Taking up a franchise is no plain sailing. The Star

ALTHOUGH starting a franchising business may seem easy as it is all in a template, the real hard work begins when the business is up and running. It takes a lot of effort to sustain and ultimately make a profit out of it.

Malaysian Franchise Association chairman Abdul Malik Abdullah says the relationship between a franchisor and franchisee is just like a marriage, at the early stage it could all be rosy and beautiful.

“I mean, when a person has the money, almost anybody can start a franchise business. But the real action and hard work begin when the business is up and running.

“A franchisee must take the franchisor as a ‘guru’ as the latter has been doing this for many years,” he says.

Abdul Malik is also the owner of D’Tandoor Food Industries Sdn Bhd, the franchisor for D’Tandoor Malaysian Restaurant, established about 20 years ago.

D’Tandoor Malaysian Restaurant is the largest North Indian restaurant chain in the country with 15 outlets and is also the first North Indian food franchise in Malaysia.

As a rule of thumb, Abdul Malik says, there is no short-cut in the franchising business and one needs to really adhere to the operation manuals and guidelines given by the franchisor.

“For example, let’s say that a restaurant needs five staff members, but the franchisee downgrades that to three due to low volume of customers – then this is already a wrong approach.

“An increase in volume could be sudden and unexpected and when that happens, the owner will have a hard time looking for extra staff to work.

“This is crucial especially for any newly-open place because bad news can spread like wild fire,” he says.

Abdul Malik also cautions against some franchisees seeking cheaper suppliers for raw materials, rather than the ones recommended by the franchisor, to cut cost.

“Again this is not advisable as the franchisor must have valid reasons to recommend the suppliers that could provide the consistency in raw material quality and reliability,” he says.

Financially, Abdul Malik advises that a franchisee must have extra cash of about 20% from the total initial capital investment as the rolling capital for the next six months.

In ensuring that a franchisee complies with all the requirements, OldTown Bhd executive director Clarence D’Silva says the company actually assigns a field consultant.

“We also send a secret shopper on a quarterly basis to each outlet to assess the quality of service and food from the point of view of a customer.

“Thirdly, we have an operating evaluation system, conducted by our quality assurance people. If the franchisee fails, we would discuss with him on how to actually improve the situation.

“For a franchise brandname, what is important is to maintain consistency across the board,” he says.

For Chaswood Resources Holdings Ltd, which operates both as franchisors and franchisees a number of casual dining outlets, research and development (R&D) is important.

“As a franchisor we set the systems as well as continuous R&D and guidance, and the franchisee gets that for a fee.

“It’s a step up in the right direction instead of making trial and error on your own,” says managing director Andrew Reddy.

As a franchisee to a number of international brands such as T.G.I Friday’s, Reddy admits that he had to really learn to do things according to the franchisors.

“I started to learn their (TGIF) way, and I learnt the Japanese (watami) way. It’s quite thorough. I’m not afraid to say I have learnt something new. That’s why I love both elements. I learn franchising models and then I use that knowlegde for our homegrown brands,” he says. – By Sharidan M. Ali

Making franchising a success By SHARIDAN M. ALI and WONG WEI-SHEN

GO to any established shopping centre and you can't miss it. Neon lights and signboards of different colours and designs light up the walkways, attracting shoppers and diners to establishments one will have seen in other similar centres.

One may think the franchise landscape is a hotchpotch of different shops but in reality, there is method behind the franchising industry in the country.

The industry is worth billions in excess of RM20bil a year and is growing. One of the factors behind this is recognition by the Government of the value franchising brings and the incentives and initiatives that were launched one-and-a-half years ago to elevate the industry.

These initiatives come in the form of promotion and assistance of micro-franchising, tax incentives and the establishment of the National Franchise Blueprint that is supposed to steer the industry to greater heights.

Over the last five years, even without substantial incentives, the franchising industry has been growing at a steady pace of 10% to 15% per annum despite the turbulence created by the global financial crisis since 2008.

But changes are taking place now, according to Malaysian Franchise Association chairman Abdul Malik Abdullah, for Malaysia to fully exploit the potential of this industry.


