing power and stretch their wallets.

Loyalty programmes that stay attuned and responsive to their members by giving them tangible rewards will be those left standing, in an increasingly competitive environment

Consumers want to feel as if they are in control of their finances and are wary of being exploited. We have found that many eBucks members see the rewards they earn each month as a way to stretch their wallets.

Increasing purchasing power

Rewards and loyalty programmes are seen to play an increasingly important role in the economy as they help increase purchasing power. For example, in good times, loyalty points earned by making everyday purchases can be set aside to purchase big-ticket items or luxury items such as expensive electronics, holidays or expensive jewellery.

In tougher times, members of rewards programmes tend to rely more on their rewards currency to make ends meet by purchasing everyday items such as fuel, groceries, medicine and airtime. The group has brought more retail partners on board over the last few years to add everyday value to its members. In the last year alone, nearly half the total eBucks spent each month were redeemed on necessities.

Reward mechanisms

Loyalty programmes generally use one of four mechanisms to reward members, with each reward type offering its own set of benefits.

1. 
   Discounts and cash backs - discounts offer an immediate monetary reward to members but are generally limited to transactions at specific partners. A cash back programme generally gives customers cash back in the form of a credit against an outstanding balance.
   
2. 
   Rewards currency programmes - this would be a programme such as eBucks where the rewards currency is not a reward in itself, but a means to a reward. These programmes offer versatility and choice.
   
3. 
   Soft Benefits - these hold significant appeal for many rewards programme members. In this case, the customers receives no money back and no rewards currency. Rather, soft benefits involving additional services or exclusive privileges for customers are offered. A good example is the FNB Slow Lounge.
   
4. 
   Hybrid rewards - the latest trend in the loyalty industry is to offer a combination of rewards currency, discounts, cash back and soft benefits. A 'hybrid' programme allows consumers to use their rewards currency as a way to extend their purchasing power. For instance, the group's loyalty programme allows its members to take advantage of significant discounts on earmarked items in its shop, such as gadgets, movie tickets, flights and more.
   

The different mechanisms are then packaged into a rewards programme, either offering the form of a 'club', where you pay a membership fee, or as part of a free rewards programme.

Whether a consumer prefers several frequent, smaller rewards or the ability to save or pool their rewards currency for a luxury item, the success of a rewards programme largely depends on how relevant the reward is to the individual.

It is important for consumers to establish whether their lifestyle and behaviour is aligned to the rewards programme of their choice to ensure that the most value can be derived.

Extracting value

There are a few questions for consumers to ask in assessing the value and relevance of a rewards programme:

• 
  Is the reward transparent in how much it is worth? Being able to measure and attach a rand value to a reward makes it more tangible to consumers so that it is clear to them how much the rewards currency can buy, and how far it will help them stretch their wallet.
  
• 
  How difficult will it be to earn and spend rewards? In evaluating a rewards programme, it is important to look into the actual earn rate what does the consumer need to do to earn a reward unit, and how much the unit is actually worth. Members are offered the benefit of accelerated earnings, as they can earn from more than one partner at a time, significantly boosting their earning potential. Spending rewards should also not be a difficult process and consumers need to understand where and how these may be spent. With this knowledge, consumers can decide whether the rewards programme will add value by offering them opportunities to spend on items they actually need or 'the special extras' they would like to purchase.
  
• 
  How much choice is available when it comes to spending rewards? The monetary value of a reward only represents one aspect of the full value proposition of a rewards programme. It is equally important to evaluate the number of opportunities available for consumers to spend their rewards. Some programmes only allow customers to spend in the same environment in which they have been earned while others allow members to spend in a variety of places and environments, such as online, in-store or via cellphone banking.
  
• 
  Do the rewards expire? Consumers need to know if a programme's rewards expire. For example, if a consumer is looking for a programme that will offer the opportunity to 'save' rewards for a big ticket item, they need to know how long they have to save and spend their rewards before the rewards expire.
  
• 
  Will the programme offer additional value? With the exception of monetary rewards and discounts, consumers should also consider additional services and privileges available, such as lounge access at airports.
  

Consumers need to look at the specific behaviours a programme is asking them to adopt and then evaluate if they are prepared to do so. They will also need to weigh up the value of the reward offered, how easy it is to access your reward and at what cost.

Most loyalty programmes are looking to create 'smart customer behaviour', such as better banking practices and, by slightly changing a few behaviours such as using electronic banking channels, you can earn even more rewards, while saving on your banking fees.