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superhenryleo-blog · 5 years ago

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THE KIOSK CRAZE

Kiosks have been the retail buzz word of the last 20 years. What now? Shopping centres used to be spacious areas for making your retail purchases, where architects designed wide “boulevards” you could wander down easily, looking at what was on offer on both sides.

This spaciousness was deemed no longer necessary by the “powers to be” who own the shopping centres, and the kiosk was introduced, firstly as a temporary lease (often before Christmas or similar sales times), which then morphed into a typical 25 square metre permanent retail shop in the middle of the aisles. Certain clients like Boost Juice, Wendy’s and Donut King found them perfect as a way to be inserted right in the middle of the high traffic flow, and argue for a low rent due to the smaller size than the conventional stores. Kiosks became a great way for landlords to add new tenants at the expense of the spaciousness of the centre – but the rentals were good. Now we have a situation with kiosk space demanding very high rents, and being inserted in any large spaces, and especially in high traffic flows.

BEST FOOT TRAFFIC AREA There are two words you are looking for in a kiosk: foot traffic. If you are going to be squeezed into 25 square metres, with all the inconvenience of remote storage spaces and other issues, you must be in the best foot traffic area. It is no good being on a mediocre branch of a shop- ping centre when you can see (and count) the foot traffic moving along a more major traffic lane. Most kiosks are supplying impulse items, and it is also about thinking of how the product you sell can be quickly dispatched. There is one group of kiosks that seem to not look so hard for the top impulse areas, and that is the likes of Mister Minit (keys, locks and tags) and possibly some mobile phone operators, who may see themselves as more of a destination. Most kiosks are food related and are in competition with other food operators. If they are in this space, often there are good locations they can secure on the entrance/ exit to food courts. One of the most successful in this area is Muffin Break. Another question you must ask yourself is: do the demographics of the area suit what you are trying to sell? If you are selling a lower cost impulse item, then you probably have a general market. Ask yourself if your product is limited, and if so, how the people of the area match with what you want to sell. For example, if you’re selling Asian teas (such as Chatime or similar), you probably need a higher than average Asian population. ECONOMICS Can you afford the kiosk you are considering? Most lessors now see these as high income earners, and you have to think of the ratio of rent to sales. Your franchisor should have some idea of what they expect to be the maximum percentage of sales their brand can comfortably pay as rent, and you need to think in terms of what you expect to sell – sales prediction, and what the rent will be. If this is too high, expect a disaster. The other part of the economics is, what are the rental escalation clauses? Most shopping centres want to lease the space to you for five years and expect a rent increase every year, irrespective of the sales. Common requests from shopping centres are annual rental increases of around CPI + 2.5 per cent, so after five years you are probably paying CPI plus 13 per cent from where you started. Do you expect sales to support this? SUMMARY • Kiosks can generate good sales and they can be expensive in terms of rent. • Make sure the economics add up. • Is the shopping centre suitable for the products you are trying to sell – demographics? • Is it in the highest traffic flow if you are selling an impulse product? • What are the rental escalation clauses and can you afford them? Overall, kiosks can be great, but they have issues on size, storage and the rental expectations of the lessors.

#Retail Demographics Mapping

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superhenryleo-blog · 5 years ago

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How to successfully franchise in Australia

Franchise brands inbound to Australia will find a smaller but well-established franchise market. Peter Buckingham, MD of Spectrum Analysis Australia, tells you what to expect Franchising in Australia has become the distribution method of choice for some 1,314 systems and 80,000+ franchised businesses. According to the IBISWorld Franchising in Australia report

published in November 2018, the industry:

• Employs around 594,500 people • Represents $27.4 billion in annual wages • Is worth an estimated $181.8 billion in revenue

History

Franchising’s rapid growth was kick-started when McDonald’s, KFC, Hungry Jacks (aka Burger King) and some other large QSR’s brought over their systems from America in the late 1960’s and early 1970’s. Personally, I became involved in franchising when the government legislated in the Petroleum Retail Marketing Franchise Act of 1980, that every service station owned, leased or operated by the major oil companies was a franchise ̶ effective immediately, with the incumbent given nine years’ worth of franchise tenancy. This created around 8,000 new franchises overnight!

