The great franchise giveaway

Tasty Trucks launched just three months ago in the form of a franchising model dubbed “vanchising”. The company’s 64-van network delivers meals daily through Victoria.

Founder Colin Lear says the Tasty Trucks vans will eventually replace the Lunch Express ones, and is confident there will be an additional 20 vans in Victoria and NSW in the next 12 months.

“In addition, we will continue to look at acquisitions in other states of Australia in a bid to realise our goal of becoming a national brand,” Lear says.

Gehrke says that there are other funding models that could become popular as franchises are squeezed, including:

• Vendor financing under various forms such as work or lease-to-own programs.

• Family funding, ie. Mum and dad providing the finance for their kids to buy a business.

• Co-funding, whereby those who can’t afford a franchise individually form a partnership.

• Internal funding where successful franchisees take partial investments in new franchisees.

• Capital raisings by franchisors to open outlets themselves (rather than waiting for franchisees) via partial sales to private investors, private equity and public listings.

Gehrke says while franchisees may be in a better position to negotiate commercial concessions when joining a franchise, they should not make their decision based solely on an incentive.

“No single incentive is likely to be a silver bullet that will magically conjure hoards of potential franchisees from thin air,” he says.

“But several incentives combined may be critical to building the confidence of the franchise candidate to approach one system in favour of another.”

Rod Young, managing director of DC Strategy, agrees that franchisees appear to have an advantage over franchisors, but says this is generally only the case in newer or smaller franchise systems.

“I doubt if you will see a discounted McDonald’s franchise or a cheap franchise fee for a good franchisor like Ben & Jerry’s… Good franchises command and maintain their prices,” he says.

“More desperate franchisors are negotiating agreements, discounting initial franchise fees and even reducing royalties.”

“Those who do this may eventually find it is to the longer-term disadvantage of the franchisees as it may compromise the viability of the franchisor if the commercial model is corrupted.”

Young says the best ways to exploit franchisors’ increasingly desperate recruitment tactics including asking for extended credit terms on stock, and being choosier about your location.

“Buy an underperforming franchise in a good system – often less than the cost of a new franchise – [or] offer to buy profitable, company-owned and managed locations, areas or stores,” he says.

“[You could also] ask for more training or more opening promotional support, or request that a part of the royalty for the first year be rebated to advertising in the local market.”