Business Franchise: Kiwi Taonga Beauty Salon

Answer :

1. Business Idea
   1. The business idea revolves around the beauty industry. We are looking for the start of a beauty Salon and its franchisees initially with Auckland being said the fact that Auckland is one of the most liveable cities across planet. The Salon will be named as “Kiwi Taonga”. “Taonga” is a word New Zealanders use to describe something carrying high worth. Kiwi is the key fruit of New Zealanders resembling themselves. The combined meaning conveys the beauty given by nature is important to be preserved and protected and “Kiwi Taonga” as a group believes in giving their best effort to keep the valuable beauty forever with the help of our amazing therapist and stylist to achieve utmost customer satisfaction. The beauty industry is said to be more than 25 Billion Dollar including all the local barbershop across country. But a large majority of the population follows retro taboo barbershops due to lack of insight about the products and its application and impact on their hair, health and skin. Woman are our initial and primary target customer as they understand the value of being beautiful. The Salon will be equipped with all the modern amenities and facilities. Since the purpose and objective very clear. A detailed discussion and report for every first-time visitor will be made with the help of dedicated consultants free of cost and accordingly the treatment or services will be provided. The Salon aims at providing high customer pampering attitude with a long-lasting impact. The Salon will run on Company owned and Franchisee owned Model as well. Every salon will serve a wide variety of services along with beauty products.
2. (i) As per recent study, approx. 90% population of Auckland stays in urban area and hence it is understood that almost entire population believes in learning and growth and possess good spending power as well. The idea of franchisee will be anytime fruitful for beauty industry in Auckland where almost half of the population are woman and out of which more than 40% are of age ranging 16 to 54. This makes Auckland a reasonable destination both for product as well as beauty service industry.

(ii) The number of salons in New Zealand has grown from 700 in 2003-04 to close to 13000 in 2016. New Zealand has seen a great growth in GDP since 2004 till date. The Salon industry has seen an overall growth of 30%. Research further says that approx. 60% of woman population looks for the same salon and 90% of them prefers immense therapist consultation before going for any service. The industry possesses high competition with the established key players working on the same piece of model like Just cuts, VIVO Hairs, Rodney Wayne etc. (Index Mundi 2016)

(iii) Since the concept is altogether in new shape and form including full body consultation by renowned physician and consultants, free home service for first time, a lot of free products and gift hampers, ownership given to therapist model where they will earn direct percentage on revenue, we think we will be able to set a different benchmark in the industry and out from the competition.

1.2 Cost Structures

(i) Resources – This industry comprises of majority of cost on personnel and their timely training. The resource also includes the consumption of products on a service. This may consume approx. 60% of the cost. With Industry practice, a stylist or a therapist are closely paid on an average of 40K NZD per annum with a minimum wage of approx. 18NZD per hour

(ii)  Benefits and rights included in the cost – The cost is inclusive of their performance linked bonus (PLI), medical facility, conveyance and House rent allowances as well. These are fixed component except PLI. Irrespective of fixed component, commission and incentives will form the part of variable cost directly linked to the revenue generated.

(iii) Payment and liabilities for products or services –  As per industry standards, 15% of the consumables are required on service sales. Anything going beyond will form the part of pilferage cost. The vendors are aligned and systematic booking of order will be done to avoid expiry and storage loss. The retail product is again a key component to run the margin of the salon which may give us the yield of not less than 35%. The payment of product post 30days of receipt of the product.

(iv)  Goodwill – The franchisee needs to pay the initial cost of NZD 20000 as initial franchisee fees to use our brand and rest on cost to cost basis for setting up the furniture and interior designing as well. A fixed fee of 12% on Service Sales will be leviable every month towards royalty fees. 

(v) Royalties – As mentioned, a franchisee will be levied with a fixed rate of 12% plus taxes as Royalty fees. This will be calculated on the Net service sales made which may be in the form of cash, debit or credit card, paypal, truecaller, gift cards redemption, membership redemption etc.