The Senate Inquiry into franchising

The franchising sector in Australia has run into some headwinds over the last year, with the Government instigating a Senate Inquiry into the operation and effectiveness of the Franchising Code of Conduct. The report released on the 14th March 2019 has given 71 recommendations which the Government will have to decide upon and implement accordingly.

The report released in March 2019 heavily criticises the actions of one specific company (RFG), and suggests that many franchisors need to give stronger support to their franchisees, and so restore confidence in the industry. The Senate Inquiry recommends that a Franchising Taskforce be established to consider the recommendations and implementation strategies, and most commentators do not envisage changes impacting until mid-2020 at the earliest. Mary Aldred, CEO of the Franchise Council of Australia, said the FCA welcomed the report and looks forward to engaging with the task force.

An international franchise presence in Australia

US franchises have grown strongly in Australia over many years. Australia has some great advantages for US franchisors, as there are no language issues (we speak “Australian”), and there is a strong legal system in operation to protect the investment. However, the expectation of some US companies can be over-zealous, and brands considering expansion into Australia should be aware the total Australian population (25 million people) is just slightly below the population of Texas, and about two thirds that of California.

In the opposite direction, many Australian franchise systems are having great success heading overseas, probably currently led by F45 Training, an Australian-grown franchise now operating in over 40 countries across the world. Others, such as like 2017 Australian Franchisor of the Year Poolwerx, Bakers Delight and the Foodco Group are all expanding in the USA and elsewhere.

Processes to enter into Australia

There are no prohibitions to international ownership in Australia, unlike countries in Asia and the sub-continent who demand local ownership and controls. There are locally-based experienced franchise consultants and very well-established legal firms to assist inbound franchisors in all issues regarding the legal process and managing expectations.

The normal process recommends having involvement in operating some level of company operations in order to give credibility to a new System, and we have seen many franchise systems fail because they believe an investor will put up all the funds, with the franchisor unprepared to commit.

One aspect that often creates issues for US franchisors is our labour laws and the minimum wage that employees must be paid. We can only say labour is probably more expensive than in the USA, especially in the food and hospitality industry because of Australia’s Award wages system. This often results in some differences in the forecast P&L modelling and revenues and margins that need to be met.

One US pizza company has been coming over for more than 15 years, always looking for a rich master franchisee to open their business in Australia. Our advice to them over the period has always been, if you are so confident in your processes and system, then open one or two stores yourselves to demonstrate that the system will be a success. So far that has not occurred.

Many US systems with reasonable backing by the franchisor have had great success over the years in Australia, whether that has been QSRs like McDonald’s, KFC, Subway and Dominos, convenience stores like 7-Eleven or fitness franchises like Anytime Fitness, Orange Theory and Extend Barre.

New systems are also coming into Australia, and these are not always in the food and fitness business. OsteoStrong and Carl’s Jr are examples of well-financed expansions into the country. Some systems have come and gone – and are returning again! Taco Bell has entered Australia twice previously and is setting up again, as has Cinnabon, which came to Australia in 2002. We can only wish them success this time around and hope they have learned from their previous experiences.

Franchise Council of Australia

Australia has a strong body pushing franchising forwards in the form of the Franchise Council of Australia (FCA). The FCA has Chapters in all mainland states, and runs a three-day National Franchise Convention every year, which is seen as the peak industry event, culminating in the Gala Awards Dinner and the announcements of the awards including Franchisor of the Year – won in 2018 by Hire a Hubby, Australia’s largest handyman system.

Education is one of the cornerstones of the FCA, and they and Griffith University have worked with the ACCC to ensure there is free online education available for anyone considering taking on a franchise. Many experts in the industry have contributed to create a strong level of education.

To further assist in education of the industry, the FCA has also adopted the Certified Franchise Executive (CFE) system from the US. Around 100 people have been awarded their CFE, and this number is growing rapidly.

Finding Franchisees in Australia

The biggest complaint from franchisors has been the quality and financial capacity of prospective franchisees. Whilst many are willing, the financial requirements to join a good system are quite high, and out of practical reach.

