But the floods have also created a revenue surge at his business, as pool owners try to clean up. Today he talks to SmartCompany about the disaster response efforts, growing in an environment where franchisee recruitment is low, and why the Government needs to help boost consumer confidence.
I am thinking these natural disasters would have first created a lot of concern for your franchisees and then a great deal of work.
Well it’s certainly created challenges in the business. I mean, you never like to be a business that’s saying you’re doing well out of natural disaster, but it’s actually just boosted our business phenomenally. For the July to December half we were sitting at 6% up on the prior year and in January and February we ran at 23% up on the prior year. That’s all the flood recovery work throughout Queensland, country New South Wales and parts of Victoria.
Were things looking grim at Christmas time, given the poor weather?
Well, apart from WA we didn’t have a spring and we didn’t have a summer. We’re not a business that tends to focus on weather, we just find ways around it, but the weather events prior to Christmas combined with the terribly depressed consumer confidence in retail generally meant that last calendar year was the toughest we’d had in 20 years.
We have three parts to our business. We have a mobile poolside service business with over 330 vans, we have a retail shop business with over 65 stores and we have a business-to-business commercial division. Each of those are roughly a third of our business.
The good thing about our commercial business is that it’s not a seasonal business, there’s certainly increasing government regulation for commercial pool operators that means that they have to use us all the time. A lot of that is our relationships with insurers and loss assessors. We’ve got I think at last count 18,000 flood-affected swimming pools that we’ve got lined up that we’re gradually chipping away at.
So quickly take us through that process – do you have to drain a flood-affected pool or do you have treat it?
Something happened this year that’s never happened to us before because the east coast, particularly Queensland, was so saturated, the danger of emptied concrete pools is that there was so much moisture in the ground, they were popping out of the ground. So largely we avoided that like the plague so we looked at heavy dosing and treatment.
We should say while the natural disasters are generating a lot of business, in the days immediately after the floods, you guys were out there doing some unheralded pool cleaning off your own bat.
Yes, we were very much making it up as we went. The first problem we had through much of Queensland was within two days pools started to become heavily mosquito infected and the sort of the dangers that brings are Ross River Fever and Denge Fever. We were working with the health department at the time and at that time of year a lot of our clients were away on holidays as you can imagine, so we just took it upon ourselves to move in and start treating pools to get that under control. We did some fabulous stuff with our suppliers. Within two days we convened a meeting with all the key stakeholders in our business including our suppliers and worked response strategies. We were bringing in container loads of pumps from down south, we were shipping in salt from B-Doubles from Western Australia and we were just guaranteeing these stock levels to our suppliers. We just made sure we had stock at the doorstep when most of our small independents didn’t have the infrastructure to be setting that up.
Did you end up cleaning a lot of pools for free?
Look, we didn’t clean a lot of pools for free, you can’t help everyone but it’s amazing I’ve found in the flood affected areas how many small to medium businesses are in small ways helping people. We spoke to our suppliers and they gave a lot of free equipment and we pretty much chose hardship cases and in many cases replaced equipment for free or in fact made the whole pool good.
I remember one lady who had just gone through a divorce, had just moved into her home two days before Christmas. She had all the packing boxes and all the furniture downstairs and her new car and her five children. They all went upstairs to bed and, came down in the morning and everything was underwater, they had to get out in a boat. She lost her house, her car and everything and she had no insurance, so we fixed her pool and put a bit of a smile on her face I suppose.
It sounds like your response has been pretty good in serving your clients and customers, but was it hard to respond to affected franchisees?
We were just very, very lucky that in our entire staff force and franchisee force of nearly 1,000, only one person’s house went under. We had two stores sandbagged and none of those went under, so we physically we survived very well, even through the cyclones up north.
But within the two days after putting our response plan together we were physically touching base with every one of our franchisees over the phone from head office every two days. We called everyone back in from holidays in our head office just to show we weren’t a bunch of bums sitting on an island while they were out there doing it hard. We deployed most of our head office into stores or actually deployed into the field. We obviously helped some franchisees with stock guarantees, with free stock, in some cases we had to give royalty holidays or royalty terms. We worked hard to find out where the qualified electricians and plumbers were in our business and we moved qualified franchisees around in the business to help others. We had franchisees who weren’t flood affected lending their staff and their vans to flood-affected franchisees. So it was quite a logistical exercise.
Looking back were there things that you’ve already picked out as lessons for disaster response in the future?
Absolutely, in fact we’re almost done with that process as of last week. We’re probably a bit embarrassed to be honest – we thought we’d gone through fires and dust storms and floods and storms before, but nothing of this magnitude and we kind of had a bit of arrogance I suppose that we could deal with anything. But we couldn’t. We’ve got I think five different disaster responses, the ones I just talked to you about for cyclones, dust storms, fires and floods. There’s actually a response program for each of those and it includes obviously making your staff safe, making your buildings safe, making your clients’ pool safe, how to work with suppliers early on, how to inform your insurance suppliers and it goes on and on. It’s not war and peace, but it’s just a quick response mechanism.
Back to the poor weather problem. How have you reacted to that?