(vi) Other resources – The other resources like electricity, cost of place, cost of maintenance of furniture and fitting, fixtures, software maintenance cost, discount and offers, cost of maintenance of machine and equipment used for the treatment and local taxes are the key cost included to run the business.

Responsibilities of Franchiser:

1. Supply of products or services – The franchisee is solely dependent on the supply of the product from the franchiser. Whenever the consumable reaches to MOQ level, the franchisee must place the order immediately and franchisor must respond to it to supply the same. If the products are not supplied on time, the salon will not be able to serve the customer inculcating in business loss to the franchisees and in turn to the franchisor as well. Timely supply of retail product is equally important as customer prefers one stop solution and if the customer needs to opt to go some other shop, then again it will not only impact retail front but also the service front. With regards to the same, the franchiser must evaluate the credit limit of the franchisee accordingly time to time considering the offers, season and celebration.
2. Product and/or service quality provision – The franchiser must ensure elevated level of commitment to their franchisees against which they are collecting the cost of Royalty as well. They must ensure high quality product be supplied with no damage and serve the franchisee with timely offer and schemes as per the requirement of the season (Just Cuts 2016)
3. Business Training Support – Most of the investor comes from house wives background who or working professional who has never been into business. They count highly on their staffs and the training provided by the franchiser to them. Also, a basic training and approach to the business partners must be given to ensure successful running of salon.
4.  Operational Support – The operational support is the key support as the business model is quite complicated and a lot of operational issues comes in. A dedicated Area Business Manager should be aligned for every franchisee salons. The operation issues may range from billing issue in the software to internal staff issues, issues regarding accounts or royalty, product despatch and credit limit, under billing or professional misbehaviour or breaching agreement terms and condition or the SOP shared.
5. Marketing and promotional support – All the promotions and marketing activities including Ads in Google, Facebook, Instagram, twitter or any other social sites with hoardings and promotional activities of offering a combo package, series package, membership packages etc. should be driven time to time in the salon by the franchiser.
6. Provision of financial information and statistical information on overall performance – A clarity of accounts statement and statistical analysis must be flown from the software provided by the franchiser. This includes the information regarding the invoices generated and payment to be collected, the credit note or debit note given, the process flow of various thing like enhancement of credit limit, information regarding despatch of products etc., different schemes and offer in detailed presentation for better understanding and implementation, information regarding tax structure and their implication on the sales or various marketing activities.
7. Financial and statistical services to the franchisee – This includes their various status like outstanding balances, credit limit, product order status, booking status, daily or periodical sales service analysis status, their ranking amongst the salon, footfall status, repeat foot fall status, their targets and their accomplishment, running rewards and offers etc. 
8. Franchisee establishment support – The establishment of the franchisee salon vests on the projects team of franchiser only. Right from putting the furniture, electrical equipment installation, fixture and interior fixing, products and technology training to staffing and their training as well forms part of establishment initiative by the franchiser itself.
9. Risk Management Support – Along with Area Business Managers, Regional Business Manager must be appointed who has run the salons for years to support the franchisees to mitigate various losses like staff conflict, termination of staffs, bringing performance from various staffs, up sales, risk of revenue leakage etc.
10. Dispute negotiation process – The franchise must communicate in clarity on various financial or operational issues by the agreement and strive to resolve the same before the same becomes big impacting the brand.
11. Legal and regularity compliance assurance – It is the responsibility of the franchisor to keep all his franchisees legally compliant. Any negligence on this may impact the cost on the name of the brand in public.

Responsibilities of Franchisees:

