THE CHALLENGE: Growth through franchising, without losing control of your brand.
When Matthew Corrin, founder of Freshii, a chain of fast casual restaurants, launched his first restaurant in Toronto in 2005, he wanted it to be the first of many. He knew that franchising could provide growth opportunities, but it could also be dangerous because it's easy to lose control of your brand. How could he franchise his business without putting the Freshii brand at risk?
Described as the "new generation of quick service dining," Freshii offers fresh, healthy, customizable food options. The business is eco-friendly: from the vendors who supply the food to their cleaning supplies, deliveries, and packaging. For the first two years after launching, Mr. Corrin was against franchising.
"It works well when you have tight systems and a predictable business model, and we were still developing that," he explained. "And there is a danger that franchise owners, who are often geographically distant from head office, can start doing things that compromise the brand. A delinquent franchisee can hurt the brand and is hard to get rid of without a long and costly legal battle, and no one wants to get involved in that."
However, Mr. Corrin revisited the idea of franchising when he analyzed the economics of location-by-location growth. "We have a bold mission of changing how people eat around the world," he said. "We can't reach our mission from 1 or 2 or even 10 cities. We need hyper-growth to do that." However, with each store costing roughly $250,000, a high growth rate was too capital intensive to achieve with a solely company-owned growth model. Franchising requires a lower investment from the company, because the store cost is spread out across multiple franchise owners.
But Freshii's bold mission also requires building – and continually reinforcing – a strong and distinct brand image, and Mr. Corrin had to figure out how to keep his brand strong with an increasing number of stores owned by franchisees.
Mr. Corrin's approach to franchising has a dual foundation. First, he realized from the outset that systems are the basis to a scalable business, and so everything is systematized. "We made the business as information-intensive as possible because we had to be able to hand it over to someone else to operate consistently," he reflected. The Freshii point-of-sale systems allow in-depth analysis of all financial metrics.
However, second – and most importantly – he realized that the selection of franchise owners would be the key to success.
"Systems can detect problems, but great people stop them from happening in the first place," Mr. Corrin noted. So, he looks for smart and passionate entrepreneurs, people who are well-connected, well-capitalized and philosophically aligned in their local market. They are active investors who know what it takes to run an effective organization and are interested in opening more than one store. "We spend a lot of upfront time with them, run background checks, meet their families, and learn about their previous businesses," said Mr. Corrin. "Since we`re investing heavily in them, we need to know who they are and trust them to make decisions every day that are right for Freshii and online with our brand's mission."
But Mr. Corrin's approach goes beyond trustworthiness; he knows that some of the most successful innovations in a franchise organization– such as McDonald's Big Mac or Subway's $5 Footlong – came from the franchise partners. Mr. Corrin reflected this approach: "We call them franchise partners rather than franchisees, and they truly are partners because of the ideas and energy they bring to the business."
Mr. Corrin's franchising strategy is paying off. There are now Freshii restaurants in three Canadian cities, ten American cities, as well as in Vienna and Dubai. Freshii will have 50 locations in 20 cities by the end of 2010 and double that store count in 2011. Mr. Corrin has been named a 30 under 30 Top Entrepreneur by the National Restaurant Hospitality magazine and an Ernst & Young Entrepreneur of the Year finalist. One of the most exciting moments of the past year was Mr. Corrin's opening of a Freshii location in New York City's garment district. "After university, I worked for fashion icon Oscar de La Renta, just two blocks away from our first NYC Freshii," said Mr. Corrin. "And so it was a huge thrill to deliver a large catering order to Oscar during our opening week. It has truly come full circle!"
Special to The Globe and Mail
Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Your Business website.