It’s been a tough few years for Franz Madlener, founder of cafe franchise Villa & Hut, who found himself caught up in the collapse of Allied Brands and has been forced to fight hard to get his franchisees through.
Madlener’s decision to sell his chain to franchise brand manager Allied Brands in early 2009 at the height of the GFC proved to be a disaster.
Allied Brands collapsed last year millions of dollars in debt and Madlener was taken to court over personal guarantees he provided to landlords and other parties.
But things are looking up. Madlener’s personal legal issues have been sorted and ownership of Villa & Hut has passed to retail veterans the Pausewang family, who are re-invigorating the brand.
Madlener declined to talk too much about life inside Allied Brands, saying he’s intent on looking forward. Today he talks about what he learned about the dangers of personal guarantees, why Villa & Hut is targeting China and why cafes can withstand the retail crunch.
What’s your official title now?
My role is founder, which means I’m helping the family that acquired the brands set the strategic direction and growth for the re-invigoration of the brand.
Does that make you almost a spiritual leader of Villa & Hut?
I’m vaguely influenced by a very good friend of mine and mentor Janine Allis, who many years ago dropped the title CEO from her email address and put founder there instead. I thought that’s very good, I’m going to do that one day and the day is now.
So practically, what sort of stuff do you do on a day-to-day basis?
It’s about the visionary contribution to the network that lies underneath the Villa & Hut brand, looking at the things that we want to achieve and the opportunities available to us.
Our chief operating officer is Jade Kammergruber, the daughter of Peter Pausewang and one of the founders and brains behind the Smiggle brand that was eventually sold to the Just Group.
She’s absolutely the best person in the country to be the chief operating officer for the Villa & Hut group and particularly the franchising part of the business.
We still have James Marsh as our general manager of franchising. James helped deliver the Villa & Hut brand over to the Pausewang family and has an incredible amount of experience and history with Delaware North.
It sounds like the transition has been relatively smooth after a rough period.
Very, very smooth and the conference was enlightening for everybody involved, all of our franchisees and our network of suppliers, the people involved in making the brand the success that it is. Now it is all about now moving forward and delivering on the journey ahead.
Are there still scars from the Allied Brand experience with the franchisees?
No – 100% of our franchise network is on board, is very proud to have the Pausewang family backing the Villa & Hut brand and the feedback from the conference was incredible.
Every single franchisee attended and every single franchisee was ecstatic with what’s been put on the table for the journey ahead.
Everything we’ve talked about in our organisation since the day of transitioning the brand over, which was officially on December 23 last year, is about the journey ahead.
You’re a charismatic guy and a guy who likes to lead from the front. Are you having to temper that under this ownership structure?
Absolutely not because the opportunities that we are working through at the moment and the things that we’ve been working on just in the past six months alone I would never have been able to achieve while the brand was in private ownership and under the full control of myself or with Allied Brands.
In the past six months alone we’ve launched our new graphic and branding look at our flagship cafe in the arrivals hall at Melbourne Airport.
We finished our franchise conference here in Melbourne with 100% turnout and we’ve taken delivery of our first Villa & Hut cafe on wheels so Villa & Hut has gone mobile with a fully kitted cafe van.
We’re opening our first cafe in Shanghai in China in August this year, with two more planned and we’re showcasing our brand at the Franchise Expo in August this year.
We’ve got four new static Villa & Hut cafe sites planned to open in Australian in the next 12 months including a return to Canberra, which has been historically very strong for the brand.
In the past six months alone the things that we’ve been able to pull together and work on and do would have never have been available to the franchise network or to the brand as they are now with the Pausewang family.
It almost sounds as though these are the sort of owners you’d hoped you were getting when you sold to Allied Brands?
The difference is that our chairman Peter Pausewang is a retailer, he’s in our office every day, he gets in and among it and all we do all day long is talk retail, retail strategy, retail growth, strengths and weaknesses, competitive advantage and importantly, profit.
The whole family is involved in it; there’s a huge, huge difference. With one you had historically an organisation that was only interested in shareholder return where now we have an environment which is 100% focused on delivering the best of everything in a retail environment.
From a personal perspective how important has it been to get that sort of stability?
I’ve never been happier or more content in my retail career. I don’t spend my time thinking about what could be, if only and what are the other options.
All of the energy now can go into one thing and that is delivering on the ideas and a vision that’s there for the brand. The only other thing that I have to pour my energy into now is the marathons and triathlons and that’s my thinking time. The rest of the time in the office is the doing time.
As Allied Brands collapsed there were concerns that you might end up being bankrupted personally because of personal guarantees you gave to various parties. Has that all been cleared up now?
It’s all sorted. There was a lot of media hype around all of that. It’s been well documented in the media that I made some significant errors in maintaining my name on various personal guarantees and leases that became the operational businesses of Allied Brands.
But everything has now been cleaned up. No, I was not bankrupted. Everything has been sorted and I’m in a position now where it’s all about the journey ahead.
Was that episode personally traumatic? The Franz Madlener that we know is not a guy you can see spending much time in court. Did that stuff put stress on you and your family?
If business was easy everyone would do it.
Fair enough. What role are you playing with franchisees on a daily basis? Do they needing a little TLC at present?
It’s interesting James, because a lot of the questions that you’re asking are actually things we addressed six months ago and three months ago.
If you sit down and talk with the franchisees now there’s a very clear vision that everybody has and everybody believes in. There’s been very clear communication as to how we go about delivering on that vision.
The focus at the conference was very much about profit and delivering on profit for the franchisees and I just can’t reiterate enough our entire franchise network that came across is focused purely on the journey ahead.
We don’t sit around and pontificate about the history and the past anymore. There’s a genuine excitement about what lays ahead of us.