1. Capital requirement – Initially a franchisee must be aware of the cost required to establish a franchisee which includes initial fees, furniture, fixtures, interior, electrical fitting, government permissions, three-month staff fees, rental cost, various deposits, training of staff costs, cost of start-up kit of products. This may end up costing somewhere between NZD 120K to 250K.
2. Form and terms of payment – The franchisee is liable to pay as and when the recurring components are due. This includes, Royalty, Software charges and Product payments. The franchisee needs to opt for auto debit from their bank account like Electronic Clearing System (ECS) for the due as and when happens. The Royalty will be collected on Ten days period (TDP) basis, product will be collected after 30days from the invoice date and IT will be paid on monthly basis.
3. Royalty payments – Royalty needs to be paid on the invoices generated on TDP basis and the payment will be auto collected post seven days with prior intimation 02working days before deduction.
4. Goodwill Payment – This is a onetime payment which will collected by the franchiser in the mode of Initial franchisee fees.
5. Skills and expertise – This industry is prone to high turnover of skilled labours. It is the responsibility of the franchisee to keep them secured, happy and motivated although they will be equipped with relevant training provided by the franchiser and hence franchisee must ensure sending their staffs to attend the training so conducted time to time.
6. Personal work commitment – The franchisee must ensure devoting time to their salon apart from their personal work commitment.
7. Operational Requirement – The franchisee must ensure discipline, proper billing, and participation in achieving the targets run by the franchiser to impact the growth. They should opt right practice on behavioural front with staff and must not breach any SOP or legal contract.
8. Marketing requirement – Along with franchiser, the franchisee must take the ownership on promotional activities including participating in displaying about the new opening of salon in magazine and newspaper, on road pamphlet, fashion blog update etc.
9. Promotional requirement – The franchisee must participate in the various promotional drives launched by the franchiser as the promotion plans are launched with extreme market study and intelligence. 
10. Reporting – The franchisee must report various things like outstanding ledger, the sales -both service and product including consumables.
11. Organisational responsibilities – They must ensure leadership, government compliance and customer friendly environment.
12. Terms of involvement – The franchisee is abiding by the minimum terms of involvement of 5years and then a renewal fees will be levied to continue with the franchiser.

Section B

2.1 Positive image:

The journey of M.C. Donald since 1955 was quite significant which started with Hamburger back in a small place of Illinois to becoming a fast food giant and finally to a shape of good food corporation serving more than millions of customers across various continents with the help of more than 30000 outlets in more than 100countries of the world.

With time to time improvement and growth, the organisation is still starving to become better day by day. A time was there where Mc D was considered as JUNK Food but now the entire concept of the company is revolving around serving the best quality food across world.

The trust embedded in the heart and mind of the customer with the flavour encamped within them makes the opening of its franchisee as a successful run in long go. The value which is being catered across employees and the stakeholders makes the proposal further promising and engrossing.

2.2 Principles of Franchising:

i. Reputation – Mc Donald as brand carries high value and so does it expect from any franchisee business partners he comes across. The integral part of agreement includes huge points on harming the image of the brand. They have their own set of protocols to be followed when it comes to quality of food, people management and customer service.

ii. Business Expertise – Mc Donald defines a set policy for all the franchisee to undergo a set process and training mechanism. The understanding of business followed by the daily operation is the key thing. Although it is said the expertise comes with regular and timely practice but the support of experience of the corporation like Mc Donald who deals with enormous range of mind set across globe with various mind set, thought process, tastes and preference, etc, it become a ready reckoner for a new entrepreneur.

iii. Financial Stability – Getting attached to a brand like Mc Donald is a suite of high appetite itself and with regular changing requirement, the stability of the franchisee also receives quick amendments in their style and scope of working. The policy includes a minimum investment of USD 800K and the location is generally decided by Mc D itself. They take the commitment of a full-time business guy than being an absent investor The company ensures financial hygiene and stability of the partners accordingly.

2.3 Products:

The current range of products in Mc D includes ham or cheese burgers, Nuggets, Chicken Wraps and Bites, siders like French fries followed by beverages like shakes, traditional soft drinks, orange juice and pop tops.

Burger king operates with massive product range too alike Mc D and this includes burgers of numerous sizes, sliders, sandwiches, whoppers, milkshakes and deserts.

 Kiwi Burgers serves burger in dark New Zealand style, followed by fries, beer, coffee, milkshakes and smoothness, salads and soft drinks.

The quality of the product served now are highly hygiene in nature and maintains elevated level of cleanliness and standardisation of high end packing material. They also ensure serving nutrition in a meal with high fibre and protein than saturated fat. With the time and growth, the company has managed to follow the international standard of serving nutrition rich food.