Without sounding corny about it, I think in any business you’ve got one of two choices. You’re either glass half empty and whinge and complain and get in pit with everybody else, or you’re a glass half full and you’re positive and you look to what you could do in the meantime. Obviously there’s marketing things you can do like our commercial business, like upping our local area marketing activities, but even keeping your staff busy in just the little things is crucial.
Making sure your databases are up to scratch, making sure your vans and stores are clean and even upgraded and well stocked – just all the best-practice things that when you’re busy you get around to. It gives you the opportunity to keep your staff busy and when clients come into your business, one of the first things they always say is ‘Gee, you guys are busy.’ Making sure your stock is full, your shelves are full, there’s nothing worse than going into a pool shop or any business in a downturn and finding the shelves are half empty. We have excellent trading terms with our suppliers which enables us to keep our shelves full and to make us look busy, so when the weather does turn, we’re immediately ready to take advantage of it.
What’s your sense of how the marketing is tracking, post the floods?
It’s interesting you say that, I have all my regional managers into our head office for a two day think-tank every three months and we just finished that last week, Looking at the different parts of our business. Our labour market is doing very well, it’s servicing pools, our chemical market is doing very well as you can imagine, the weather actually keeps flushing chemicals out of pools and we keep replacing it, that’s not so bad.
The area that’s hurt us most in the last year and it’s probably hurt most retailers is consumer confidence, meaning that people aren’t spending on equipment. You know, on $500, $1,000, $2,000, $3,000 purchases, they’re keeping their wallets closed and they’re deferring purchases. Now, one of the fortunate things for us is that you can’t defer spending money on your pool equipment for too long. You can only patch and repair stuff for so long, so we actually saw just before Christmas and now through into January and February in the non-rain affected areas of Western Australia and South Australia an upturn in consumer spending on equipment. We’ve put into place for the first time in the pool industry consumer financing options so we’re taking away the objections to spending.
It’s interesting, I think we’re finally in our industry seeing a slight increase in consumer confidence. What the impact of supposed carbon tax and continuing world disasters in Japan have on that consumer confidence I don’t know, but I think our pent up demand is at its limit and they’re starting to spend again.
What about the always difficult challenge of franchise recruitment?
I’ve just come back from the international franchise convention in Las Vegas and we get a double whammy here in Australia. Around the world banks aren’t lending so franchisees are finding it difficult to get finance, but in the rest of the world at least they’ve got higher unemployment so people are looking for franchising. Normally in tougher times you’ve got unemployment and your banks lend and you’ve got franchisees. So franchise candidates are at the lowest ebb probably in 20 years in Australian history.
What we’re doing though is recognising that there’s no use doing it the traditional way. We identified in the US that people are being very innovative in their ways of recruiting franchisees and one of those is that they’re looking to alternative funding mechanisms. We’re working very closely with our suppliers to get our suppliers and our lenders to create guaranteed lending facilities.
So not just with working with the finance companies or banks, but working with suppliers too?
We’re bringing in that third party. We didn’t invent the program and it’s been used on a very small scale in Australia before – some of the pharmacy groups, franchise groups have used it before. In America quite a few of the franchises have done the same thing with the gym suppliers. We’ve looked at that but we’re also complementing that with an owner to manager program, we kick off the third one of those in Newcastle shortly. We’ve followed the lead of some other good Australian franchisors like Domino’s and Baker’s Delight have set up mechanisms whereby 25-year-old store managers can get funding to help them into ownership of their franchise over a few years.
The third and final part is that we will do what a lot of the other international franchise groups do and probably take company-owned franchises up to about 40% of our total network. Not that we want to operate those forever, but purely as a strategy to create working stores, working stock to on sell. In today’s market banks are a lot happier to lend to an operating entity than to a greenfield start-up franchise.
You’re in WA as we speak. Any thoughts on the push towards state-based franchising laws that are going on in WA and South Australia?
I’ve operated in Western Australian franchising for a long time and I don’t think there’s a huge hunger in this state at either a state government level or at a consumer level to see state-based legislation in franchising. To be honest, the average punter I don’t think it’s of any consequence, they wouldn’t be aware of it. It doesn’t make the front half of the newspaper, it’s purely a political thing and I don’t think Western Australia would want to do anything to put the brakes on what’s starting to emerge again as a booming economy. I mean, they’re pretty savvy over here in terms of seeing what’s a winner and what’s not.
So looking ahead over the next 12 months, what looms as your greatest challenge? Is it another interest rate rise or more bad weather?
We’re not a whinging business, we’re a business that would rather try and find an answer to a problem, rather than sitting around and moaning about it. I think the biggest challenge to our business and any retail business is just simply consumer confidence. You know, the Federal Government does have a big part to play in that and certainly what they’re saying with the continuing wrangling over leadership emerging yet again at a Prime Ministerial level, the carbon tax, the tax on top of the tax on top of the tax. That’s not doing anything for Australian confidence and Australian consumers. I can’t really see a lot of leadership and responsibility at a Federal level for that issue. There doesn’t seem to be real awareness of consumer confidence and how it’s affecting retail spending in this country and given that small business as you know employs 72% of Australians, it’s something I’d have a focus on.
I mean, we’ve done so well as a country to come through the last three years. Give us a break, give us some certainty, it seems like we’re in this constant electoral mode. It almost feels like we’re still in it.