Posted on July 21, 2013, The Borneo Post Sunday
The
pathway for an successful entrepreneur goes like this: You have an
idea; you put it to the grind. Pretty soon, when the business model
proves to work, you make money. The next step beyond this is natural,
which is to expand and what better way to do that then by franchising
the businesses.
The art of franchising
Franchising is a business model that can be seen as one of the more convenient ways to rapidly expand a business. Franchises
are a way of marketing or distribution in which the franchisor grants
the franchisee the right to use the brand or mark, trade secrets, any
confidential information, intellectual property, and the right to
operate a business according to the franchise system as determined
within a specified term, at an agreed location. In other words,
franchise is a business venture between the franchisor (product owner)
and the franchisee (investor) in which the franchisor will provide the
product and business system while the franchisee invests in capital by
the means of funding, manpower and continuous effort to sustain the
business.
Studies have also shown that the failure rates for
franchised stores are less than five per cent as the franchise system is
built on a proven business model by an already established company or
franchisor.
With such proven success, the franchise industry in Malaysia has been contributing significantly to its growth.
According
to Franchise Development Division in the Ministry of Domestic Trade
Coorperatives and Consumerism (MDTCC) Minister, Datuk Seri Ismail Sabri
Yaakob, the franchise industry is expected contribute RM26 billion to
gross domestic product (GDP) this year.
Deputy
Minister of MDTCC Datuk Paduka Ahmad Bashah Md Hanipah supported this
by saying, “The franchise segment has also contributed significantly to
the country’s GDP with roughly RM23.6 billion last year alone.” In
addition, in a text speech for the launch of Asean Franchise Expo and
Symposium 2013, Ismail Sabri said, “Malaysia’s franchise industry has
shown remarkable increase and growth especially in these past four
years.
“I believed both the government and the industry players
are very encouraged by this spurt in growth. With business-friendly
policies, sound and effective strategies, competent implementation
including strong commitment from all, the government is convinced that
franchising will enable more home-grown businesses to expand their
brands at a much faster pace both locally and abroad.”
To cap on
this, the National Franchise Development Blueprint 2012 to 2016 came to
fruition. This blueprint aims to further develop the franchise industry
with its various possibilites here in Malaysia.
Meanwhile, Ismail
Sabri highlighted that the ministry itself has made various effort and
initiatives to promote and develop home-grown franchises because these
businesses can evolve into internationally recognised brands.
This
is due to the advantage that franchising enables business owners to
expand with less capital investment and risk, since the investments are
from the franchisees themselves. As such, he added, various
initiatives and programs have been introduced by the government with the
objective to enhance the support infrastructure for franchise
development.
“These initiatives have so far resulted in the
increase of 68 per cent in franchises registered, in which a total of
651 franchise systems registered in Malaysia as of the end of February
2013. “By comparison, in 2008 only 366 franchise were registered.
From the total 651 franchise system registered, 450 or 69 per cent are
home-grown, while 31 per cent or 201 are foreign franchises.
“The
food and beverage (F&B) sector is still the largest sector in the
country, making up 35 per cent of the total registered franchise
systems. The number of franchisees has also increase by 40 per cent to
5,465 franchisees since 2008,” Ismail Sabri was quoted as saying in his
text speech.
Meanwhile, in Sarawak, the franchising trend can be seen as growing, driven by the state’s rapid growth.
“(Sarawak’s
franchise industry) is growing and more in demand especially in the
F&B line because franchisors have realized that collecting royalties
is the purest play,” a successful franchisor said.
BizHive Weekly takes a look at two established Sarawakian franchisors to get an insight on their success stories:
SugarBun: Sarawak’s long-term franchise
When it comes to local franchisors, undoubtedly, to most Sarawakians, fast food restaurant SugarBun comes to mind.
First outlet of Sugarbun in Kenyalang
From
its humble beginnings and through years of building various vigorous
business plans to solidify its growth, SugarBun has achieved numerous
feats which placed it as among Sarawak’s leading food and beverage
(F&B) companies, contributing significantly to the growth of the
state. In addition, the home-grown fast food chain, managed by SB
Franchise Management Sdn Bhd (SB Franchise Management) and a subsidiary
of Borneo Oil Bhd (Borneo Oil), has etched itself in Malaysia’s business
history as the first Malaysian fast food restaurant to penetrate the
international market.
With a history dotted with success, it is
interesting to note that in 1979, the internationally-known SugarBun
first started out as an ice cream parlor in Kenyalang Park. In 1993,
with only 12 stores at hand, the original founder relinquished the reins
of the company to new shareholders and thus began SugarBun’s steady
climb to business success.