The micro-franchising scheme was introduced by the Domestic Trade, Consumerism and Cooperatives Ministry last July. It is supposed to open up more entrepreneurship opportunities for the lower income groups, youths and just about anyone who is interested.

“In the last 20 to 30 years, franchising was a business intended for people with a substantial amount of money as the minimum capital required is around RM300,000 and above.

“But, presently, under the scheme, a person can go into franchising in the form of kiosk-type business with an initial capital investment of RM50,000.

“And there is a micro-franchising fund where the person can apply for a loan to start off the business. Newcomers can get a 70%-80% loan of the start-up cost from the Government or specifically Perbadanan Nasional Bhd (PNS) that requires neither a guarantor nor collateral.

“The interest rate is also low at only 3%,” Malik tells StarBizWeek.

Since the launch of the micro-franchising scheme, there are 58 brands now involved in the micro-franchising business from just nine last year, he says.

“The Government is also encouraging big-scale franchisors to join the bandwagon of micro-franchising. For example, Bangi Kopitiam, Ani Sup Utara and Legend's Family Curry House now have stall-concept franchise,” he says.


D’silva: ‘We can have three types of OldTown White Coffee in the same mall.’
On tax incentives, Malik explains that to further support the development of the local franchise industry, the Government proposes that franchise fees borne by local franchisees be allowed tax deduction.

“All these initiatives are very helpful to the general public and they should make full use of this advantage,” he says.

Also for the first time in the history of franchising in this country since the 1930s, Malik says Malaysia has a National Franchise Blueprint. “This is actually a 10-year plan till 2020 for the industry to have a proper direction in line with the national and economic agenda.

“The blueprint will ensure the franchise industry grows at an optimal pace and also nurtures human capital experts for the sector,” he says.

Other agendas of the blueprint are to enhance competitiveness of Malaysian franchises, transform business through franchising and establish a dynamic franchise ecosystem.

Refreshed outlook

The franchise industry is expected to contribute RM22.5bil or about 2.6% to the Malaysian gross domestic product (GDP) this year. This reflects a rather small jump from last year's contribution of 2.5% or RM21.48bil to the GDP.

In the long term though, under the National Franchise Blueprint, the industry is forecast to account for 4.3% and 9.4% of GDP by 2016 and 2020 respectively.

At present there are 603 franchise brands in Malaysia and some 6,000 franchisees nationwide.

Malik anticipates the franchise industry will post stronger growth next year as a number of new brands enter the market.


“A lot of these new brands will revolve around products in the concept of snacks and dessert foods.

“These kinds of products have proven to garner huge demand currently in the market such as Tutti Frutti, a US-brandname brought by the Naza Group in Malaysia, which has opened 120 outlets in two years,” he says.

Due to low level of awareness and perhaps “big-risk” associated with getting into a business, Malik says only 70%-80% of the RM8mil fund granted by the Government for the microfinancing of local brands has been used since it was launched last July.

“We have problems getting people into the business because they are scared of the risk of running their own business.

“A lot of people do not see the potential of being a franchisee compared with a conventional business start-up,” he says.

Malik says that as a franchisee, one will buy into an already tested brandname in the market, complete with its own operation manual as well as consistent guidance and training from the franchisor.

“So obviously, the risk is much less than starting a business on your own,” he says.

In retrospect, Malik says because of the lack of awareness, the industry has yet to reach its optimal level. In other words, there is a lot more room for growth.

“If we compare Malaysia with Singapore, the latter with a much smaller population has about 30,000 franchisees. Malaysia has about 6,000,” he says.

Increasing awareness

Nevertheless, Malik says the focus on increasing awareness on the potential of franchising has already being aggressively implemented since last year.


“The Government has a few programmes that were implemented last year to attract people, especially from the lower income group and rural areas, to get into franchising.

“There is a community franchise programme where some of the franchise brands set up booths to promote their brandname alongside PNS for inquiries and financial assistance,” he says.

The community franchise programme, launched in October 2011, has the potential to attract RM132.3mil in investment for 1,213 future franchisees.


Currently, Malik says food and beverages (F&B) is still the top of the franchising industry, commanding about 35% market share. But emerging trends indicate that franchising traction is being seen in childcare, children's education as well as healthcare.

