Len Poulter started leading food franchise Lenard’s Chicken 23 years ago and has grown the business into a national chain with over 200 franchisees and annual revenue of $226 million.
Today, the franchising veteran talks about battling the big supermarket chains, the benefits of slower growth and why founders must be careful about not undermining their key executives.
You’ve been through a few economic cycles over your career, what are you seeing in the economy right now?
To me I think life’s about timing and if you measure that to the economy at any moment, it changes, it adjusts, it moves forward and you’ve got to learn to live within the boundaries of what the economy offers you.
The hardest thing in the world at the moment in the retail business is that we have a massive amount of competition in Australia. We think large, we think we’re out there amongst the best but we really are only a small economy. Just because we’ve got a few mines and sheep to sheer, it doesn’t make us a big world economy and it’s time that the Government starts to identify that.
The people that go out there and create something and develop something in this economy especially should be rewarded for it and not actually penalised for it. And you’ll find that most entrepreneurs around Australia have been penalised for being successful. Most entrepreneurs I’ve ever run into have seemed to be fairly reasonable and sharing, they’ve all come from families that have had to battle in their life and they’re not frightened to pay their way. But when you keep looking over your shoulder and you’re going to get hit again by another tax and another tax and another tax, it makes you wonder whether it’s worthwhile.
You mentioned competition, what’s your feedback from your franchisees in terms of how they’re travelling?
Directly we’re very good, we haven’t got any direct competition in the product range that we have. Indirectly, through Coles and the supermarkets, their chicken pricing really confuses the consumer so that affects us. The new directions at Coles and Woolworths are talking with their sauces and their ranges are probably affecting us a little bit, but that’s not the real issue that we have with Coles or Woolworths or anything else in that area.
The real issue that we have with Coles and Woolworths is that they’ve got a five kilometre strategy, where they have opened up stores within five kilometres of another one. And if you get Woolworths doing that and Coles doing that in one area, that’s the issue hurting small business and retailers right around Australia.
Have you seen that impact your stores recently?
I wouldn’t say it was recently. It’s been a gradual issue for us but we’ve been addressing it through margins, we’ve been addressing it through marketing and a search strategy. When I identified this issue it would have been at least 12 years ago, if not longer, but the thing is they open and three years down the track they open another one down the road.
When you see these aggressive discounting campaigns the supermarkets are running, what do you make of that?
Again, there’s nothing we can do about it. Directly it’s not an issue, we are the cheapest in the marketplace and we’ve got great brand that’s as strong as any poultry suppliers. Coles and Woolworths can’t do our product range, they just can’t do it as fresh as we do. So we’ve got our own little niche, our biggest issue is that we’d like to open up more stores. Again, why Coles and Woolworths are allowed to open up so many stores in a marketplace that hasn’t grown has got me beat. It’s really hurting the little fruit shop and the small the corner store enormously.
What is holding you back? Getting franchisees or getting sites?
Sites are not a problem, it’s the site next door to the other sites that’s the problem. I am being a little bit critical of the governments but they’ve been allowing the wrong development. Allow high density housing and then put a supermarket in, don’t put five supermarkets in until you’ve got all that in place first. If we had 40 million people in Australia, I wouldn’t be having this discussion.
So really what you can’t find is sites with a bit of clear air around them?
Yes, you could say that. Finding sites with the right traffic flow is hard. It’s not finding franchisees. We have anything up to 400 or 500 enquiries a year. Our strike rate’s reasonably good out of that, the trouble is finding the right sites and making sure that the person wanting that site has got the right money from the banks. The banks have been very tight. I’m sure you’ve heard about the banks and how all their criteria is harder.
So it’s a lot harder to find somebody who wants, and I use the pun, to stick their hand up a chicken’s arse every morning. To spend that sort of money to have a good little business – our return on investment is very, very good. But it seems to be that people prefer to spend $2 million or $3 million on a McDonald’s and have less return. It’s called hard work and some people don’t like doing it.
Have you had to work to try and come up with some alternative finance arrangements for franchisees?
Yes we have, but it’s a very, very difficult situation that you get yourself into. We’ve looked at all different strategies but at the end of the day you can’t protect the person coming into the business. If they don’t have the burden of their commitment with the full financial commitment to it you’ll find that you don’t normally end up with the right franchisees.
Are you seeing the type of prospective franchisees change?
There’s a lot more enquiries from people that haven’t got money who want to get ahead, that young entrepreneur that has no other way in life to get ahead and who haven’t been able to find some sort of niche. But we’ve got a lot of young people coming through our system that have left school and started working cleaning dishes and now wanting franchises and they’re good kids and they’re the ones that we’ve got to support and make sure that they come through. I don’t mean the apprenticeship style approach, I think that looking for people and financing people they’ve really got to do four or five years of the hard work before they’re actually going to be worthwhile backing. But our main type of prospective franchisee doesn’t really change, it’s usually the frustrated 35- or 40-year-old who believes that there are other opportunities out there who gets sick and tired of sitting behind a desk.
Given the limitations on good sites, do you sometimes wonder where the next phase of growth is coming from?
I’ve got to say no. And the reason why is our growth hasn’t been dramatically big anyway. It’s been a slow process, we haven’t been the Baker’s Delight or the Domino’s, opening stores behind each other. We’ve taken a very calculating, slow approach because I’ve never allowed sites to open up for the sake of it. Everything has to match before we actually go forward.
Now, sometimes it falls over and you’ll get one or two that will fall over occasionally. There’s been a bad site once or twice, maybe half a dozen times but in 23 years that’s about all. Sometimes it’s the franchisees that aren’t quite right for the site and they move on quickly.
So we’re very limited, I think about 10 or maybe 15 a year is probably where we would like to be all the time and then maybe through opening 15 we might end up closing three or four. Who knows? So that’s slow movement forward. About three or four years ago we had a reasonable, a horrible word to say, adjustment to our numbers and we’re now back on track to where we should be. But there were some franchisees really struggling and we had to reshape our process with the rest of them and make sure we didn’t have any issues with the ones coming in.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
