Wayne Homschek, chief executive of food retailer Pie Face, is the man behind a very unique food services company, which decorates its pies with faces. But while his product is unique, his business challenges are common – finding investors, finding staff and managing capital. His solution was to move from a company-owned model to a franchise system, a decision which has been vindicated by the downturn.
“Our store performance didn’t fall, but our investors’ risk suffered tremendously during the downturn. The main for us was looking at where we were committing capital. So rather than just signing up leases wherever we want, we had to be very selective and refocus on finding franchisees who could come on board.”
“The cost of capital from an investor just went up dramatically, and you don’t want to be asking for capital unless you absolutely need to. It changes your approach to company expansion, and so we just completely changed our direction.”
Homschek says the company, which recorded $9 million in revenue during 2008-09, moved to the franchise model to ensure the survival of its business.
“Having an owner/operator in the stores, having people who have a stake in the business and having the pressures of capital transferred off the business is a big reason for moving to a franchise model.”
“But with franchisees you get a better top line performance, and secondly their cost structure is better than the company’s. For instance, we manufacture and sell our products as a company-owned store, so a store manager may have a high stock wastage because he’s not paying for it. But the franchisee has a higher margin and will watch that more, so the franchisee’s economics is much better and makes more sense.”
Homschek says Pie Face’s quirky concept has helped the business stand out amongst rival bakeries, but he says that coming up with a unique brand and concept was only part of the challenge. Merely obtaining start-up capital was hard enough.
“Funding the business was definitely a big challenge, and especially in a food business. Not many professional investors really want to get involved with food because it’s such a difficult industry.”
“It took many years, it’s about continual reinforcement of what you’re doing, and just continuing to pitch your story to anyone. Most of my investors came from people I had worked with, moving from just buying an idea not many people will invest in just an idea, knowing the person.”
But Homschek says investors were ultimately won over by the unique concept of the business, and recommends other businesses focus on the quirky parts of their business to gain some attention.
“The other big challenge is just the cost of employing staff in Australia. Having a company-owned network of stores is just so expensive, and too expensive to own all our stores with payroll tax, and so on. That’s obviously part of the reason we’ve moved to a franchise system.”
“Really it’s just the brand itself that won the investors over. They loved the concept, and these were entrepreneurs who had done their own thing and could recognise the X factor of a business. Then we were able to show them sales figures, store growth, a whole bunch of metrics that validated their initial move into the business.”
Homschek says the company is also taking a unique approach to its sales and marketing strategies, with Pieface abandoning traditional forms of media in favour of online-only campaigns.
“We used to advertise in print, mainly to attract franchisees. I’m not saying we’ll never, ever use print again, but certainly it clearly wasn’t as effective as having a concerted internet strategy. So we did try both, but now we’re getting 15 franchisee enquiries a week. We’ve had to invest a lot of money in the website, but it’s pulling in more leads.”
“So is it risky? Well, what is risky? I think risky is spending $50,000 on a print advertisement and getting two phone calls, while we’re spending less than that on our website and getting more. You tell me what’s more risky.”
Homschek says other businesses should no longer just think about developing an online strategy, but should be actively seeking exposure on the internet.
“You need a website anyway, and with us it just made sense to use it exclusively. We needed it for franchisees. You do have to pump a bit of money into it, and then you just spend a bit of money on Google, and then you’re set.”
Homschek says moving to the franchise model has given the business momentum to survive the downturn, and he expects the business to take off further when the economy recovers.
“We’re already getting a lot of interest and the momentum is building every week. The actual franchise site is very interactive, has a lot of information and I think that’s only helping us as time goes on.”
“And that’s just now, when the economy recovers we think we’ll go off even stronger. While we’ve only started franchising in the last six months and have two franchisees, we do have 20 company owned stores and we expect the business to double in size in the next 12 months.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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