“Apart from kiosk-type franchising, another up-and-coming trend in the industry is mobile-franchising such as Pro Cleaners where they provide mobile cleaning services,” he says.

Trailing behind the F&B segment are the apparel and accessory segment with a market share of 12%, service and education both at 11% each and beauty and health at 10%.

In the F&B segment, one of the booming sub-segments of this sector is the kopitiam segment. Here. OldTown White Coffee is leading the pack.

Executive director Clarence D'Silva says OldTown is diversifying its restaurant style to kiosk-type as well as more premium style outlets.

“We can have three types of OldTown White Coffee in the same mall catering to different markets and lifestyles,” he says.

Apart from that, D'Silva reveals that OldTown has switched to Jakim halal certification for all its outlets from certification by a private body.

“We want to expand our Muslim customer base as in the past, 80% of our customers were non-Muslims. Ultimately, we want to capture the dominant Malay market in Malaysia.

“In order to be in compliance with Jakim, we need more Muslim employees and we plan to recruit more locals,” he says.

D'Silva says OldTown also plans to attract more bumiputra franchisees.

“In fact, we are targeting 50% of our new franchisees to be bumiputras,” he says.

In terms of growth in the number of outlets, D'Silva is confident the franchise chain will add 20 more outlets this year.

“We will end up having a total of 200 outlets in Malaysia, 10 in Singapore, 11 in Indonesia and four in China,” he says.

Another F&B franchise company Chaswood Resources Holdings Ltd, listed in the Singapore stock exchange, carries in its portfolio brandnames such as T.G.I. Friday's, Watami Japanese Casual Restaurant, Italiannies, The Apartment Restaurant & Bar, Teh Tarik Place, Laundry, Republic and Malones Irish Bar & Restaurant.

It plans to expand its footprint regionally with its specialty restaurants.

“We were listed in March, hence we're still young. Our next goal is to get into the main board.

“We have already established ourselves in Malaysia. Now I am looking at Singapore, Thailand and Indonesia,” managing director Andrew Reddy says.

EVEN though Asia was hit by the global financial crisis and its after-effects, businesses in the region have fared better as economic growth in this part of the world has been resilient.

Franchise businesses such as those under the Chaswood Resources umbrella expanded despite the economic downturn.

Managing director Andrew Reddy, who manages more than 10 food and beverage (F&B) brands, debunks the myth that the F&B industry is recession-proof. Reddy says people will cut spending budgets when the economy is not in the pink of health.

“There's nothing that is recession-proof. You must realise that when there's a crisis, people spend less,” he says.

However, his goal is to answer questions such as: How do we get people to come and indulge in our place? What is it that we have to give?

With successful franchise brands to boot, Reddy states one of the reasons the brands have managed to flourish in tough times is the fact that people are familiar with what the brands offer.

From the onset of a crisis, many businesses get “burnt out”. Many that have booked rental space opted out. New shopping malls added to the glut of space.

Reddy says it is important to build on the strength of the business and then make expansion plans.

“We did that with T.G.I. Friday's. From 2003 to 2005, we had a lot of cash reserves, and opted not to pay any dividends to ourselves,” he explains.

It was in 2007, when the crisis was bubbling, many businesses cancelled bookings for rental space. This left landlords in a lurch as they were left with unoccupied shoplots or rental spaces.

When landlords approached him with the possibility of him taking their spaces, Reddy jumped at the opportunity.

“When 2009 came, we had to deliver 13 restaurants because I had committed to be in all these new malls and spaces,” he says.

It was because Chaswood Resources had kept a lot of cash reserves that it was able to commit to opening its restaurants in those new spaces.

It's not as easy as it looks

Contrary to popular belief, operating a franchise is not as easy as it looks. Owning and running a franchise business does come with its own set of challenges, which may be too hard for some to overcome.

In the early days of OldTown's operations, prior to its listing on the Main Market of Bursa Malaysia, it was operating on a licensee basis. It was only in 2009, four years down the road that the then total 117 OldTown White Coffee licensees were converted into franchise operators.

“It was tough to convince the licensees to convert into franchise operators because it would mean more restriction and control for them,” executive director Clarence D'Silva says.

