Stan Gordon is the founder and managing director of the Franchised Food Company, which has about 160 stores nationwide across its four brands: Cold Rock Ice Creamery, Mr Whippy, Pretzel World and Nutshack.
Gordon elaborates on why co-branded stores are the way of the future for retail and details his plans to sell 21 million cakes each year, flagging new deals in the near-distance future.
The South African native, who worked with President Mandela in his own country, also explains why foreign food rivals have failed in Australia and shares his thoughts on the reasons for conflict between franchisors and franchisees.
Dispute numbers are not too high, he says, but disgruntled franchisees need to remember they have signed a contract and that a franchise isn’t a licence to print money.
What’s your reading on the economy at the moment and how will that feed into your expansion plans?
I think it’s tough, and retail’s really tough at the moment, right across all the sectors.
We’re not really as affected as the others; I don’t think food has been as badly affected, especially treats.
I think people will enjoy a snack and a treat, but not necessarily take their family out for a large dinner, so I think your A-grade, five-star restaurant will suffer a lot more.
The economy? With people getting packages and being made redundant and retrenched and downsizing, I think there’s more opportunity for us to get franchisees to get involved.
I think people will become their own boss. You’ll never be able to retire out of owning one our franchises, certainly in our sector, but you’ll certainly be able to earn a great living have a nice lifestyle.
So a downturn would be good for recruitment?
I think it would.
When everything’s booming, everything booms and we’re all positive. When things turn down, I’ve always been taught and have always believed that you make opportunities, opportunities don’t just arrive.
So if the markets are down, how can we take advantage of that? And I’m saying we can, both from consumer point of view and in terms of the recruitment of franchisees.
And what exactly are your expansion plans?
Target market? We’re not looking for investors, so we don’t want well-to-do, high-net-worth individuals buying a couple of stores and just putting them under management.
I’m not convinced .our system works that way; I’m not sure anyone in this system works that way.
We’re looking for the mum and pop operators; the person wants to be their own boss, but doesn’t quite know how to do it, and I say that with respect.
We would supply the marketing, all the hard things people find in business, we supply that.
So target market, in terms of franchisees, are people who’ve got a package, who want to get involved in own business and again, it’s the first step to doing that.
Do have any investor-owned stores?
We have a few investors. Those are the ones that are okay. Our best stores are the ones you have an owner-operator.
And store numbers?
We plan to do 100 Cold Rock stores in next two three years and we have got a strategy in terms of growing that, and I’ll be able to give you details of that as soon as the deal’s completed.
There’s a deal coming that will enable you to reach that target?
Exactly. We also have quite a large deal on the Mr Whippy brand, which is probably the iconic brand in Australia. We’re about to do a deal to revive that brand across Australia, which will see the resurgence of that brand. I’ll tell you as soon as I’ve done it.
And organic growth, there’s cakes and catering as well?
Cakes are part of our business, and we believe it will become a much larger part of our business. What I’ve said to my marketing team, we have an opportunity to sell a minimum of 21 million cakes a year. How do I get to that number? Everyone has a birthday once a year and there are 21 million people in the Australia.
The targets for calendar 2012 are cakes, a premium take-home ice-cream cake; really going as a competitor to the Ben & Jerry’s market, the absolute premium, not just supermarket brands.
Tasti d’lite [the US-based frozen yoghurt retailer] is opening up here from the US, is that a competitor?
Not at all. That’s another whole market and I think it’s an untapped market. They are coming, but a number of people have tried the frozen yoghurt in Australia with limited success.
The stores that will work in my opinion are the ones that will do the frozen yoghurt via weight. I’ve just come back from America where the yoghurt is by weight and the taste is wow.
If you’re going back to your traditional frozen yoghurt, but it’s really the modern version of soft serves. I think markets have to change, need to modernise. And any concept that doesn’t evolve and become more modern will ultimately die, and I think you’ve going to see that right across retail.
So who do you see as your major competitor?
No-one, and I don’t say that flippantly.
While Cold Rock is an ice creamery, we’re not really; we’re a lolly store, we’re a treat experience. Ben & Jerry’s is an ice cream store, New Zealand Ice cream is an ice cream store, Wendy’s is a pick-it-out-of-a-hat-store. We’re very different.
