Every successful franchise has one thing in common – a cultural fit with its franchisees. Mergers and acquisitions can destroy it.
The most successful franchise chains have an almost evangelical feel to them. I noticed it the first time I came into contact with the industry.
It was the Franchise Council of Australia’s national conference in Melbourne a few years ago. I had heard the conference would be at the Hyatt in Collins Street, and thought I might hear some interesting stories and meet some franchising entrepreneurs.
I sat in the plenary hall surrounded by franchisors and a few franchisees. At the end of every speech there was warm applause. When franchisees took the stage to talk about their businesses, there was rapturous applause. It encouraged me to take a closer look at the industry.
And the most distinguishing feature of many of the successful franchisors I have met was their passion and enthusiasm. The leaders of Gloria Jean’s Coffees, McDonald’s, Subway and Quest are just a few of the successful franchises with a unique and all-embracing culture. They love their business and they want you to love it. They are great at building teams and inspiring them.
To some extent all successful entrepreneurs show this passion, but I think for franchising it is particularly important. Franchisors need their franchisees to love the business the way they do. Franchisees are expected to work hard and unless they feel like part of a growing concern, it can very tough to keep going. And having a strong culture probably helps to get franchisees to follow the rules, which is critical for a cohesive system.
For these reasons, I think mergers and acquisitions are particularly hazardous in franchising. It’s the potential clash of strong cultures that can bring them undone. And a potential deal in the news right now brings that into focus.
Last week the Bank of Queensland made a merger offer to Bendigo Bank shareholders of 0.748 of its own shares and $5.50 in cash for each Bendigo share. Both Bendigo Bank and Bank of Queensland are franchised. On the surface, it sounds like a match made in heaven.
But I don’t think so. The two banks have very different cultures. Bendigo Bank operates community banks alongside traditional banks. The franchised community banks are owned by local communities, use bank infrastructure and pay a portion of bank revenue to head office. They were created in response to the pull-back of the big banks from some regional areas.
Bank of Queensland branches are a more traditional type of franchise. The bank’s expansion has been fuelled by selling franchises to entrepreneurs with experience in banking.
David Liddy, managing director of the Bank of Queensland, has said that if a merger goes ahead both models will be retained. “We’ll combine the strength of both and continue to expand both models.”
Some of the Bank of Queensland franchisees have reportedly been disappointed with their returns on investment.
Leicester Ramsey, the former owner of Bank of Queensland’s Campbelltown branch, has alleged the Bank of Queensland made false and misleading statements that resulted in him failing to make expected returns.
He alleges that in the seven months to March 2006, only 33 Bank of Queensland branches in NSW and the ACT were lending enough to break even. The case follows similar allegations by the former owners of Bank of Queensland’s Castlereagh Street, Sydney, branch in the Industrial Relations Court.
I’m not suggesting that Bendigo Bank has a good culture and Bank of Queensland, because of two complaints from franchisees, does not. It’s not that simple. The point is the cultures of the two organisations are different.
If only you could work out precisely what it is that makes a good franchise culture and then share it. If you could, franchise mergers could be a very good thing.
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Michael Sherlock from Brumby’s writes: As the MBO buyout of Brumby’s reaches it’s conclusion, I would be able to offer our experiences and views on the culture fit. My main reason for not going ahead with the RFG offer was exactly along the lines of the issues you raise in this article.
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