Franchise farce? Chris Orr thrashes out another Thresher issue

According to reports this week from disgruntled Threshers staff, there appears to be some consternation over their decision to franchise a percentage of the stores which is no real surprise. Personally I think the franchise concept is misguided for a number of reasons.

Perhaps the most important reason is that the idea of franchises is that they are a cost effective way of expanding a business and sharing the risk with third parties. Threshers isn’t expanding their business they’ve simply found a way of sharing the risk with, in the first instance, managers, and in the second instance, outsiders who decide to take on the franchise. In this regard, there’s no incentive for the franchisee to capture a new, untapped market they simply have to look at a balance sheet and work out if there’s enough money being made to make it worth their while. And from the remonstrations of certain managers over the past couple of weeks, it doesn’t look like there’s an awful lot of stores where the balance sheet looks worth the risk.

However, there are other fundamental problems. With a franchise like McDonald’s, for example, you have a very specific product that you buy and sell through your store, that has a proven market and audience and changes very little. A cheeseburger is, and shall always be a cheeseburger. However, with wine, someone may well want a bottle of wine, but whether they want the bottles of wine that Threshers are selling or not is another question altogether. I would hazard a guess that Threshers still haven’t necessarily proved that they have got the ‘offering’ right in the majority of their stores or that they can compete long term with the competition from the supermarkets. Indeed, it’s not just Threshers that are in this situation but many of the multiple off-licence chains. But franchise holders will be tied to buying a degree of their offering from Threshers, meaning there is little room to find out if alternative offerings will work.

More importantly, though, there’s the issue of staff. If you have a manager that’s been there for 10 or 15 years, he or she is used to certain level of security. Some may well relish the opportunity that¹s being offered to them to have a share in their own business, and reap more of the profits from the hard work they put in day in, day out. But most will see the franchise option as a frightening change to an otherwise relatively stable existence.

What’s more if they don’t take up their franchise, someone else might. And unless they are taking up multiple franchise offerings, ie all the Threshers in Brighton etc, then they are likely to be an owner/operator which means they are unlikely to have any need for a manager. So what’s the option take up your franchise or potentially lose your job to someone else who¹s prepared to take the risk? Doesn’t sound like a great option to me.

But lastly, I just don’t get the maths. Margins in the wine trade and off-licence world are pretty slim. Even with a profitable store, Threshers are saying that in effect, they are going to be taking less of a share of the profits. Even with the franchise fee thrown in, you¹re effectively taking your most profitable asset and giving a chunk of it away long term on the basis that you think the store might be more profitable if someone else is allowed to run it. I don’t see how that is good business unless, long term, you don’t believe you have a good business, or at least a business that can be sustained at its current level in the face of stiffer and stiffer competition on pricing and margins. I’m all for giving new ideas a go, and injecting a little bit of originality into selling wine on the high street and at least Threshers are constantly giving new ideas a go. But at some point someone needs to sit down and work out whether the basic concept of a high street chain of off-licences works ie can you sell enough wine to enough people at the right margins and make decent money out if it? I’m not sure anyone’s confident enough to see what the answer to that is. 

Chris Orr / db 9 February 2006