2.4 Outlets:

Presently there are close to 150 Mc Donald’s in New Zealand employing more than 8000 people across country. Approx. 80% percent of the chain in New Zealand is owned and operated by the Franchisee. Mc D gives full liberty to operate on its on to the business partner. New Zealand is quite obsessed with burger industry after The Unites States. The number of restaurants per capita in New Zealand is close to 0.370 per 10000. At least 0.50 per 10000 can be easily achieved eyeing the population of the New Zealand and the affection for the burger world. The major limitations on increasing the number of outlets, the group may fetch are as follows:

Lack of employees – The company may face the issue of employees availability and their turnover.

The collection of Royalty – The exposure of risk on collection of royalty will enhance with the enhancement of business.

Availability of products in the menu – The menu of products must be available to ensure that the customer retains as it impact the name of the brand directly.

Urban development – Approx. 70 per cent of the land of Auckland is under rural belt and hence it is important to chalk out the frequency of Mc Donald’s and the gap between each of them.

2.5 Establishing Franchise Outlets:

i. Previous Business Performance. With a close experience of more than 55years, they have indulged themselves to various situations and challenges. They have performed for profits, market enlargement, public listing, investor benefits, compliance, followed by quality, customer satisfaction, health and hygiene. They are hence very much capable and reasonable enough to understand and judge the performance of the franchisee being opened in a catchment.

ii. Organisation and financial structure – They have seen many success and failure and they have made various process flow and check points which have helped them to grow to this level. This has resulted in the formation of various structure within organisation including financials as well. The financial structure can be promising as guided by the company.

iii. Business Life Cycle Stages – This gross up various stages of growth being associated with the corporation including – Establishment followed by Growth, Maturity and Post Maturity. 

Establishment is the phase where profit is in red. The aim and objective vests with setting up the business with the fund invested and establishing the footfall initially.

Growth is the phase when the business welcomes its regular customer, repeats its sell and a decent number of 10-12 people are on roll. Advertisement plays a significant role at this level.

Maturity is the phase when sales is auto driven and the revenue rests assured. This is the point where retention of employees, high customer satisfaction and inventory management becomes necessary.

Post maturity is the phase where the cycle repeats or become stagnant or starts declining.

iv. Capacity to support franchise – The system of Mc D is well equipped with providing training to hiring and firing support of employees, product and catchment analysis and many more support like technology, footfalls, marketing and advertisement.’

2.6 Franchiser Projections:

Mc Donald was grabbing the very much taste of the Kiwis and then the introduction of customised burgers in 2015 had added cherry to the cake and in the single year they experienced a fruitful growth of close to 20%. The introduction of new style of serving the burger became successful to keep the customers from grabbing the retro style burgers and make it more customer friendly one resulting in more footfall of customer, and reduction of raw material cost as well. The direct impact of the same had been certainly traced in Sales growth of 10% and profit margin close to 20%. This has further made stronger than its rivals like Burger King or Kiwi Burger etc. With the presence of more than 40 years in New Zealand serving burgers with the help of more than 100 franchisees across the country, the company has made a remarkable presence to the hearts of the foodie crowd of the country. 

As far as the economies of scale is concerned, with its wide presence in New Zealand, it has been running through the phase of steady growth but with the introduction of breakfast concept and customisation of burger and Mc Café, they have created a new aura to grow exponentially.

2.7 Competitors Projections:

The major competitor of Burger King and few other like Burger fuel are mostly company owned and are back by financial costs including interests from bank loan and hence till now they are not able to become profitable corporation. They are incurring losses year on year basis in comparison to Mc Donald. Mc Donald bravely believes in Franchisee model and the training support which is provided to the business partners makes further difference in pulling out the results further.

Although the other Burger giants are trying their legs and feet to the best possible catchment possible but they have failed so far due to huge in-house cost only to operate and run the show successfully.

2.8 Benefits from Franchiser:

Resources – The company tends to lease their own property, arrange for the employment of staffs, interior decoration and the marketing tools.

