These are tough times for food retailers, with rising unemployment and falling consumer sentiment leading to a sharp drop in customers. But Luke Baylis and James Miller, founders of health fast-food franchise Sumo Salad, claim the main challenges for their business haven’t come from the economic downturn, but natural disasters.
The recent Victorian bushfires and floods in Queensland have forced the pair to analyse and restructure their produce supply chains.
“All of these climactic changes make it exceptionally challenging for us to be able to source products at the right price point and maintain consistency,” Baylis says.
“It’s definitely created a lot of challenges from a back-of-house standpoint, because we’ve had to really work closely with our suppliers to create viable products.”
But he also says building strong relationships with suppliers has ensured the company can pull through unharmed.
“We’ve built a very robust business model in the sense we’ve got fixed price contracts, and we’ve also got very strong supply relationships, and through those relationships we’ve been able to resolve any major issues.”
Of course, the franchised chain hasn’t been immune to the downturn. Baylis says franchisee interest in Sumo Salad has declined since October as people are sceptical about investing large amounts of capital into anything. “Even banks” he says, only half joking.
“But now that people are more familiar with the economic environment and banks are encouraging people to lend to support small business, these things are having more of a positive impact for franchises.”
Like many franchisors, Baylis hopes the worsening downturn – and subsequent rise in job losses – could lead to an increase in franchisee recruits.
“The franchising model is a very proven business model; people that are looking to go into their own business can take that into a structure that’ll mitigate their risks and provide them with a forecasted return.”
Not that Sumo hasn’t had its fair share of problems with franchising.
“When we were first starting out, we were approached by an ex-McDonald’s franchisee who wanted to assist us. However, we found the McDonald’s system and ours were very different. The knowledge he had couldn’t convert into our business.”
Baylis says the business was damaged by using the wrong person, and they lost hundreds of thousands of dollars in the process of buying back the master franchise.
“We learnt that it’s better off for us to have control over our business, particularly in such a critical market, and it made us very careful with our selection process and the type of skills that are going to be successful in managing territory.
“We were a little ambitious too early and maybe should have held back.”
Since then the company has grown to operate 74 stores, 62 of which are franchised, and reached a revenue level of $29.5 million in 2007-08 and forecasts just under $50 million in 2008-09.
Shocked into action
Baylis says the two designed the business after working in IT in the United States, but left after witnessing the 11 September 2001 terrorist attacks from their homes on Manhattan Island.
“We both put on a reasonable amount of weight. When we came back we wanted a lifestyle change, and while we were here we found absolutely no healthy options in terms of fast food. We saw a huge hole in the market and formulated a business plan.”
So how do you convince customers to use that same attitude to buy a quick hunger fix that is actually good for them?
“Initially it was a challenge, because salads weren’t looked on as a side meal. We had to try to encapsulate big value, big taste, and something that would appeal to not only the female demographic but the male demographic.
“So we thought the Sumo branding would help us represent something large, value for money, great tasting, different Asian flavors – and that’s why we went with it in a large branding experience.”
Like any business, Baylis says the chain endured “problems with trying to obtain funding, trying to refine systems, develop systems and expand the business with limited capital and resources”.
But one of the biggest challenges, he says, was hiring friends and family as colleagues.
“We started with a lot of family and friends. But if we had a lot of money up front and we were in a better situation to start with, it would have made more sense to bring in strong professionals.”
Baylis says while the move wasn’t technically a mistake, he warns other SMEs to ensure they are using the right methods to bring new, experienced employees on board.
“Get independent advice and surround yourself with the right people, because if someone you hire has experience in that business, you can save a lot of money,” he says.
“Working with family and friends is good, but the best thing is to surround yourself with the right people earlier on to avoid making mistakes.”
Baylis is confident Sumo now has the business model to help it survive the downturn. He believes the company’s retail stores are achieving record sales due to its sub-$10 price point, and that the group’s value-for-money approach in the downturn means further discounts won’t be on the menu.
“We don’t necessarily believe in discounting; our price is very reasonable as it is. We feel that we’re better maintaining the quality as opposed to making any changes in regards to price points.”