Australia has a strong banking system, and banks are reluctant to loan monies to prospective franchisees against the goodwill of the business.FRANdata has recently expanded in Australia to assist in this process, by encouraging the banks to evaluate systems and be prepared to loan monies to well-run franchise systems and their potential franchisees.

Following a Royal Commission into the Banking and Finance Industry being released in February 2019, banks have been criticised for undertaking levels of irresponsible lending, which has effectively tightened up money-lending for potential franchisees. Many systems are finding good potential franchisees are unable to raise the necessary funds to join their systems at present.

The shortage of franchisees has led many companies to seek hard-working people who wish to come to Australia to apply. This has led to a considerable amount of business immigration.

Regulated markets

Franchising has become a mature distribution method for many major companies. The Federal Government has stepped in to place some forms of national regulation over it, by legislating a Code of Conduct, which is administered by the Australian Competition and Consumer Commission (ACCC). The Code of Conduct aims to:

* Be fair to both parties * Ensure a proper Disclosure Statement is provided to would-be Franchisees * Ensure the Franchise Agreement is reasonable to both parties * Minimise legal actions by bringing an arbitration process in before legal actions are taken

Any company wishing to franchise in Australia must comply with the Code of Conduct or risk prosecution by the ACCC.

There has been some push from various state governments over the last 10 years to introduce their own separate regulations, however, this has not come to pass, meaning that we have one set of regulations Australia-wide. The huge advantage of this is to minimise red tape. This sets Australia apart from countries such as the USA where states may have their own franchise regulations, Complying with registration and fees from one state to another can be very complex.

Summary

Franchising is moving slowly forward in Australia where we have a relatively mature market, and a great variety of systems working under the franchise format. Australia is open to business for international franchise systems to enter the market with minimal foreign ownership constraints. The main point of difference to many other countries is our relatively mature legislation which is aimed at ensuring the franchisor acts responsibly and encourages franchisees to be properly funded and act in a responsible and legal manner.

If you are looking to enter Australia, we recommend you liaise with the Franchise Council of Australia, and look at using a responsible consultant to assist you, and a legal firm which specialises in Australia’s Franchise Law. We look forward to welcoming you and your business into Australia. Come on over, and we’ll throw another shrimp on the barb!

#Franchise Network Planning #Demographics Mapping

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superhenryleo-blog · 5 years ago

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Demographics by postcode in Australia

With access to superior data, the team at Spectrum Analysis guide you to make the best site selection & territory planning decisions in the retail & franchise space.

Visit https://www.spectrumanalysis.com.au/data.html to know more about Demographics by postcode in Australia.

#International Web Mapping #Retail Network Mapping #Sales Territory Plan

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superhenryleo-blog · 6 years ago

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Demographic Data Australia

With access to superior data, the team at Spectrum Analysis guides you to make the best site selection & territory planning decisions in the retail & franchise space.

Visit https://www.spectrumanalysis.com.au/data.html to know more about Demographic Data Australia.

#Enrolment Marketing #Retail Demographics Mapping #Territory Planning

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superhenryleo-blog · 6 years ago

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Marketing Plan To Increase Enrolment

With access to superior data, the team at Spectrum Analysis guide you to make the best site selection & territory planning decisions in the retail & franchise space.

Visit https://www.spectrumanalysis.com.au/school-analysis.html to know more about Marketing Plan To Increase Enrolment.

#International Web Mapping #School Demographics #Retail Demographics Mapping

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superhenryleo-blog · 6 years ago

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Strategies For Increasing Student Enrolment

With access to superior data, the team at Spectrum Analysis guide you to make the best site selection & territory planning decisions in the retail & franchise space.

Visit https://www.spectrumanalysis.com.au/school-analysis.html to know more about Strategies For Increasing Student Enrolment.

#International Web Mapping #Territory Planning

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superhenryleo-blog · 6 years ago

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Retail Location Planning

With access to superior data, the team at Spectrum Analysis guide you to make the best site selection & territory planning decisions in the retail & franchise space.

Visit https://www.spectrumanalysis.com.au/property-services.html to know more about Retail Location Planning.

#Strategies For Increasing Student Enrolment

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superhenryleo-blog · 6 years ago

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Why there is trouble in retail: report

A new report on the state of shopping centres across Australia reveals a stark gap between centre growth and rising rental costs.