Expertise – The franchisee needs to go under the ruthless training of the company in order to match the standards, code of conduct and ethics of the business including various other important factors like operations, staff welfare, customer satisfaction, quality and cleanliness.

Benefits – Few of the benefits that must be given to the franchisee are as follows :

1. A smooth on boarding 
2. Seamless training of the owner and the staffs
3. Complete knowledge of the product range and quality
4. A lean period for the collection of royalty, say for initial 3months so that the franchisee does not incur losses.

2.9 Background:

Resources – The franchisee needs to have ample fund as prescribed by the company towards franchisee fees and other charges followed by the monthly salary and other legal and governmental obligations.

Business Background – It is not mandate although but a person leading the business must be having a minimum background of managerial level. He must have an experience in handling high volume, high customer footfall, and working a super systemized operation system process.

Expertise – The new franchisee needs to pass through various interview session to check the expertise on various parameters which includes leadership and managerial skills followed by handling of volume and people and systematic flexibility.

2.10 Business Plan:

Mc Donald works in a clear strategy of business set up, operations and development strategies as under:

Business Setup – The company generally evaluates the business place before franchising or tries to open the restaurant in the catchment bought already or in lease which they further lease to the franchisee. They charge the requisite franchisee fees with taxes followed by initial set up of interior and furniture with appropriate marketing strategy to promote the franchisee so opened.

Operation – They have system aligned billing and various analytical methodology which lights the green and red areas. Further they make the franchisee to meet and investigate with the existing franchisee to understand how the operation is run. They provide exclusive training of On-the-counter sales during any of the weekend. They make sure an operationally sound franchisee runs the chain.

Development strategies- Since they have a vast number of franchisee owned operation, hence they are free to focus on developmental strategies. Hence, they keep coming up with new development on the product – be it tying up with online food industry or promoting schemes and offers for students, festive offers, developing new product item in the menu card.

The franchisee need to certainly meet the expectation as the contracts and projection are based on the experience and the insightfulness to run the show.

2.11 Operations Manual:

The first and foremost thing that forms the part of operation manual being a part of Mc Donald is that a sleeping investor cannot be a business partner. Somebody having head to mouth dipped in the sauces alongside of the fries could only taste the real sense of the module and justify the same.

They have their second strategy of not granting the sites advised by the franchisee as they research a lot on site and keep the fixed catchment area accordingly.

They assure to hammer the training process for a tenure of at least 12months ensuring the quality growth in the long run.

They encourage franchisee to minimum reach a turnover of 1Million Dollar to reach the breakeven provided a clear margin of 66% is made.

2.12 Marketing Support:

The company uses various marketing dynamics like offers, innovation addition, combo offer, local home delivery options, followed by hoardings, pamphlet, student offers etc.

This helps franchisee grow as public gets the information and the footfall shoots ups accordingly.

2.13 Communication

Emails and SMS instantly are the key point of contacts for the chain like this. Massive messaging and Microsoft Exchange are the key areas which can really help franchisees to communicate more effectively.

2.14 Location

The population, availability of youngsters, per capita income, and the spending power are the key determinants of deciding the location.

Section C

3.1 Factors to be evaluated are:

(i) Range, availability and quality of products and services – They serve the best burgers which is consumed by millions of people across countries with the help of more than 30000 outlets. The concept has now further expanded to serving the breakfast and coffees. The endless customisation of burger has been again a new introduction and Mc Café explains the range and availability of products. Also, they serve at almost all the grown cities of the countries they are in as per requisite criteria of the catchment. They closely work with the home delivery rand and facilitates home delivery without third party involvement.

On quality front, they were called as the problems towards growing obesity in the world but now they are focussing on nutrient rich food across the outlet including introduction of salads, protein and fibre rich food, freshness, clean and hygiene are yet another parameter.

