Tony Arena and Peter Elligett - A discussion on COVID, Franchising and Business
0411 888 148 02 9439 3399 tarena@bci.net.au

 

The following is a transcript of an interview conducted by Tony Arena of Mrs Fields CEO Peter Elligett.

Tony Arena (T): Pete i’ve known you as long as i’ve been in franchising, maybe 20 years, can you tell me a little bit about your background and history in franchising?

Peter Elligett (P)

: right well i started out as a radiographer funnily enough and after an accident ended up in Mcdonalds management program.  So i stayed there for ten years and then went to cookie man, and did a management buyout of cookie man in 1997, sold that in 2007 to allied brands (a public company), sold my manufacturing business to Freedom Foods (another public company) and ended up staying with allied brands for three years on their board, and subsequently that business was sold to cookies Australia, and here i am today, CEO and you know ostensibly doing the same thing for the last 26 years

T: So you’ve got 40 franchises at the moment, are there multi-owners?

P: We don’t have any multi-owners in our business at all

T: Would you be comfortable with that 40 or would you want to grow it?

P: Yeah i’d like to grow it – sensible growth is important.  At the moment i’m not concerned with growth at all, i’m just concerned about our existing franchisees and managing them through the Covid period.

T: On a personal level Pete, how do you start your day?

P: Well, i get to work reasonably early and walk through the factory because we’re a manufacturer as well as a franchisor, and supply our franchisees with a majority of their products.  That usually takes half an hour, then i usually read the Financial Review, plan the day and have early meetings and get to work

T: Are you planning any acquisitions or is that the same as franchising, steady as she goes?

P: No we’re actively looking for acquisitions

T: what sort of businesses are you looking for?

P: we’re talking at the minute in a couple of areas: One is in the manufacturing side so to a business that is in markets that we’re not currently in, so that would be good for us.  It’s also good for our franchisees because the greater the volume in our factory, the better the pricing (and so forth).  And then we’re looking for growth in the retail sector – organic growth is quite difficult for us, so acquisition, more growth seems to be the way to go

T: You’ve seen a lot of successful and unsuccessful franchisees, what’s a common habit of a successful franchisee?

P: i think high motivation more than anything and resilience – i know that sounds really trite almost but it’s very true.  Our best franchisees are the ones who are focused and resilient and i also think they’re the ones who understand financial management the best funnily enough.

T: On the other side of the coin, what are the least attractive features of a franchisee to you?

P: Probably negativity.  I think people often come into the business with negativity even though it’s not displayed in the interview process – they’re just negative about pretty much everything, and i think that pervades the whole business, their staff, the franchisor, and definitely affects the success of their business for sure.

T: So you get to choose… you must screen for that – how do they get under your guard?

P: you can do psychometric testing, you can interview, people can say anything through an interview process and it’s very difficult to pick up.  I think the other thing is that all people going into business should understand financial management.  We try to teach it during our training period but i think there should be some sort of formal training in cash flow, PNL, balance sheet and so forth before they go into business.

T: So let’s talk about open communication both in your franchisor business and in the franchisees that you manage.

P: We have open communication – we have a very flat management system.  We have myself, the National Franchise Manager and then BDM’s, and everybody can access all of us at any given time, so i really believe that we have a totally open communication process with our franchisees.

T: So right now, we’re gonna talk about Covid a bit during this discussion – is now the time for Australian entrepreneurs to be looking at franchising?

P: I think the franchise system is extremely robust.  If you’re looking to go into business the first time i think franchising is the way to go… i think if you’re an experienced business person right now there are great opportunities outside the franchise market for you.  And i think some businesses stretch cause their finances aren’t as strong as they should be.

T: Someone who should buy a franchise business is different from someone who shouldn’t buy a franchise business.  Tell us the difference you see about one versus the other

P: i think if you’re highly experienced, you’re highly motivated and you’ve got good ideas that may not necessarily fit into a franchise model, then you should go your own way.  If you want to be a team player, if you want to have that collegiate activity, that a franchisor can give you, and that security that they can give you from having tested out systems market and so forth, then join a franchise system.  It’s definitely not for both, for every body.

T: There is room for creativity and there is room for entrepreneurship within a franchise system – They’re your best franchisees… they use local marketing the way other franchisees don’t.  But if you don’t want that restriction, franchise is not the way to go

P: i don’t think so, no.  I don’t think it is no.

T:  Let’s talk about Covid right now and franchising.  What do you see as the opportunities: What warnings do you have? What’s your overview?

P: i think there’s way too many issues at the moment in my opinion, certainly for us, to grow our franchise system.  At the moment i’m worried about someone putting in 200,000 dollars of hard earned money or borrowed funds into a business where we can’t, there’s no guarantees at any time, but there’s less guarantee now because who knows what’s around the corner.  Look at Victoria, we were coming out, we were travelling well, and then now we’re back in lockdown.  If you had been a new franchisee at that time, it would have been very difficult for you.

T: How many of your 40 franchisees are in shopping centres?

P: The Majority.  So 35, and the other are in airports, which you’d think would be badly hit, or CBD locations which are just as badly hit.  Our service stores are actually travelling quite well except outside Victoria.

T: So what’s your take on the food business in a shopping centre right now, there are certain lessons you’ve already learnt about trading?