Among the stringent requirements needed to achieve franchise operator status is the development of the trademark systems. D'Silva says the trademark systems include innovations that enables the business to be recognised as a franchise operator.

There are numerous things, he says, and briefly mentions training systems, and franchise and operation manuals.

“One of the key concerns of franchise operators is the ability to control and maintain a certain level of standard and compliance. This is something that can't be done using the licensing system,” he says.

Using the franchise system, the franchisor controls various matters related to the marketing and development of the brand. In the case of OldTown, this includes new menu launches and promotions.

From another perspective, Gourmet Corner Sdn Bhd director Wilson Beh, who is one of the earliest licensee-turned-franchisees of OldTown White Coffee shares his experience. He operates one of OldTown White Coffee's largest franchisee groups with 15 outlets.

Having found an attraction in the concept of the franchise, he decided to start his own in August 2005. He first took over the Ipoh Padang outlet. Beh says his initial capital back then was between RM200,000 and RM300,000.

Starting with a two-page menu, Beh, a chef by training, had given the franchisor ideas that proved to be a win-win situation for both parties.

He says the fees he pays to the franchisor only amounts to 5% of the outlets' gross sales.

“I think the 5% is worth paying as there is a lot of difference in the power of the franchise versus that of independent outlets. This way, it saves us a lot of work such as branding. If not for relying on OldTown's systems, we would not have been able to manage 10 to 15 outlets,” he says.

D'Silva says OldTown does not short-change its franchisees. “Whatever we collect from them, in terms of advertising and promotional fees, is 100% reinvested into all our activities.”

OldTown's ratio between direct shops and franchise operators was previously hovering in the 40:60 ratio. “Last year, we went through our corporate exercise and some of these shops were actually bought back,” he says.

D'Silva explains that he would like to maintain the current 50:50 ratio moving forward as it gives the company some form of control. “If you have a certain amount of control and also run the franchise operations, we would be aware of the shortcomings of the business. You would share the pain of the franchisees,” he says.

From the corporate aspect, the branding of the business is a priority.

“We would go to locations that may not make money but we establish ourselves there to maintain a brand presence,” he says.

D'Silva mentions that 10% of the company's shops are not profitable, exemplifying the Pavilion outlet and the “new generation” kiosk at KL Convention Centre, due to high rental cost.

“As the owner of the brand itself, we would be more willing to do it to benefit both us and the franchise operators,” he says.

Over the past seven years of operations, only two franchisees have dropped out.

“What we provide to our franchise operators is a set of systems, a guide of products, corporate identity, and training to help them manage the business. In the long run, we continually meet up with them to exchange ideas. As they are on the ground', listening to them can guide us towards the right direction,” he says.

Finding a franchisee that is willing to walk the extra mile and put in the extra effort in making the business work is important, he adds.

“On the sidelines, location is important but the effort to manage the business well is also paramount,” he says.

Bill tabled to make it compulsory for franchisors to register business

KUALA LUMPUR: An amendment to the Franchise Act 1998 was tabled to make it a requirement for franchisors to register their businesses before they can operate.

This move was proposed in the Franchise (Amendment) Bill 2012, tabled for the first reading by Deputy Domestic Trade, Cooperatives and Consumerism Minister Rohani Abdul Karim (BN - Batang Lupar) at the Dewan Rakyat on Tuesday.

Currently, the Act does not state that franchisors must register their business with the Registrar of Franchises before they can start operations.

It only states that franchisors must register their franchise with the Registrar before he can make an offer to sell the franchise to any person.

Under the Bill, those who fail to register their businesses before operating or making an offer to sell the franchise to anyone will commit an offence.

If the offender is a corporate body, it may be fined up to RM250,000 for the first offence.

A second or subsequent offence shall be punishable by a maximum fine of RM500,000.

If the offender is not a corporate body, the first offence is punishable by a fine of up to RM100,000 or a jail term of up to a year, or both.

Non-corporate bodies which commit subsequent offences face a fine of up to RM250,000 or jail term of three years or both.

The proposed amendment also seeks to introduce new provisions to make it a necessity for any franchisee of a local franchisor or local master franchisee and any franchisee of a foreign franchisor to register with the Registrar.