With such an epic change in the range and ensuring the required health criteria for the people, the company deserves 4 out of 5

(ii) Ideas and intellectual property - The company tends to keep the recipe secret and formula protected but still a lot of chains has been opened who have now become one of the healthy competitors in the business. This ranks them down to 3 out of 5

(iii) Franchise area and territorial rights – The area for the opening of the franchisee is duly decided by the company and they possess the territorial right. They mostly buy a catchment area and then give the same on lease rental to the franchisees as share of revenue. Although this enhances the cost of capital but accelerates the revenue and this way they have profound themselves as one of the biggest property holders as well. This may not be agreed by the franchisee and may face reasonable resistance from them in long run as well. They can be ranked 2.5 out of 5 in this front.

(iv) Distribution arrangement – They have their own channels and distribution centre but the supply complexity vests on different supplier for assorted products which includes grain mills, wheat, vegetables. The restaurant staffs are skilled and trained in a way to keep and handle the raw material for the preparation of finished product. They can be ranked as 3 out of 5 again on this front.

(v) Marketing and promotion support – The company invests a lot on promotion front including marketing of offers, innovation, social promotion etc. They can be ranked 3.5 out of 5 (Mc donald 2016)

(vi) Royalty levels and responsibilities – Presently it is said to be built up close to 5 per cent on sales component which is reasonable in nature. Considering the responsibilities of Mc Donald towards collection of royalty, they can be ranked as 3 out of 5.

(vii) Legal and regulatory requirement – Carrying the corporate image globally, the company ensures that the franchisees abided by the local land laws as well as the code of conduct of the company. This make them ranked 4 out of 5

(viii) Training support – The franchisee need to go to rigorous interview session as well as training of 12month including on the job training of Weekends entitling them for ranking of 4 out of 5. Training are the useful parameters by which the company can be judged.

(ix) Operational support – The franchisee is supported by technology based operation which ensure efficiency and effectiveness but still the control of staff in an outlet and the customer satisfaction is purely dependent on the owner and the manager running the restaurant. 3 out of 5 can be given.

(x) Administrative support – They can be ranked at 3 out of 5 dues to their intense support on administrative front.

(xi) Pilot operation opportunities – The company comes up with vivid offers and innovative products time to time and provide the franchisee to run only on success with company owned outlets. 3 out of 5.

3.2 Investment viability 

(i) Franchisee purchase cost – It is required to have minimum investment of 1 Million dollar followed by liquidity of 0.75 Million Dollar. It is not economical but a good buy for energetic investor. 3 out of 5 can be given.

(ii) Franchisee fees – It is 75000NZD. And hence can be given as 4 out of 5 as the fees is quite reasonable.

(iii) Asset and liability specification and the cost – It includes the assets like the furniture and fixture and liability includes the rent, salary, and the royalty fees. 3 out of 5

(iv) Availability, extent, and cost of franchiser finance – One need to pay the 40% of the total cost for the new franchisee and rest can be funded only externally. 3 out of 5. 

(v) Availability, extent, and cost of external finance – A fund can be arranged from bank provided minimum down payment is arranged. 3.5 out of 5.

(vi) Goodwill, royalty, trademark and patent – This includes an expense of USD 700k. 3.4 out of 5

(vii) Cost of management service – This includes technical support and expert advice close to 1.5 Lakh NZD. This ranks 3 out of 5.

(viii) Costs of operational support; marketing and promotion costs. – This cost close to 4.50 % of total sales ranking 2,5 out of 5.

3.3 Resources available

 (i) Inventory levels and costs – The inventory tends to be properly and efficiently maintained as per the guidelines prescribed the company on frequency of ordering. The order minimum level has to their which must be kept clean and hygienic. They have tie up with massive corporates for the supply of grains, vegetable and others. 

(ii) Pricing structures, and pricing standardisation requirements – Mc Donald has standard pricing structure for its products (Mc donald 2016)

3.4

Business information

Business Setup – The company generally evaluates the business place before franchising or tries to open the restaurant in the catchment bought already or in lease which they further lease to the franchisee. They charge the requisite franchisee fees with taxes followed by initial set up of interior and furniture with appropriate marketing strategy to promote the franchisee so opened.

CONCLUSION

They have seen many success and failure and they have made various process flow and check points which have helped them to grow to this level. This has resulted in the formation of various structure within organisation including financials as well. The financial structure can be promising as guided by the company.