The chain of stores was evolved to fast
food chains and the company was taken to greater heights when it was
listed under Borneo Oil on the Second Board of Kuala Lumpur Stock
Exchange in 1997. Consecutively, the company also took up the
franchising business strategy and started its SugarBun Franchise
Opportunity.
Within the first 10 years of its listing and the
start-up of the franchise, SugarBun’s company-owned business grew
rapidly compared with the franchise business model. Like all
businesses, SugarBun’s journey since its establishment more than three
decades ago, did not come unhindered by obstacles.
In the mid-80s recession, the fast food chain was greatly hit by the closure of two supermarket chains in Sibu and Kuching.
Raymond Teo
“The
company-owned business did not sustain the economic crisis and the
pressing management problems was the decision maker for the company to
go full-fledge into the franchise business when the company converted
all the company-owned restaurant in 2008 and since then, went into
full-fledge franchising,” general manager of SB Franchise Management and
executive director of Borneo Oil, Raymond Teo revealed to the BizHive
Weekly.
SugarBun’s move to fully franchise its business, Teo
highlighted, became the point where the company truly saw its business
growth gaining momentum, rapidly. “For the past six years until
the second quarter of 2013 (2Q13), SugarBun Brand has made a great
impact in Malaysia’s economy, especially in Sarawak’s market,” Teo
added.
Since SugarBun had fully incorporated the franchising
model, he pointed out that the restaurant had seen robust steady growth
with new outlets opening up every year. As of 2Q13, Teo who has
been with Borneo Oil for more than 20 years, noted that SugarBun had
opened 37 new outlets resulting to a total of 65 restaurants spread
throughout East Malaysia, Peninsular Malaysia as well as other Asian
countries such as China and Brunei.
One of the key secrets to the
success of SugarBun’s rapid expansion, Teo further revealed, is the
company’s Area Franchise Development strategy. He explained that
‘Area Franchise Development’ is a good strategy to further expand the
business outside Sarawak and into Sabah, Peninsular Malaysia as well as
overseas because the strategy opens up joint venturing opportunities
with overseas developers who can navigate the culture, open and operate
numerous units at once.
To note, SugarBun had recently awarded
Area Franchise Licenses for the states of Sabah and Johor to two of its
successful long term franchisees – Johtamas Holdings Sdn Bhd in Johor
and Goldfire Medic Sdn Bhd in Sabah – which require them to open at
least a certain number of outlets each year. This move, Teo noted, was to pave way to achieving the company’s goal of opening up 100 SugarBun restaurants this year (2013).
“Under
a five year contract, Johtamas and Goldfire Medic are required to set
up at least two restaurants each in the first year, minimum three in the
second year and a minimum of five each year thereafter,” he added,
noting that within five years, both franchisees are required to open at
least 20 restaurants.
“At this moment, we have interested
investors from Myanmar, Indonesia, India, Papua New Guinea, Singapore,
Thailand and Outer Mongolia enquiring about the SugarBun Franchise
Opportunities,” Teo unveiled. Aside from its growing success in
expansion, over the years, SugarBun has also recorded many ‘firsts’ in
Malaysia which include being the first Malaysian homegrown fast food
restaurant to achieve the MS ISO 9002 certification, and the first
Malaysian fast food franchisor to be public listed on Bursa Malaysia.
SugarBun
is also the first Malaysian fast food chain to incorporate a Junior
Library into major restaurants and the only fast food chain in Malaysia
to have a 100 per cent local workforce. On the motivation to
franchise SugarBun, Teo said, “The motivation for a Franchise Business
Model is non-other than for business to expand or in other words,
businesses in franchising will grow double or triple in size compared
with conventional business/company-owned businesses.”
Nevertheless,
the growing success of SugarBun still comes with its challenges. Teo
noted that the right location for SugarBun’s franchises still remain the
biggest challenge to the company. Apart from that, the food cost
versus selling price as well as quality control and attractive new
products to rival other franchisors, are also the company’s on-going
challenges.
When asked on opportunities entrepreneurs may find in
the franchising business, Teo said, while the franchise business looks
simple, franchisors need to have a proven business model that work and
is profitable.
He noted that most entrepreneurs these days are
looking for shortcuts to be successful. Teo advised entrepreneurs to
start out by leveraging on strong and established franchises.
SCR: Riding on a history of successes
For
SCR Corporation Sdn Bhd’s (SCR Corporation) SCR or formerly known,
fondly by locals as Singapore Chicken Rice, its tale of success is
unlike any other. SCR is perhaps a clear example of how a simple
common Malaysian food –- the chicken rice -– can be turned into a
successful business.
