Transcript
A (0:00)
I'd like to start by pretty specific premise and that would be helpful to our listeners here on Unemployable. And it's this, what characteristics and maybe what benchmarks make a really good franchisor? And maybe they're different at the emerging level, at the intermediate level, and then kind of at the mature brand level, something that's been around for decades. But can we talk about that? And this can advise emerging franchisors what they need to shoot for and maybe it can advise franchisees what they need to look for.
B (0:38)
Sure. So that's a big question. So I'll try it. I'll try and start with the. I think anyone who's looking at a franchise when they're evaluating across kind of the life cycle of where a brand is, they have to realize that anything that's emerging will be higher risk and anything that is mature is likely to be a lower risk, especially if they have a high level of unit success rate. So we just start there. And the reason that I say that is because just sheer number of locations across large geographies has a provenness to it. With that said, though, an emerging brand that's maybe new to an industry, the return potential could be higher than a mature brand that has been in the market longer. So it's that very simple equation of higher risk, higher reward. So I think it's helpful to just kind of lay that landscape that, you know, there still can be some high reward with mature brands. But in studies that we've done looking at return metrics, emerging brands can offer a higher return, especially if it's in a new category. And then those returns start to go down as the ability and the provenness of that system matures over time.
A (2:07)
That's an incredible point. And I hadn't. It's an obvious point that an established brand with 40 years of operating history is going to have a very predictable outcome. You can just look at the hundreds or thousands of locations and say, well, if I follow the plan, I can expect that too. You also see over time that there's a normalizing of auv. You don't have this in an emerging brand, say three to five years old, that maybe put a hundred new owners out there, 20 a year. Over that five years, you're going to have some people that are starting up, some people that haven't figured it out. Then you're going to have some people that are having wild success and then 60 to 70% of them are in the middle trying to find their way to get up there. If You've been operating for 30 or 40 years. Look, everybody's going to be in a much smaller distribution because the system is the system and people have figured out how to get saturation out of the marketplace. They all run the same marketing programs. But here's something that's interesting that you said that I didn't realize or I hadn't really fully thought through. In an emerging brand, if it's a new category, the ability to acquire customers to a new and emerging blue ocean type concept should be much easier and much lower customer acquisition cost. The other thing is, is that you not only would get preference in available territory, I mean if you want to go into one of the 50 year old brands and say I want to buy downtown Charlotte, it is not available and it's unlikely that any major market is going to be available to you. So you're going to have to find a way to get into the through a secondary market and then maybe start to buy your way into the bigger markets and play that game. But for us at Homefront Brands, when we launched our brands which were all basically emerging kind of incubation brands, the whole country was open. So people could maybe get a larger award in a more preferential territory which then if the system is successful, those will have a higher resale value and maybe a higher yield during operating.