Salad chain sprouts legs

Sumo Salad is set for a growth spurt, with tendrils spread in several directions. Founder Luke Baylis talks to JACQUI WALKER about regaining control of the brand and recruiting franchisees in a tough market.

By Jacqui Walker

Sumo Salad is set for a growth spurt, with tendrils spread in several directions. Founder Luke Baylis  tells how he is regaining control of the brand and recruiting franchisees in a tough market.

Luke Baylis (right) and James Miller, the founders of franchised salad chain Sumo Salad, plan to double sales to $30 million, triple store numbers to about 90 and make a strong push into Victoria this financial year.

All of this at a time when the franchise industry is experiencing the turmoil of new regulations and most franchisees are struggling to recruit franchisees.

He is happy to answer your questions. Send your comments and questions to feedback@smartcompany.com.au (until 10 March).

Jacqui Walker: Luke, your network revenue has increased 166% a year on average over the past three years to reach $14.2 million in 2006-07, and you are forecasting $30 million revenue in 2007-08. Your growth is accelerating.

Luke Baylis: Yes; by the end of June we expect to have 60 to 62 new stores. We have already brought on 28 stores this financial year.

What is same-store revenue growth?

Our comparative sales growth is about 16%. It would have been more but it was a really bad summer. The weather has really impacted the business.

If it rains during summer we have a few issues because we don’t have the winter menu available to April. But if it’s cold and rainy people like to eat comfort food. This was the case in New South Wales particularly.

Our stores in Queensland and South Australia and Perth have incurred phenomenal growth. It’s Victoria and New South Wales that haven’t been as aggressive.

What happened in Victoria?

I think the weather has impacted it. In Victoria we are under-represented, we haven’t had enough stores to get brand recognition.

We have just bought the master franchise for Victoria back. The master franchisee wasn’t proactively growing the business. There were issues with consistency with the other states. It cost us several hundred thousand dollars.

But we decided to invest and give it a big push. At the moment we are the number one healthy fast food brand in all markets except Victoria, where we are getting beaten by Healthy Habits – but that is going to change.

This year we will double our presence in Victoria by opening eight stores, including four corporate stores in key strategic locations, and we will invest in marketing and branding. The new locations will be shopping centre-based, including the new development in Doncaster.

Sumo Salad has done some clever marketing in the past to build recognition of your brand, including the McDonald’s inner child spoof viral marketing campaign. What do you have planned for Victoria?

Our plan is to get a lot of brand awareness. We plan to do a lot of print media and radio to get mass market recognition and heavy local store marketing. That will be a major part of it.

That primarily involves initiatives designed to get more foot traffic to the location itself. It includes offers, bringing people for specific products. It’s not about discounting, it’s about providing a point of difference compared to what else is in the local area, and highlight our healthy product.

What proportion of your spend will be local compared to national?

It varies, but in Victoria, 70% will be local-focused and 30% will be state or national based, including radio and print media.

Why are you opening corporate stores in Victoria and not franchising?

We are doing a combination because we want to give it a big push and put our money where our mouth is and get the stores going within the time frame we need. This way we have full accountability and control in the launch stages so we can create the foundation for a franchise model.

Eventually you would sell them to franchisees?

But not in the short term.

Do you have plans to go overseas?

Yes, we’ve just signed a (memorandum of understanding) for Germany and there are three stores in Britain under a master franchise.

In August we’re launching in New Zealand through direct franchising.

Who do you consult for advice?

We’ve just set up an advisory board with a lot of industry and business experience. They assist us on a monthly basis. They are industry professionals we have worked with, with financial backgrounds, marketing, and successful business executives.

Why did you do this now?

Our goal is to build the business to several hundreds of stores in Australia and become a major domestic and global brand. We’ve been foolish to think we knew it all.

Sometimes you don’t always get the answer you want to hear from the board, but ultimately it makes you think more carefully and test your assumption, and it helps the business.

Have you sold any equity to fund the growth?

No. James and I are majority shareholders with Steven Pongrass, a close family friend who’s been involved from day one. He’s a fantastic support. He’s had a diverse background including wholesaling and property. He’s also got a concrete pumping business.

We’re the face of the business and he has let us manage the business, and he’s taken a silent partner role – and been a sounding board.

Everybody in franchising is saying it is getting harder to recruit franchisees. John O’Brien, the chairman of the industry body Franchise Council of Australia, told me recently that “2007 was the leanest year for franchise inquiries in 10 years”. Are you finding it harder to recruit franchisees?

We’re actually finding it quite easy to get franchisees, because our stores provide a strong return on investment. So when the franchisee does due diligence we are in high growth industry and clear market leader.

We offer a strong financial return to fee, and it’s a good culture. When we look at what is available in market, the brand is positioned for growth. There is still the opportunity to take multiple sites and there are A-grade sites available.

The new disclosure obligations under the franchise code, which include an obligation on franchisors to give potential franchisees a list of ex-franchisees to contact, came into effect on 3 March. What impact will this have on your business?

We are embracing the changes. Because we have a lot of happy franchisees we encourage people to talk to them as part of their due diligence. If people have sold out of Sumo Salad, they have decided to do so because they have made a good capital gain. A lot of areas these changes focused on won’t make a difference to us.

We disclose the majority of this anyway, so it’s not a major change for us.

From our perspective we encourage franchisees to do as much due diligence as possible, because it’s a long partnership. They benefit with all the information. People are more committed if they have done thorough research.

Are other chains finding it tougher?

Yes, I think so. Particularly businesses that have had litigation issues or a bad rapport with exiting franchisee. And people who are taking rebates that don’t benefit the franchise system are on the high side. It’s a negative for them.

Will the new laws have a negative or positive impact on the industry generally?

There’s a lot of negative push back now. But people will look harder at franchises and have more information about franchising, and do better. When everyone embraces it, it will be better for everyone involved.

It encourages franchisors to have the highest corporate governance, which is what the industry needs anyway.

What will be your biggest challenge this year?

This year our biggest challenge is trying to become the leader in the Victoria market and get our growth momentum there. Our other markets are very successful. Once we have got over that barrier we can put more effort into all areas.