The home grown family restaurant first
started out in 1987 as an ordinary chicken rice selling restaurant,
which was established on a modest scale of about 1,200 square feet, on
the ground floor at Jalan Song Thian Cheok, Padungan.
Managing
director of SCR Corporation Johnson Tan revealed that the initial idea
of establishing Singapore Chicken Rice was “to help a friend who had
been working for him in Singapore to have a job in Kuching.”
Johnson Tan, SCR Corporation managing director
Kuching-born
Tan and his friend (William Chen, now a partner and director of SCR
Corporation) had managed to start a chicken rice selling business with
the aid of a Johorean-born chef in Singapore (Tang Get Meng, also a
partner and director of SCR Corporation) who initially, had his own
chicken rice business in the neighbouring country.
With that, they
incorporated a concept that is unlike any other chicken rice selling
businesses which back in those days, were mainly sold in coffee shops. Tan
and his partners had managed to create an ambiance that truly made SCR
stand apart from other restaurants; which is to be the first to sell
chicken rice in an air-conditioned shop with its workers serving
customers in uniforms.
It is with this concept that SCR found its
initial success. Tan said, “We started getting long queues everyday, for
eat-in and take aways.” He further recalled that the first few
months had been messy for them as most of his partners and himself have
never been in the food selling line, before.
Nevertheless, through
vigorous hard work and an unwavering motivation to see success, SCR
soon saw its growth accelerate within the first 10 years since its start
up. The road to success, however, has not been easy for SCR. The
group faced its first bitter experience with its initial third outlet
which was closed down due to its location. Thereafter, SCR revealed that
its first attempt in penetrating the international market (Brunei
market) had also turned out, initially, as a painful experience for the
restaurant.
Undeterred and buoyed on the success of its other
outlets, SCR continued to expand its businesses to booming towns in
Northern Sarawak, Labuan and Tawau. This growth momentum soon
motivated Tan and his partners to give the Brunei market another try.
After striking a deal with SCR’s first Brunei partners, the restaurant
soon opened its first Brunei outlet at Gadong which is currently one of
SCR’s top income outlet.
To date, SCR franchising and strategic
planning general manager Johnny Leo highlighted that the restaurant had
seen its growth accelerate by leaps and bounds, to 40 outlets throughout
Sarawak, Sabah and Brunei.
In
2007, SCR had introduced its first alternative business concept; the
SCR Xpress. Following the same philosophy that made SCR ubiquitous, SCR
Xpress is a step up in terms of ambiance and dining variety. Driven
by the need to expand and growing demand, SCR had soon realised that it
has to branch out from being just a company-owned chain of restaurants.
On July 2012, SCR incorporated the franchising business model into the
restaurant, and hence began SCR’s aggressive expansions.
Tan
disclosed to the BizHive Weekly, “It’s our company’s vision to go
regional instead of just concentrating in East Malaysia. We expect the
franchising programme would have a lot of response in the coming years.
“That
will give us the motivation to expand faster into new markets
especially within the Asean countries as these countries are rice-based
which suits our type of business.”He also said that the
franchising business strategy is expected to make it more convenient for
SCR as the restaurants will be operated by its franchisees. He pointed
out that this solves one of SCR’s crucial constraints, which are labour
constraints.
Meanwhile, Leo said, “This year, we are planning to
open 17 new outlets. To date, we have opened seven new outlets. While
the second half of this year, we are planning to open the remaining
planned 10 outlets.” He further noted that there have also been
several regional enquiries on SCR’s franchise. Johnny added that
currently, SCR has identified an interested party in Jakarta, Indonesia.
“We
have already decided on the memorandum of understanding (MoU) early
this year. We are now waiting for them to come up with the locations.
Upon confirmation, we will start the outlet in Jakarta,” he explained. On
the technical front, Leo said, to ensure consistent dining quality
throughout every outlet, the company had a standard operating procedure
(SOP) system put in place as a guide for franchisees.
“We also
provide training programmes to ensure quality duplication of services,”
he added. Leo noted that investors are just required to come up with the
appropriate capital and a mind set to expand, while the rest will be
handled by SCR as the company already has a convenient system ready for
investors.
Meanwhile, on the outlook of SCR, Leo highlighted that
as far as franchising is concern, SCR is targeting to have 100 outlets
(inclusive of current outlets) within the next five years. “We
expect an average of 15 per year. This year alone, we have 17 new
outlets and in five years, perhaps altogether 100 outlets,” he said.