The Spectrum Analysis study, ‘Shopping Centres – still an Inconvenient Truth (revisited in 2019)’, shows a deterioration in dollar performance against inflation, while rents are expected to increase at much higher rates.

Spectrum Analysis CEO Peter Buckingham explained “In 2017 we undertook a study of shopping centres called Shopping Centres – an Inconvenient Truth, and showed that although rents were increasing at around CPI plus 2-3 per cent which equated to around 4-5 per cent, shopping centres were not growing at the same pace.”

Shopping centres report

Data from the Property Council of Australia (which forms the base of the Spectrum Analysis review) reveals the growth over the last two years across the biggest shopping centres – 14 super regional shopping centres.

These centres have seen the following increases:

Gross Lettable Area Retail (size in m2 ) by 3.57% pa.

MAT (dollar turnover) by 3.86%.

Pedestrian traffic by 2.85%

MAT/GLAR by only 0.26% pa.

Neighbourhood centres emerge quite well in the comparisons but this is due to the anchor tenants, supermarkets, benefiting from long term rentals and favourable rent increases, suggests the report.

Buckingham is critical of the rental hikes across the retail landscape.

“How do shopping centre owners still press for annual increases in rents of 4 per cent or 5 per cent when the increase in the dollar per square metre sold through the centres has been increasing (and often decreasing) in the range of -0.63 per cent to 0.25 per cent for super, major and regional shopping centres over the last two years?” he said.

“The growth of our shopping centres across Australia makes it very hard for shopping centre owners to justify large rental increases well above CPI, when the shopping centres are performing poorly measured by the industry standards,” Buckingham said.

“And we wonder why there is trouble in retail.”

#retail leasing #retail rents #shopping centres #franchisor advice

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superhenryleo-blog · 6 years ago

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Retail Location Planning

With access to superior data, the team at Spectrum Analysis guide you to make the best site selection & territory planning decisions in the retail & franchise space.

Visit https://www.spectrumanalysis.com.au/property-services.html to know more about Retail Location Planning.

#School Demographics #Retail Network Mapping #Demographics by postcode

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superhenryleo-blog · 6 years ago

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Strategies For Increasing Student Enrolment

With access to superior data, the team at Spectrum Analysis guide you to make the best site selection & territory planning decisions in the retail & franchise space.

Visit https://www.spectrumanalysis.com.au/school-analysis.html to know more about Strategies For Increasing Student Enrolment.

#International Web Mapping #Retail Demographics Mapping #Territory Planning

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superhenryleo-blog · 6 years ago

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Could service return to service stations?

A point of distinction in the market is valuable for any business. So could service be the game changer in the service station arena?

My first job (that put me through school and early university) was as a pump jockey or petrol station attendant. This profession went into extinction 40 years ago – and yet in visiting New Zealand recently, I see it is being revived as a forecourt concierge.

In New Zealand Shell has been sold and rebranded to Zed, and one of the new marketing ploys is to have a forecourt concierge available to fill your tank for you if you would like (at no extra cost).

Could this work again in Australia?

Service at the fuel pump returns to New Zealand’s service stations | Inside Franchise Business

Service return to service stations

Marketing is a big spend for the oil companies, and it would be very interesting if one of the major retail chains (Caltex, Shell/Coles, Woolworths, United, 7/11 or BP) were to try and take a jump on the rest by offering service – something they have been low on over the years.

If they were to do this, there could be an argument over price. However the oil industry has been running on very good margins for some years now, and they continue to move prices up and down so much, no one ever really gets a good point of comparison.

It could be a game changer, especially in higher socio-economic areas, or business areas around CBDs, where people would love to not have to refuel their own car.

Maybe a smaller chain would want to try it? Shell could use its Liberty brand sites as a test run, and if it really made a difference move it into Shell/Coles locations?

The last major change in market share in the oil industry was probably when Shell/Coles and Woolworth/Caltex introduced their shopper dockets. The industry has normally stayed relatively stable with market share driven by the number of sites and the competitiveness on the price boards.

A forecourt concierge could be a new factor that could put the word service back into service station.

Want to read more about what’s happening in convenience stores and service stations? Innovation at convenience stores as 7-Eleven trials cashless concept; why Caltex exited franchising; and what’s influencing the convenience store of the future.