Obviously the personal guarantees issue was one of the errors made, but have there been any other strategic changes in the way that the business has or grown with the Pausewang family’s input?
Before the brand was acquired the question asked by the Pausewang family was can these franchisees make money? Once we were able to ascertain that our entire franchise network was in an environment that could deliver good profits for all of the franchisees then the next question the Puasewangs asked was how do we do that?
And then some very, very good people were brought in post acquisition to enable that to happen. We have a dedicated CFO, we have a full-time in house legal counsel, we’ve got a full time director of marketing and branding to work on nothing else but delivering on the marketing plan for the franchisees.
We have a full time training and development manager on the ground. So everything has been about delivering profit for the franchisees and having a profitable network, because we know if we can do that everything else is easy.
Did you have enough of those support people in place under Allied Brands?
What we have now is exactly what’s needed for the franchisees.
Tell me about the expansion into China.
I’m particularly excited about our new store in China, the Villa & Hut cafe. It opens in the first week of August.
Is that a joint venture with a local partner?
No it’s something that the Pausewang family has pulled together and it’s on the back of a vision and a dream that I’ve certainly had for the last three years.
And how will you approach this? Is this store a test bed?
No. We’re already looking at number two and number three. We know that one cafe’s certainly not enough toes in the water to test the temperature. We have to put in a foot in at least. We’d like somewhere between three and five in the next six months or so to give us an understanding of how we could compete in the market over there.
Given the amount of retail experience in your company now what’s your sense of the retail environment at the moment?
Certain sectors of retail are under the hammer but I don’t believe that cafes and the food environment are. As a matter of fact some of the statistics coming through show a significant growth over the past 12 months.
One of the most recent numbers was a 10.4% growth for cafes and takeaways over the 12 months and that’s fairly reflective of the sort of feedback that we’ve been getting and more from our franchise network.
But I think probably the biggest issue at the moment is trying to maximise retail price points and not get caught in price wars on coffees or other hot beverages.
The cost of providing labour is one the biggest issues facing our franchise network. It’s hard to keep increasing your cost of labour. People should be paid the right amount of money for a fair day’s work but it’s hard to do that if you’re trying to compete on a diminishing margin.
Obviously you and the Pausewangs have been through cycles before. What’s your sense of what lies ahead? Might this sort of consumer fragility ease as we head into say, Christmas?
The bigger ticket items are going to be potentially taking a bit of hammering as people think twice about making purchases on something that may constitute a week’s salary or two week’s salary but the little treats which might be acoffee and a biscuit or chai latte or a fruit salad in the morning, they haven’t seen any impact.
It’s just been very, very strong growth in that area and probably the biggest growth has been in the healthy products like freshly squeezed juices, fresh made fruit salad, items that were niche in our category two or three years ago are now becoming main ticket items and are being put through the cash register.
And in terms of growing the size of the business, what’s the strategy there? Is it driving organic growth through franchisee recruitment or is there the potential for acquisitions?
Look, acquisition is not a word that’s ever really hung up in our office. The starting point for us is to roll out another four Villa & Hut cafes over the next 12 months with our new look and new fit-out. They will be opened up as company-owned stores and then made available for franchising.
And assuming that they are successful, as we hope and believe they will be, when they are franchised off then we will continue to look around for other opportunities. We’ve already earmarked one of those locations which is at Westfield Belconnen in Canberra for a cafe and we’re getting close to finalising a couple of other opportunities here in Melbourne.
A lot of our resourcing and energy has also gone into the rollout of our Villa & Hut cafe on wheels. The van’s done and it looks absolutely fantastic, like a great big Hot Wheels van. We’ll be launching it at the Melbourne Motor Show and then it will be made available for franchising at the Franchise Expo in August. So we’re working towards five vans for the first 12 months.
Is your inquiry rate from potential franchisees OK?
Well at this stage we’re getting two to three inquiries a week on franchise outlets and it’s a case now for us of sitting down and spending time with people that are making enquiries and making sure that Villa & Hut is right for them and they’re right for Villa & Hut.
We want to make sure that everyone that comes into the Villa & Hut tribe is the right the person for the business. We don’t believe that cafe franchises are for passive investors, it’s really about bringing personalities and people that want to have a hands-on approach in the business that they own and they run.
And personally, and this is a question that you probably want to steer clear of, but do you spend any time reflecting on the lessons of the Allied Brands involvement?
Well, I’ll answer it like this. I had great pleasure in running the Great Ocean Road Marathon last month and that gave me three hours and 51 minutes to think about the past couple of years.
And the 20 or so hours of training I put in every week to compete in the Iron Man at Bussleton gives me plenty of thinking time again.
Whatever may have happened in the past I’ve well and truly left on the pavement or left in the pool or left out on the road on the bike. So it’s amazing what a bit of physical activity can take out of you.
Are there any changes you’ve made to the way that you lead?
The biggest single difference, the biggest single difference and at 44 years of age I think I’m probably now old enough now to understand that being surrounded by the best people is the key. Probably one of the absolute strengths of our chairman is his ability to bring together the best of the best in the country.
It’s not about personalities, it’s not about impressive CVs, it’s about the ability of a team of highly-skilled, highly-experienced and educated people to work together for one vision and one plan and it’s amazing the difference in what can be achieved when you’re surrounded by such amazing people.
The reason I guess I can feel so comfortable about everything in the environment that I’m in now is that I’m part of a very smoothly-running, fluid machine rather than just a really big cog clunker.
Does this mean Franz Madlener has to listen more or listen better?
Absolutely. Not only that, he has to pay attention in class and sit up straight and put up his hand when he’s got a question.
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.