A franchisee who has been granted a franchise from a local franchisor or local master franchisee must register the business with the Registrar within 14 days from the date of signing of the agreement between the franchisor and franchisee.

On another note, the Bill seeks to amend the term of registration for franchise broker and franchise consultant from one to two years.

If the franchise broker or franchise consultant does not renew the registration within the given time, the franchise broker or consultant shall be liable to a maximum fine of RM10,000.

Second or subsequent offences will be punishable with a fine not exceeding RM25,000.

The proposed amendment also seeks to offer more time for the franchisor to submit its annual report to the Registrar, which is from 30 days from the anniversary date of the registration to six months from the end of each financial year of the franchise business.
Extracted from The Star

Big brands in Malaysian franchising named at awards

MALAYSIA’S largest white coffee cafe chain, OldTown White Coffee, was adjudged Franchisor of the Year

and International Franchisor of the Year 2012 by the Malaysian Franchise Association (MFA) at the recent Malaysia Franchise Awards ceremony.

First established in Ipoh in 1999, this homegrown brand grew its business from manufacturing beverage products to currently operating over 200 caféS in Malaysia and other parts of the region such as Singapore, Indonesia and China among others. OldTown White Coffee is best known for its own unique 3-in-1 white coffee blend, a favorite in most local households.

Currently, Old Town White Coffee is Malaysia’s largest Halal-certified white coffee café chain with 60% of its outlets certified. It plans to achieve 100% Jakim halal recognition and certification by the end of this year.

Revenue for OldTown White Coffee’s café chain operation has increased close to 269.9% over the past five years and has grown at compound annual growth tate rate of 38.7% over the past four years as the company embarked on aggressive franchise expansion plans.

The number of stores also increased by 11.7% year-on-year as there were 188 outlets in operation by the end of September 2011 compared to this year’s total of 210 outlets across the region as at the end of September 2012.

“In a world full of global giants, we take great pride in the heritage of our brand right down to our brand values. Being recognised for our contribution in the franchising industry and how much we’ve grown in the past years are things we are grateful for.

“We believe the secret to our success is that we have an in-depth knowledge of what our consumer wants.

“It also helps that we have long established presence as a trusted brand and have created a strong emotional bond with our loyal consumers,” said Clarence D’Silva, executive director of Oldtown Bhd, and chief operating officer of the F&B division of Kopitiam Asia Pacific Sdn Bhd.

The MFA Awards is an annual awards ceremony that recognises the critical roles that local businesses play in the franchise industry and in growing the business sector. It also remains unparalleled in its efforts to identify excellence in entrepreneurship through franchising.

The winners of this year’s Malaysia Franchise Awards, including OldTown White Coffee, were put under a stringent judging process and were assessed by an esteemed panel of judges comprising representatives from SME Bank, Suruhanjaya Syarikat Malaysia, Intellectual Property Corporation of Malaysia, Perbadanan Usahawan Nasional Bhd and MFA.

“Franchises have been proven to be a key factor in boosting economies around the world and this is why we wanted to promote the idea of franchising to entrepreneurs. In the past few years, we’ve seen a growing list of impressive and strong local franchise players.

“This year, OldTown White Coffee made it to the top because of its continuous business model improvement efforts and the positive contribution it has made to the economy and business sectors as a local company,” explained Abdul Malik Abdullah, chairman of MFA.

“The franchise business remains one of the fastest growing business segments and will continue to be a strong driver in the success of our local economy.

“The future of the franchise industry looks bright thanks to Malaysian brands that have strong brand equity such as OldTown White Coffee that remain true to their heritage and roots and focus on excellent products and services, making them appealing to a lot of franchisees,” said Syed Kamarulzaman S.Z.K. Shahabudin, managing director of Perbadanan Nasional Bhd.

PNS is an agency under the Ministry of Domestic Trade Cooperatives and Consumerism, whose main objectives are to encourage more entrepreneurs to invest in franchises by making all relevant resources available to potential investors and to ensure that more local products are marketed abroad.

