RETAILERS WEIGH DELICATE BALANCE OF FRANCHISING

NINA JONES

LONDON -- Franchising can be a vital tool for growth -- and a safety net for businesses -- but it can also be a minefield. Relationships must be managed carefully, according to Willy Van Daele, vice president of wholesale at Belgium's Delhaize Group, and Paulo Goelzer, president of the U.S.-based IGA Coca-Cola Institute and chief learning officer and executive vice president, IGA International.

During the CIES Marketing Forum 2004, attended by over 200 marketing directors from 33 countries at the Novotel Hotel Euston here on Nov. 30 to Dec. 1, both argued that independently owned stores bring dynamism and innovation to a company. But they also cautioned that franchising requires a careful choice of franchisee who will commit to the brand, and that the head company must be willing to relinquish a certain amount of control.

Van Daele confirmed the potential for growth in franchising, saying affiliate stores had expanded the Delhaize Group by 200 stores over 20 years, without investment.

Smaller independent stores also proved essential to the group when Belgian law had made it difficult to open large supermarkets, so franchising was an alternative way to expand.

However, Van Daele noted the risk of a company losing control. "After investing his money, the independent owner of the franchise feels he is the boss -- as long as the owner's conflicts with the company are limited to the cosmetic, that's no problem -- but if the owner is compromising the quality of the product, then that becomes a risk to the brand's image, and is a problem," he said.

Despite the risks involved, Van Daele and Goelzer envisaged the ideal of franchises working alongside company-owned units, as they agreed franchising is a mutually beneficial relationship. "The company gains the benefit of local knowledge, with a franchise run by someone who has links with the community, and the franchisee gains the benefit of centralized support, " said Van Daele.

For the franchisee, Goelzer was clear about the benefits of having a business model to work with and develop. He cited that 85% of franchisees had spent time in the business before, so are largely familiar with the brand they represent. "There is already a system set up for the franchisee to get knowledge from," Goelzer said.

In the choice between acquisition and franchise, Goelzer was clear about his preference:

"Acquisition is largely ego-driven, and the results are negative more than positive," said Goelzer. "Committing to franchise a business format is more difficult, but rewarding -- it's not just the product that the franchisee has to uphold, but the way in which they're selling it."