#retail franchise #Franchise Network Planning

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superhenryleo-blog · 6 years ago

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What gives a franchisor nightmares?

Try the escalating costs of retail space for their franchise system.

Let’s imagine I am a franchisor in Australia today, in a predominantly retail business. My biggest fears are the cost of retail tenancies in shopping centres, and how we control these costs for the future. I can fuel my fear by adding in the power of the shopping centre executives to alter the retail mix. I’ll throw in some pop ups/short term rentals to darken the mood. Suddenly there’s a nightmare scenario: the changes that can be made outside of my control can drastically harm my business.

In my view as an analyst, we have too much retail space in Australia. The space has become significantly over priced, and all the power lies with the shopping centre management.

So what can be done?

These are the crucial issues:

Sales changes in shopping centres vs rental increases

Five year leases with a litany of demands on renewal

Rental increases expected to be CPI + about 3 per cent per annum

How to control the retail mix to your advantage

The prevention of short term rentals / popups

Whether Government can influence shopping centre owners to create fairer terms

What gives a franchisor nightmares?

Shopping centre rentals in Australia are particularly high in comparison to mall lease costs in other countries. In fact in the US some shopping malls are closing so the land can be used for better purposes. In Australia to date, I cannot recall this happening, but we hear talk of shopping centres struggling to keep attracting good tenants. While we all know the likes of Chadstone, Castle Hill and Bondi Junction are going very well, other centres are struggling.

Big centres seem to be doing the best, and often re-invent themselves with new movie centres and outdoor alfresco dining centres. Many of the smaller centres lack these opportunities or financial backing and continue to struggle, often with decreasing revenues.

The question for a franchisor is how to evaluate the good centres from the poor performers.

Shopping centres vs shopping strips

Most food based retail systems have a mixture of centre and shopping strip locations. The shopping centres have normally taken the lion’s share of stores. These outlets are where they not only achieve the most sales – they pay the highest rents.

The Sumo Salad experience a couple of years ago was very interesting. The company placed all its shopping centre leases into two holding companies separate from the main trading company. Luke Baylis, heading up Sumo Salad, then placed these two holding companies into administration.

Baylis’ action was intended to establish a negotiating position with shopping centre owners who were rejecting requests for rent reductions based on diminishing sales and profitability. Obviously the company had made a decision to exit all shopping centres, wanting to trade in lower cost shopping strips. This was a way they could break all the uneconomical leases.

I am sure Luke Baylis from Sumo Salad would receive fewer Christmas Cards from the shopping centre owners than I do. His actions were a real source of desperation to reopen negotiations on poor performing stores, but very effective.

Some may argue with the ethics of voluntary administration to nullify the leases. We can also question if this plays a part in some companies’ attempts to restructure or to renegotiate their retail leases.

Rental costs

I am not hear to defend RFG and the troubles they seem to have created for themselves. It is apparent that the largest and most public company facing criticism at the recent franchising inquiry is one which may place many of its issues down to retail rents. The majority of brands in its portfolio operate predominantly in shopping centres.

I recently discussed these matters with Jacqui Mance, former national leasing manager for Nandos. She spent much of her last year with Nandos trying to close stores in shopping centres, and minimising the costs. The terms required by shopping centres to release a failed location were extremely costly. Even though Nandos was a major tenant with some of the larger landlords, each one wanted to maximize their return – even in closure.

Mance believes rents have kept escalating despite strong evidence of sales decreases. The disruptors in food delivery services have added a further cost to franchisees. At the same time fewer customers are eating in restaurants which means a reduction in high profit sales such as alcohol.

5 year lease terms

Five years is the predominant time frame for a shopping centre lease. A brand with significant strength may increase this to six or seven years. However the idea of an option is something that has vanished from shopping centre vocabulary. Unfortunately this fails to deliver long term security, and the power remains with the shopping centre. Landlords can make very high demands on tenants near the end of the lease period.

A tenant rejecting these demands is faced with walking away, the loss all the fit out costs, and incurring significant costs to restore the site back to a vacant shell. Power is totally in the shopping centre’s favour, and every franchisor will have horror stories along these lines.