With
the franchising system in place, Tan concluded by saying that SCR is
growing in tandem with Sarawak’s rapid growth. He also noted that the
spending power has also been increasing, which could lead to further
growth for SCR.
Bing Coffee: Setting a new stage for the local java taste
Up
and coming locally established Bing Coffee Sdn Bhd (Bing Coffee) has
recently announced its plans on franchising its coffeehouse, hence
building a new stage to compete with other foreign coffeehouse
franchises in the region.
General manager of Bing Coffe, Kenneth
Lim revealed to the BizHive Weekly that the coffeehouse is ready to
support a franchise system. Lim explained that the coffeehouse
chain, first established in 2004 with its first outlet located at
Padungan Road, already has a plant in place to mass produce its food
products and to ensure equal high quality and healthy food products are
provided to its customers.
Bing Coffee sets itself apart from
other foreign coffeehouse franchises by synthesising Eastern and Western
tastes into its range of beverages as well as selection of cakes and
other cuisines. While Lim said that a date had not been set in
stone, yet, he expressed his confidence in Bing Coffee achieving its
franchise license by the end of 2013.
Currently, he noted that the coffee chain is in the process of acquiring its ‘halal’ certification. “Acquiring the halal certification may take a while because a lot of process has to be done,” he added.
Aside
from that, Lim highlighted that Bing’s foray into the franchising world
is part of its effort to rapidly expand the coffee chain state-wide as
well as regionally.
Paving way for stable future the franchise
Banking
on the realisation of local franchises’ significant contribution in
driving Malaysia’s economic growth, the government has initiated various
efforts to safeguard a stable future for the franchise industry and to
ensure that the industry retains its robust momentum. One of the
government’s major effort to drive the franchising growth in Malaysia is
the five-year National Franchise Development Blueprint (NFDB)
2012-2016, which was first launched early last year by MDTCC Minister
Datuk Seri Ismail Sabri Yaakob.
In his NFDB foreward text, Ismail
Sabri said the NFDB is envisaged to provide clear and specific goals and
strategic directions to propel th industry to faster and sustainable
growth that is aligned with the National Development Agenda of achieving
developed status, ensuring a high income economy through inclusiveness
and sustainability.
“One
of the main objectives and strategies is to develop an industry that
advocates ‘Franchising for All’; making franchise accessible and
creating more opportunities for all,” he stated. The NFDB also
aims to expand the focus from traditional sectors (such as food and
beverages, clothing, health & beauty), to new sectors that have also
been emphasised in New Economic Model (NEM) and Tenth Malaysia Plan
(10MP) such as education, green products and services, medical tourism,
as well as syariah compliant products and services to penetrate the
Middle East and other Muslim markets.
The NFDB highlighted that
its vision is for Malaysia’s franchise industry to be vibrant and robust
domestically and positioned as a franchise hub for the Southeast Asia
and Middle East markets, while its mission is to contribute towards
national economic development agenda and creation of a high income
society.
Additionally, the NFDB is spread out in three phases
which are Phase 1 that starts from 2012 to 2014 (three years) and
involves strengthening the franchise players/industry and the franchise
development framework, Phase 2 which starts from 2015 to 2016 (two
years) and involves working towards a vibrant and robust domestic
franchise industry, in line with the vision of NFDB, and Phase 3 which
starts from 2017 to 2020 (four years) and involves creating Malaysia as a
Franchise Hub.
The comprehensive plan also sets out four
‘Strategic Thrusts’ that are supported by 36 strategies, 140 programmes,
and initiatives as a guide to grow businesses across the franchising
spectrum. The four ‘Strategic Thrusts’ are aimed to enhance
Competitiveness of Malaysian franchises, transform Malaysian business
through franchising, develop a competent human capital in franchises,
and establish a dynamic franchise ecosystem.
Along with the NFDB, MDTCC also noted that various agencies are available to support the growth of franchisors in the country. Perbadanan
Nasional Bhd (PNS) is an agency under MDTCC which is responsible for
the development of the franchise industry and also provides financing
support and facilities in terms of franchise consultation and advisory services.
On
the other hand, the Malaysian Franchise Association (MFA) have been a
strong supporting agency to the government’s initiative to promote
entrepreneurship through franchising and relay information on the
franchise industry to the government, current and possible franchisors
and franchisees, the media as well as the public.
With that in
mind, it can be seen the government has put in place a stable plan to
ensure that the franchise industry continues to grow at its formidable
pace and hence, contribute more to the country’s growth
