The rise of the franchise

The rise of the franchise


The franchise model is growing, with an increasing number of companies choosing to follow the lead of fast food giant McDonalds, resulting in rapid growth, at less cost.

Now the mobile industry is starting to move towards the model. Operator giant Orange announced plans to launch a franchise scheme in July, while a number of smaller companies are also taking on the initiative.  

Franchising brings together the title-holder of recognised merchandise with another business or products. The system is readily used by small businesses as a means to provide authentication and support for their business, by associating themselves with a well-known brand.

The larger company benefits from rapid growth, and the franchisees benefit from name recognition, marketing support, purchasing power, and training and management.

The question is whether others, smaller and larger, will choose to follow this growing trend.

Other than Orange, the only operator that has a real franchise presence is Vodafone, which has 5,200 franchise stores across the group in countries including Germany, India, Egypt and South Africa, through Vodacom.  

Consumer chains
In the UK, Vodafone has an agreement with independent retailer Fonehouse. The relationship between the two companies is one that MD Clive Bayley describes as ‘unique’ and says is a selling point for his own franchise scheme.

Bayley saw a gap in the market for dealers who had the potential to compete with bigger companies, but did not have the relationships with operators and manufacturers to negotiate the kind of deals that would allow a level playing field.

He explains: ‘We knew that if we could offer dealers the right agreements and stock, they could compete on the high street and we would be able to expand more quickly.’

And Bayley believes the scheme will continue to grow. He adds: ‘We are very positive about having 50 outlets by the end of 2009, with another 15 coming in the first quarter of next year.’

Fonehouse, an independent company that had been around for 15 years, had reached maturity when it decided to enter franchises two years ago.

It was the next logical step for the business to trade on the strength of its brand, and start building an attractive franchise scheme for those competing in a cut throat industry.

As a company that is already known to the bigger players in the sector, Fonehouse is in a unique position to capitalise and sell those relationships on to others who have less experience.  

And the benefits for Fonehouse, as Bayley explains, are that the owners ‘tend to work quite hard’, as they have a vested interest in making it work.  

Franchising is a ‘natural way to grow the business more quickly’, according to Bayley, and companies like Fonehouse can rapidly expand with minimum overheads.

Bayley insists that his offering is unique, not only because of its relationship with Vodafone, but because of a long-standing relationship with T-Mobile that allows franchisees to tap into two distinct market segments.  

However, the franchise model is mainly restricted to the independent channel. None of the major operators have launched similar schemes in the UK, except for Orange, which took its first franchise steps by opening stores through the retail arm of Shebang, Go Mobile.  

Director of Go Mobile Nil Naik told Mobile last month that the company hopes to have 10 Orange franchise stores open by the end of 2009.
But despite a lack of franchise action from some of the bigger players in the market, the independent channel appears to be looking at the model with interest.  

As ‘independents’, the interest in the model can be explained by the fact that they are forced to be more entrepreneurial when faced with market dominance from a small number of companies.

And the activities of the independent channel are not restricted to high street consumer trading. Companies such as Sprint and Mobile 5 are looking towards the b2b market to build their brand and footprint.

Sprint MD Paul Leonard says his company’s model moved naturally from retail
to b2b as the industry began to change. However, the b2b sector is about providing a different set of resources to dealers.

Leonard adds: ‘In b2b, if you have an order for 100 phones before you get the commission, a lot of deals can’t be done because of cashflow.’

For many b2b dealers buying handsets for clients, contracts are an investment in the deal, but also an overhead they can’t always afford to stomach. Sprint’s model provides an alternative as it offers ongoing revenue share payments to franchisees.

Similar to Fonehouse, Sprint is also looking at a rapid expansion programme and is hoping to double its number of franchises to 34 by the middle of 2010.  

But despite plans for expansion and the benefits involved, franchises still have a stigma attached and there is a risk for the people involved in running the schemes.

Leonard adds: ‘We have to be incredibly careful about prospective franchisees to make sure they fit with what we are doing. We have a vetting procedure at the front end and decline more people than we take on.’

The franchise model is something that has seen wide success in a number of industries, but the UK mobile market has been slow to latch on to the concept.  

As Leonard says: ‘The industry has to open its eyes to more routes to market and understand there is good value in having a broad base.’

He adds: ‘There are people at network level trying to work with us. It will become more accepted in the long term. It’s a mindset that needs to be changed and it needs to be proven to people that it works.’

And expansion is not the only reason for launching a franchise scheme, as independent retailer JAG demonstrated earlier this year. The company introduced franchise licences in an attempt to cut costs after suffering from a series of financial setbacks.

As a whole, the mobile industry has been slow on the uptake of franchises, with a few entrepreneurial businesses capitalising on a lucrative niche in the market.  

But with Orange now taking on the model, other larger companies may well take notice of this opportunity to build their brands, while saving money as a result.

A franchisee’s perspective
Haider Qureshi, Sales director, Fonehouse, Waltham Cross

• When did you set up your franchise?
It must have been well over a year ago, I was the first original Fonehouse independent franchise. I was trading as an independent before, but joining up with Fonehouse has helped my business five-fold.

• What are the benefits of running a franchise?
We have the weighty support of a major company, but we get a lot more one to one attention and it is a really personal service, like a family. If we have a problem it is addressed really quickly, and we were even invited to Hatfield to put our views to T-Mobile.

• Do you plan to expand?
I would open another store, but to run a franchise properly you can only concentrate on one branch at a time. To make a franchise work you must have a long-term plan and it all depends on profit.

Written by Mobile Today
Mobile Today


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