P: i think it’s just very difficult, we’re doing the best we can in a difficult environment and supporting franchisees the best we can.  It’s funny that racking patterns have changed quite differently since Covid started so we’re getting a majority of our sales on the weekend days, and the weekdays are very sporadic, very intermittent.

T: There are also good locations within shopping centres, dependent on where they’re located and which other shops they’re located next to, what have you learnt about that?

P: We had a handful of shops that actually did increases, comparative increases during the Covid period and they were mostly located between discount department stores and supermarkets, so even though we’re only doing take away our business actually picked up.

T: I’m going to ask you about your biggest success in 2020… or maybe what are you proudest of what you’ve done this year?

P: I know this’ll sound weird but just maintaining our system.  It’s been terribly difficult to maintain the manufacturing side of our business because of the difficulty in the retail business and the fact that we haven’t lost any franchisees during the Covid period so far, i think is just great.

T: You’re one of the franchisors i’ve spoken to over the years… that relationship with the landlord, you won’t cop a bad lease, you won’t pay more rent even if it means a short term pain for somebody… even maybe a franchisee.  How are negotiations going with franchisees right now?

P: I think very patchy.  We’ve had some outstanding landlords, like Sydney Airports, and a number of others have come to the party in terms of giving rent favours, but for the most part landlords are sticking to the covid guideline and in a lot of cases that just won’t be sufficient for our franchisees to survive.

T:  What are the key drivers for you as far as success in business generally?

P: I’m a highly self-motivated person so i don’t need people to constantly be at me… i don’t need business coaches to tell me what i should be doing – but what i have done is surround myself with people that are better than me, in areas that i’m deficient in.  And you know i’ve got a very solid team around me, i’ve had them for a really long time, i’ve had my advisors for a long time, and i think that’s held me in good stead my whole career.

T: You’re talking about lawyers, professionals etc

P: Yeah i’m talking about partners that i’ve had, and selected, but mostly from my executive team are just really strong areas.

T: So tell me, i’m a franchisee, i’ve just bought a business off you, what should be on the top of my to-do list?

P: Before you bought or after you bought?

T: I’ve just bought it now Pete and i’m excited, and the family’s just had a dinner that you can’t have any more, i’m getting ready to go into work tomorrow, my first day at Mrs Fields: What should be on the top of your list?

P: The top of your list should be putting together a great team because invariably the team you start out with morphs over those first several months, you know people go people come, because they’re either not so good or so forth, but more than anything else you need to focus on your business, on all aspects of your business, not getting carried away by the success of your first two or three months, but really focused.

T: I’ve seen buyers come into a business and try and change them, we know that’s a no no.  But i’ve also seen buyers who expected success too soon, and got disappointed and frustrated and changed and it was all down hill from there.  Is that first 12 months important?

P: It’s crucially important. We say the first 12 months is when you really have to optimise those sales.  Usually you have a flip up, then a decline somewhat and then you get that slow growth if you are focused on the business… and if you’re focused on giving a great customer experience (which i think is the be all and all of business)… it’s about the customer experience.

T: Brand value.  You’ve been involved in brands, you’ve seen brands outside you fall apart, you’re proud of your own brand, what’s this ‘brand value’ all about and how do you continue to build it?

P: i’m not happy with our brand building: I think we’re deficient in it and it’s something we’re working really hard on at the moment because it’s got to be your focus at all times.  You’ve got to know who your constituents are and you’ve got to constantly test who they are because they change, our constituents have changed over the last 5-10 years and i think we were deficient in not realising that.  We’re trying to correct that now and more than anything else create a better experience for our customers and better levels of service.

T: None of us know what the plan is for the next 6 months, let alone the next 12 months.  Are you developing plans in case things go a certain way as far as the pandemic?

P: yeah we are.  I think anyone that isn’t planning for a restructure at some point is either doing well and doesn’t have to, or they’re efficient in the way they’re planning for their business… if landlords don’t come to the party and we don’t negotiate a way forward for both of us, and don’t get me wrong, i don’t think landlords… they’re certainly not responsible for Covid and they’re not responsible for saving businesses… but if landlords want a viable business going forward they need to come to the table and work out a viable plan for both of us to survive really.

T: I’ve seen franchising in this form – where franchisees and franchisors are partners, but landlords are partners.  If the franchisee fails or the tenant fails, both the landlord and the franchisor fails because you’ve got to go out and get someone else, and that’s at great risk, you might have to go rent free, you’re putting in an untested party, so i think there’s more at stake now in that relationship than i’ve ever seen.

P: I always use this as an example because if you look at a franchisee/franchisor relationship it’s exactly the same as a landlord/tenant relationship, it’s exactly the same except we have legislation that envelopes us which is good legislation – we don’t have that on side with the landlord and we should.

T: There’s been many attempts

P: There’s been voluntary codes

T: There’s a retail business act

P: But that’s quite different to a franchise legislation, quite different.  It’s very prescriptive how leases are written but it’s not prescriptive about the relationship.

T: Pete, what’s left on the bucket list for Pete Elligett?

P: I think i’ve probably got one new business left in me, or one acquisition left in me or whatever, i don’t feel like slowing down.  I think funnily enough Covid’s given me an opportunity to regenerate and look to the future again.