There’s an American group, Marble Slab Creamery, who’s just opened in Brisbane; they’ve gone into our failed store so I’m not sure what they’re going to do that we couldn’t do.
I’ve also seen Americans come and go to Australia.
And as a migrant to this wonderful country, when I came here my philosophy was, ‘I’m going to teach Australia about meat pies’, but I failed miserably.
Australia is a very different country and I said humbly that you’ve got to do things the Australian way. We are different.
And what do you think is holding the overseas competitors back?
Lack of understanding of the Australian market. The demographics are different, the purchasing habits, the taste palette – I think that’s why Krispy Kreme has struggled in Australia because I’m not sure Australians like that sickly sweet American taste. You need to Australianise the product.
And it’s the same pretzels; others have tried but our taste is modified for the Australian market.
There were a couple of fishes that got away, Souvlaki Hut…
Well, Souvlaki Hut got away and I was very vocal on that and I stick to what I said. But we’ve actually subsequently done a deal with Souvlaki Hut, co-branded stores.
I think that’s my philosophy on retail space for the future: space will have to be shared by a number of brands or complementary offerings
We’ve created a dessert offering in six Souvlaki Hut stores, we’ve put in a Cold Rock express, which is ‘honey, I shrunk the Cold Rock store’. And this has been a phenomenal success.
We’ve found that your target market has bought their meal, and then has had an icecream mix-in treat as the dessert offering. So it’s grown the souvlaki business, and grown the Cold Rock business. So it’s a win-win-win, because the landlord gets a tenant who can pay rent, a sustainable business.
It’s the same franchisee across both brands now, and now has a real business because there’s no additional costs. Everybody’s winning.
What’s the revenue of the group?
There’s been a lot of attention on the franchisor/franchise relationship, and I saw a franchisee [of yours] sought to be rebrand after their contract wasn’t extended. What happened there?
It was a franchisee in Townsville. His contract finished, and he said he’s decided to rebrand and go it alone. We called him in and said, ‘you can’t do that, you signed a contract, you learnt all the intellectual property and know-how from us.’ We begged him not to.
We were successful in injuncting him and the courts said he couldn’t go into competition.
We see Townsville as a great market; it’s really sad somebody had to do that.
If you’re going to sign a franchise agreement, understand you have to follow what the agreement says.
There are a lot of disgruntled franchisees out there. Is it a matter of not understanding their agreements?
I think franchisees think ... We will always have a problem.
When I started and I had 30 franchisees, I had three problems. When I had 60 franchisees, I had six problems. At 116, probably I’d be happy with 16 problems – we’ve probably got a lot less than that.
Disgruntled franchisees… I think they think it’s an easy way to make money. And if I can quote the founder of Eagle Boys, if you think you’re going to step back and have a holiday, it’s not going to happen. Forget about golf, forget about holidays – it’s not going to happen, but you’re going to get the rewards afterwards.
So if you want a job where you’re not going to work, there’s no such thing. I mean, I’d like one of those.
The ACCC said last year that the number of complaints about franchising was too high. Is that a reflection of the sheer numbers in franchising?
I think it is. I think there’s a problem in franchising where every bloke with an idea thinks he can franchise. It’s not as easy as that. And as the economy goes down and things get tougher, it will be survival of the fittest and the more mature and experienced systems.
It’s not that easy to set up a franchise; there’s a plethora of legal requirements and ongoing requirements of support and compliance that you have to do that really cost of tens of thousands to do properly.
So the bloke who’s got three or five or 10 stores just doesn’t have the financial resources, the human resources to make it effective. And I would think you’re probably going to get a number of those sorts of complaints.
How did you get into franchising?
My background is in advertising and marketing. In my previous life, I was in Ogilvy and Mather, one of the CEOs there. I then got involved in the franchising of meat pies in South Arica with the Mandela family, President Mandela when he was released and to empower the previously impoverished people.
And then came to Australia and bought Mr Whippy.
But franchising from country A to country B is completely different, so I had to learn what the code was all about, but you put your head down and learn. And after 12 years I’ve learnt, I think.
Well, we look forward to hearing what you’re next up to.