“OldTown White Coffee will continue to work on its expansion plans in the coming year to expand our regional base. Our plan includes increasing the number of our outlets and to export our instant beverages to a more extensive market,” said D’Silva.

He added: “We encourage budding entrepreneurs to support local businesses and consider buying a franchise because this opens up better and more financial opportunities and freedom for them.

“The best advice we can give these interested and future franchisers is to identify a business they are passionate about, research well and speak to fellow franchisees, and have enough patience. Success will then be on its way.”

secret recipe franchise malaysia

Here's the details of franchise fee, investment cost etc. on popular franchise business opportunity – Secret Recipe.

Nama Syarikat/
Company Name
Secret Recipe Cakes & Cafe Sdn. Bhd.
Jenis Perniagaan/
Type of Business
Makanan /
Foods
Alamat Syarikat/
Company Address
42, Jalan SS 25/28,
47301 Petaling Jaya,
Selangor
Yuran Francais/
Franchise Fee
RM120,000*
Modal Permulaan/
Initial Investment
RM300,000 and above*
Royalti/
Royalty
5% daripada jualan kasar sebulan
5% of monthly gross sales
Yuran Promosi/
Promotion Fee
1% sebulan
1% per month
Website
secretrecipe.com.my
Trademark

SECRET RECIPE CAKES

KR1M brand won’t be franchised, says Ismail

BERA: The Government will not franchise the KR1M brand for the Kedai Rakyat 1Malaysia chain as it would increase operational costs of retailers.

“Franchising the concept would mean KR1M retailers would have to pay royalty or certain fees to the franchisor.

“This would increase their operational costs,” Domestic Trade, Cooperative and Consumerism Minister Datuk Seri Ismail Sabri told reporters here yesterday.

The KR1M retail chain is expected to increase from the current 25 outlets to 85 by the end of the year.

At the same time, some 190 retail shops are also selling KR1M products. “This would increase to about 500 by the end of the year,” said Ismail Sabri.

The minister said entrepreneurs could open a KR1M outlet with RM500,000, which would cover the start-up capital and premise renovations, adding that the Government had allocated RM40mil as loan for the purpose.

On a related matter, the minister said about 1,200 restaurants were now offering the 1Malaysia menu.

He said there would be at least 1,800 more 1Malaysia restuarants by the end of this year.

Sabah entrepreneurs urged to produce local products for franchising

KOTA KINABALU: Entrepreneurs in Sabah have been urged to come up with their own food-based products which can be franchised throughout the country via the Community Franchise Programme.
In making this call, the Minister of Domestic Trade, Cooperatives and Consumerism Datuk Seri Ismail Sabri Yaakob said the community franchise business had potential for involvement by the low and middle income groups, as well as those seeking a side income.
“In Sabah, the micro (Franchise Package) is not yet available as we have just introduced it and we hope that after this, it will expand in the state.

“What I want is for them (entrepreneurs) to on their own develop local products to be franchised at home first before doing so throughout the country.
“This is because the franchise brought in from the peninsula does not sometimes benefit the franchisor…curtailing its expansion,” he added.

Ismail Sabri said this when asked to comment on the level of participation by entrepreneurs or traders in Sabah in the Community Franchise Programme after its launch at Taman Putra Jaya in Telipok near here yesterday

Also present was Sabah Deputy Chief Minister Datuk Seri Yahya Hussin citing the ‘burger and soup Sabah’ as an example. He said products such as these could be introduced for the purpose of this business.

He said the government had allocated RM8 million for the Small Franchise Loans Scheme (SPKF) to assist entrepreneurs enter the franchise business on a micro basis.
Ismail Sabri said until May 14 this year, there were 144 applications approved under the SPKF with approved allocations of about RM3.2 million.
In this regard, he asked entrepreneurs in the state to grab business opportunities by applying for the easy loans without deposits of up to RM50,000 with an annual three per cent interest and payable within five years.

He said from October 9 last year to May 14, 2012, nine community franchise programmes had been held with an investment potential reaching RM66.3 million with about 619 franchisors. — Bernama


Read more: http://www.theborneopost.com/2012/05/19/sabah-entrepreneurs-urged-to-produce-local-products-for-franchising/#ixzz2KsvL2sN5