You Don’t Want Fries With That

Australian Franchising Corporation

“Never again.” That is what Luke McGrath says about setting up a business from scratch. The regulatory and financial climate in Australia makes it nearly impossible to become a businessman nowadays without going barmy.

This could easily be misunderstood, for Luke is the Managing Director of Australian Franchising Corporation, which as its name more than implies, promotes franchising of its brands of food retailing throughout Australia and, in the foreseeable future, beyond these borders. However, he points out that he has done all the hard graft and opening a franchise based on his concepts is a kind of happy compromise of running one’s own business without the headaches of the true start-up.

The corporation puts together four brands of retail dining: Global Bar & Grill, Urban Burger, Wok Me and The Burrito Bar. These offer different experiences and different levels of dining, and – crucially – are seen by customers as completely separate entities. Combining back-office operations, however, results in significant economies of scale. Think bread rolls or media campaigns – both can be bought far more effectively with the much larger base afforded by the four brands.

Luke explains that when he founded Wok Me, his first brand, it took in the region of two million dollars over a period of nearly three years before the business was running at its best – but that was starting from scratch with nothing, and that is what he would not wish to repeat. With an established business model and 34 franchised outlets across Queensland (headquarters is in Brisbane) and now Canberra (one open, one more opening very soon), he would not be averse to taking on further franchising opportunities, but would be surprised if they were not also in the food sector.

His rationale is that food is one of the most reliable commodities that will not be replaced by online retailing for the foreseeable future (at least not until someone invents a way of hooking a 3D printer to a microwave, which is bound to happen one day). Luke is confident that customers will always want to dine out, making it instantly a surer bet than most businesses, franchise or otherwise. If an international brand wanted to set up in Australia, he would be happy to take it on, leveraging the organisation he and his team have already built up to promote a new brand in a completely different way, but using essentially the same tools.

Surely, though, the retail space is crowded, some say full to bursting, with food brands? Surely Australians are already spoilt for choice when it comes to choosing what cuisine to sample on any particular night? Not at all, says Luke – the taste experience is only just beginning. He originated from Melbourne and cites that city’s well-documented eclectic dining experience: whole streets of restaurants of just about every national or regional cuisine you can think of. For most of Australia, however, rural, regional or city, such a degree of choice has never existed and Luke says the options are really only just now beginning to move beyond the “meat and three veg” basics.

Asian cuisines have played a substantial part, but it is interesting to note the American influence: how many Mexican restaurant chains are there in Australia beyond The Burrito Bar? The country is also just starting to wake up to the ‘gourmet burger’ movement that has sprung up in Europe in particular as an equal and opposite reaction to the biggest names of the fast-food business. Global Bar & Grill addresses this burgeoning demand while Urban Burger gives the takeaway crowd something a little more distinctive than the norm.

Wok Me, “Australia’s favourite Asian”, has been operating for some seven years and is well established, especially in Queensland – from Brisbane airport to Gladstone. It’s an interesting example of how a food and dining brand can be refreshed to take account of changing tastes and trends without diluting the brand’s DNA or values. By positioning Wok Me as an “Asian” restaurant without further defining what “Asian” means in geographical or cultural terms, the chain was able to start out surfing the wave of popularity of ‘noodles’ and, when that wave fell away, move smoothly on to offer sushi as a staple instead. If diners start to demand a spicy sambal or a tom yam soup instead, there is no need to reinvent Wok Me, just change its menus.

This is of vital importance if you want to take out a franchise, because you need to know the brand will be there for the long haul. Currently, says Luke, most of the interest is coming from what he terms “professional investors in franchising” who are able to stump up the down payment (in the general region of $250,000 for Urban Burger or Wok Me and perhaps $350,000 for the somewhat larger dine-in brands; these are very much ball-park numbers that vary depending on any individual town or region), who are already aware of the benefits of running a franchise and enjoy the returns. The four brands are handled entirely separately – there is quite deliberately no overlap in the franchise arrangement. Luke agrees that if someone is interested in opening a franchised food outlet, they should talk to him and his team, who can advise on what might be the most appropriate of his brands for any particular site, rather than the prospective franchisee having to choose the brand first.

The latter is significant because many of these individuals may no longer be able to get such good Return on Investment elsewhere given global low interest rates and uncertain markets. Again, the sort of success you can see with one of these franchises varies enormously and depends largely on how much effort you put in up front, but Luke’s star performer at present is operating on 25 per cent per year profit. It should be taken into account that he chooses his franchisees carefully; as a result he has never had to terminate any outlet, although a couple have been bought back – he stands by such a promise as part of the contract. Also, he points out, it pays for the franchisee – Luke prefers the term ‘partner’ – to pay attention to the brand values and follow the corporate handbook: those who are most vigilant in making their outlet fit the bill are invariably the most profitable.

Luke says he tries to run the businesses as sustainable and responsible organisations, and he tries to source as much product as possible locally – starting in the immediate vicinity of an outlet and radiating only as far afield as necessary to ensure quality at the price. While he is comfortable with taking care of the eastern side of Australia, and reminds that Queensland alone is bigger than the other two states (this was, by chance, a conversation taking place on the eve of State of Origin 3), Luke says that for Western Australia he would first wish to appoint a local master-franchisee because he has seen how difficult it can be to control costs and the supply chain from such a long way away.

His brands do not offer anything revolutionary for either the franchisee or the diner, but they certainly mark an evolution of the concept. In The Burrito Bar, for example, the aim is that diners should not simply say, ‘let’s go out and eat Mexican’ but to run the brand on non-stop promotions so diners instead shout, ‘let’s go to Burrito Bar because such-and-such is happening!’ At one recent show weekend in Brisbane, some 2,500 burritos were sold on the basis that two dollars of each would go to a favourite cancer charity.

Luke and his colleagues are busy cooking up more outlets for these four brands and more are in the works (in the wok?). He is convinced of the value of his franchises for anyone contemplating a mix of greater freedom combined with the fact that someone else (namely Luke himself) has already done much of the hard yards. It all makes for a mouth-watering prospect.

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June 22, 2018, 5:24 PM AEST