Auto Service World
Feature   September 1, 2000   by Paula Ellis

Are Franchises the Final Frontier?

SSGM will be looking at automotive franchises in a two part series, starting with the company perspective here, and the view from the trenches in the next issue.


You can’t drive a mile down a major street without seeing one. Their ads are on your T.V., their jingles are on your radio. They’re franchises, and they’re everywhere. The high volume, quick turnaround repair is the automotive equivalent of McDonald’s, snort many independents. But there’s something to be said for letting someone else sweat the business stuff while you spin the wrenches. Still not convinced? Read on to see what three franchise heavyweights have to say about having a system behind you.

Coming of age in the late ‘Fifties and early ‘Sixties, automotive franchises, including homegrown operations, have thrived. Mister Transmission started in Richmond Hill, just north of Toronto, in 1963, and the original founder is still president. Superior Tire and Auto is approaching its fifty-eighth year in business, with its franchise operation going on ten years old. Petrocan has survived in the cutthroat service station sector to become as common at intersections as any international gas retailer. What are they doing right, you might ask? The most obvious advantage to the franchise concept can be summarized in a word-size. Yes, it matters. When you’ve got a nationwide organization pitching your logo coast to coast, sales goes up. “Ninety percent of the people that join our organization are looking for brand recognition, proven marketing programs, quality product and delivery/distribution,” says Randall Moore, vice president of franchise operations at Mister Transmission, and chairman of the AIA.

Franchises have the deep pockets that mean automatic clout with suppliers. You buy that clout with the store. “The franchise brings with it suppliers and prices and the whole buying infrastructure, and it does it right away,” says Paul Hyatt, president, Superior Tire and Auto. The relationships with suppliers are preestablished with a franchise; you don’t have to start from scratch. Volume buying for the entire network of stores gets a price break the smaller guys don’t enjoy.

Deep pockets mean better locations, too. Explains Moore, “The franchise company has done a really great job in maximizing prime real estate opportunities in Canada, which in a lot of cases are unavailable to individual owner/operators. Landlords and developers look at the franchise as a big company. They are prepared to go with a Midas or a Sears because there’s a reputation there, there’s less risk involved.” Whatever their success rates are, franchises have the appearance of being low risk tenants, and appearance is a powerful business partner.

The automotive industry is image driven. People are notoriously wary with their automotive dollar, whether they’re buying a car or fixing one. There’s often a sense of mistrust born out of vulnerability-they don’t know what’s wrong with the car so they have to trust a stranger to be fair with them. As a result, reputation really counts. Here, the advantage of the franchise is the trust factor. People feel more comfortable with a name they’ve heard before, and the large organization makes them feel there are guaranteed standards backing them up.

It’s also nice to have someone backing you up on the business end of things when you’ve got cars to fix. The brass tacks of running a shop day to day leaves little time for contemplating the big picture. As a franchisee, you don’t really have to, says Hyatt. “In the franchisor, they have a lot of support staff and that’s important because, most of the time you’re behind the counter and you’re trying to run a business. There’s no time to look at the future and the trends and where you should be. A lot of that planning is done for them.”

Of course the biggest drawback in answering to someone else, is answering to someone else. All that structure takes the guesswork out of the business end of the shop, but it can also cramp your style. The automotive business is known as one of the last frontiers where a small operator can still do it his way. In a franchise, you have to do it their way. “Some franchisees don’t really adjust to that notion very well,” says Peter Bridger, national programs and business development manager for Petrocan Certigard. “The nature of franchising is that you’re part of a bigger organization, so you’re continually fighting between your entrepreneurial spirit that says, ‘I’m just going to do what I want to do,’ versus, ‘I’ve got to work within the confines of a franchise organization.’ That’s an ongoing dilemma.”

Another common misconception is that owning a franchise means guaranteed success. While the organization provides a permanent framework for the business, most of the brains and sweat still come from the franchisee, who is essentially self-employed. When push comes to shove, you’re on your own. Moore has encountered former company employees who don’t really understand the franchise concept and still want to be spoon-fed. “They are not going to be told what to do-they’re going to be given guidelines. They can use those to their advantage and grow with them or they can use them to their detriment and blame the franchise company for not giving them enough help or support. It’s really up to the individual to succeed.” Not enough freedom, or too much? It depends on what you expect from your franchise. While most of the promotional concepts and business structures are non-negotiable, the franchisee is usually allowed a certain amount of autonomy. Franchised shops have the advantage of ‘local flavor’ that corporate stores don’t have. You can sponsor a minor league hockey team, negotiate on price to an extent, and generally run your show the way you want to, as long as the basic franchise requirements are met.

There is room for feedback in most franchise organizations. Petrocan Certigard has a national advisory council that calls upon franchisees for input on issues like national programs and advertising campaigns. Mister Transmission’s policy allows individual stores to develop small scale marketing schemes for themselves within the larger program, as long as they submit it for approval. Likewise, Superior Tire and Auto has a flexible policy that allows stores to promote their own discounts, to a point. Hyatt summarizes the general idea when he says, “There’s a line somewhere that they should stay within. There’s quality control, certain standards that must be met, but nothing onerous.” In return for your cooperation, you’ll get help on market development, point of sale promotions and advertising. You might be shown how to clean up your computer system to make it run faster or how to change SKU pricing. Training is one of the biggest benefits of being a franchisee.

Randall Moore makes perhaps the most compelling argument on behalf of the franchise system when he says, “You cannot go any further in life with the knowledge you currently have. When you saturate your own knowledge, when you’ve gone as far as you can with what you know, how can you go any further without help from other people?” SSGM

BEFORE YOU SIGN UP, ASK QUESTIONS

So you’re willing to give up a certain amount of freedom to get a proven business system. Buyer beware-know what you’re getting into. Here’s some advice from Moore, Bridger and Hyatt on what you should be asking when you consider a franchise.

Bridger: Get the facts. How long has the franchise been in operation? What’s the historical performance of the franchisees within the franchise. Is the franchise in decline or is it growing? Is the industry that the franchise is in increasing or declining? Talk to existing franchisees within the network.

Moore: Look closely at yourself. Why do I want to be in business for myself? Why pick this particular company? Are you going to be a good fit with this company down the road? For example, Moore says his company has a reputation for keeping franchisees for a long time, and they are reluctant to take on someone “looking to make a quick dollar or an easy turnaround.”

Hyatt: Examine the operation. How much autonomy do they give franchisees? Who’s in charge-are individual people visible or is a committee running
it? If it’s a committee, is there a central figurehead that gives leadership and direction?

CAN I AFFORD IT?

Petrocan Certigard-Franchise fee, $20,000. Software fee to operate their automated business system, $5,000. Total investment depending on size and location, between $75,000 and $125,000, including initial fees above. Five year term plus one five year renewable option. Typical size: four bays.

Mister Transmission-Franchise fee, $25,000, plus equipment and inventory, half in cash. A turnkey operation is approximately $125,000. With the equipment as security, bank financing is usually available. Typical size, 2600 to 3000 sq. ft. or four bays.

Superior Tire and Auto-Franchise fee, $25,000, plus new or good used equipment. Overall cost ranges from $100,000 to $150,000, with available financing through their sources. Typical size, five bays or more.


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