Franchises trump company-managed businesses: Study

Franchises generally outperform company-managed businesses, according to a study published yesterday by the Franchise Relationships Institute, confirming what the business sector has long suspected.

The research looked at what happens when a franchise changed to a company-owned business and vice versa.

It found when businesses convert from being company-managed to franchisee-operated, there are noticeable improvements in areas such as sales growth and cost control.

On the other hand, when the reverse happened and the stores surveyed went from being franchise-operated to company-managed, their performance generally dropped.

Greg Nathan, research director at the Franchise Relationships Institute, told SmartCompany there is a common perception franchises will always outperform company-owned businesses.

“While it’s generally true, it’s not true under certain circumstances,” he said. “This is where the franchisor is committed and putting the resources behind the businesses and providing the proper support for the managers and empowering them as much as possible.”

Jason Gehrke, director of the Franchise Advisory Centre, says he is not surprised the survey found franchises generally performed better than company-owned stores.

“When it’s your house on the line you’re going to work damn hard to keep that investment protected,” he said. “I think it comes down to monitoring and performance management systems.”

However, Gehrke argues company-managed stores can do just as well as franchise-operated ones, as long as the right factors are at play.

“If you’re a franchisor and you think a company-owned policy will work for you, you need to have performance management operations in place and highly incentivised store operators.”

Nathan agrees, saying company-owned businesses can perform just as well – or even better – under the right conditions. His key advice to franchisers considering converting to a company-owned store is to look at their available resources.

“If you can’t resource it properly with someone overseeing human resource issues and a higher level of support than a franchised network, don’t do it.”