One friend of mine, a long term jeweler, has been astonished at the demands he regularly faces near the end of the lease period, specifically around the re-vamping of his stores. He recalled one leasing executive forcing him to spend about $50,000 to redo the internal lights of a store. Five years later, the next executive demanded a return to the original!

So what’s the solution? The best answer would be to create a fairer environment with retail legislation altered to create lease periods with options, and suppress the power of the lessors to make unreasonable demands at the time of tease renewals.

Rental increases

The Government and the Australian Bureau of Statistics spend significant monies reporting the Consumer Price Index (CPI) as a way of measuring the level of inflation in Australia. As an oil industry property manager, I went through a process of changing our service station leases from fixed rental increases to CPI. The situation changes over time, and what may seem a fair increase five or 10 years into the future can be completely crazy when the time arrives.

The oil industry use to work on the lesser of CPI or 7 per cent as the increase which many land owners demanded be written into their leases. At one stage Australian inflation was running well above 7 per cent, and within a few years we had a year of -0.3 per cent. The companies who were locked into what we call a “ratchet clause” increase suffered very badly.

Our view has always been the CPI should be a major part of the measure – but not numbers like CPI + 3 per cent. The problem is obviously the compounding effect of this. CPI is acceptable but a compounding of the 3 per cent in effect causes a further rise to 19.4 per cent above the five-year CPI increase.

The changing retail mix

Over many years we have seen the destruction of the small retail fashion chains, which took up a significant amount of the specialty retail sites– the areas where the shopping centres charge their highest rentals. Brands like Roger David, Pumpkin Patch, Metalicus, Laura Ashley, Ed Harry, Herringbone and Rhodes & Beckett have all closed in recent years.

Much of the reason has been the shopping centre owner’s willingness to lease out large spaces to brands like Zara at a very low entry rent. I am keen to see a level playing field, especially in their fixed costs like rentals, and rent increases.

Flogging the food space

As this part of the business has created large vacancies, we see the replacement of this space often in food related services, and in the end – we can only eat so much! Shopping centres used to have a few café’s and coffee shops scattered around, each with about 10 tables and 30 to 40 seats. Now you see more outlets, with many of the larger coffee shops able to seat 150 customers.

We undertook a measure at one shopping centre (where we had been an expert witness in a legal case), and the number of seats available for cafés had trebled over a 10 year period. Some of the coffee shops we saw had relocated from a 30-seat café neighbouring the food court to a 100-seat café about 30 metres away. The typical Gloria Jean’s or Coffee Club is now a much bigger store than 10 years ago.

It becomes very tempting for landlords to open more food businesses despite no upturn in customer traffic. I guess this eventually affects the overall Australian health and lifestyle as we are continually tempted to eat more cake and drink more coffee.

The advent of pop ups

We have lost the sense of spaciousness in shopping centres with layouts that made it easy for customers to walk around. Progressively, this space became a new income source as landlords developed short term rentals. What probably started as a use of a general area for four weeks by a tenant selling books or gifts in the lead up to Christmas has now become permanent.

This has a couple of effects on existing tenants. These pop ups are normally placed down a wide aisle which creates a visual barrier preventing customers spotting other shops. They also create significant new competition.

I was recently in Hong Kong where the retail spaces are beautiful, and space seems to be respected. One shopping centre had a couple of pop ups in fairly fixed locations, and the existing tenants could pay for the use for a period for a special event. In one case Salvatore Ferragamo had a free paper folding class for a few days, where customers could learn how to fold up and make small gift boxes in the Ferragamo colours.

In another case a fantastic stage was set up for high-end retailer Tod’s, which had a special showing of its new products.

Pop ups can have their place but this should not be to the detriment of the long term store lessees.

Summary

Overall, the current retail laws and regulatory environment has placed the strength with the owners and lessors of shopping centres, and it seems our Government is happy to leave it that way. The franchise sector has taken a hard hit from the franchise inquiry. But we must ask how much of the plight of the retail industry is caused by the actions of the shopping centre owners. We should also question whether the ways they operate should be critically reviewed by Government and the regulators.

#franchise #franchises #franchisor advice #franchisor nightmares #leasing #retail franchise #shopping centres

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