Nine years ago, Bruce Nesbitt ended his 15-year career as a landman in the oil and gas industry and opened an M&M Meats franchise in northwest Calgary.
“They (Alberta Energy Company) were offering packages and I had always been looking to get into business for myself,” said Nesbitt, 51.
Today, Nesbitt owns two stores, the original in Silver Springs and another in Crowfoot mall, and employs 12 people. He’s out of debt and sales at his stores have increased 30 per cent (Silver Springs) and 40 per cent (Crowfoot) over the last year.
“The transition opened a whole new world for me,” he said. “I really enjoy doing this. You get to do your own planning. You get to do your own hiring and firing. You are your own boss, and if you make mistakes, it’s your fault. If you do well, it’s because of you.”
Nesbitt is part of a franchising frenzy in Alberta. Most, like Nesbitt, are franchisees, people eager to buy into an existing name brand and proven operating system – from fast food to pharmacies – that someone else has created and established.
But he offers a warning to anyone who is thinking about acquiring a franchise: “Make damn sure that you know what you’re getting yourself into.”
“You have to be entrepreneurial in mind and spirit,” he said. “You have to be able to follow a franchise operating system. In my situation . . . you have to be very good at one-on-one relationships. And you have to know your bottom lines.”
Most people aren’t cut out to be in business for themselves, so prospective franchise owners must make sure they are up to the task, Nesbitt said. He recommended they complete a critical analysis and picture themselves at that business, on a day-to-day basis for the rest of their lives – or as long as they hope to stay in the business.
“When I went into business, I planned to do it for 15 years,” said Nesbitt. “So I had to picture myself set up in this situation for 15 years.”
When considering which franchise would work best, Nesbitt looked at “all the usuals,” including a trailer-hitch shop, an Eddie Bauer store and a Second Cup coffee shop.
“I couldn’t picture myself in a coffee shop in some mall for the rest of my life,” he said.
The first six months were the most difficult, because he was in the shop seven days a week, from open until close. Nesbitt admitted that he didn’t even know how many quarters came in a roll, but after working out a few details, he found the career transition was fairly smooth. Now, he said, operations have become routine.
He paid a $30,000 franchise fee for each store and invested $300,000 in each location.
Ken Pattenden, 52, the franchisor for Taco Time Canada and chairman of the Canadian Franchise Association’s prairie region, said franchisees must have “a whole lot of perseverance” and have sufficient capital.
Franchise fees can range from a few thousand dollars to several hundred thousand. Depending on the type and success of the business model, franchisees are then expected to invest several hundred thousand dollars – and pay royalties.
“What’s quite common is that people assume they can start a business and it immediately kicks in with a 10-per- cent return on sales,” said Pattenden from his Calgary office. “Generally, they don’t . . . They just aren’t prepared for that situation where, for the first three, four, five years, the returns are slimmer and they’re paying off their bank loans. There really isn’t any cash flow to them.”
TacoTime has 120 franchise units in Canada. Pattenden, a former real estate developer, switched to franchising 10 years ago. Although he considers the restaurant business to be a “nickel and dime” enterprise, he got tired of real estate’s “boom-and-bust” scenarios.
After a cycle of real estate deals in which he was placing all of his eggs in one big basket, he liked the idea of having his eggs in 120 baskets.
According to Pattenden, the franchisor must bring customers to the door, and the franchisee must then serve the customer. The initial questions a franchisee should ask are: How good is the franchise’s brand and how will it help the business?
“That brand is paramount, and ensuring that the brand stays paramount is one of the franchisor’s biggest obligations to his franchise system,” said Pattenden. Depending on the agreement, which is usually long-term, franchisors help franchisees choose their locations, secure a lease and build the premises. Depending on the type of business, franchisors can also provide training and an operating system, supply product and assist with advertising and marketing.
Not all arrangements work out. Gary Bain, a Calgary realtor who terminated his agreement with his franchisor last year, said while many franchises are successful, owning a franchise is not a “slam-dunk.”
After 15 years as a franchisee, Bain decided to operate his business under his own name. He parted from his franchisor, Home Life, because he didn’t feel the realty company’s name was providing new business, and said the franchisor had not established a strong position in the Calgary marketplace.
“Whatever I had, I had because of me,” said Bain. His franchise agreement was based on how many licensed agents he had working under him – regardless of sales. Although he was only paying $500-$600 per month in franchise-related fees, Bain said it didn’t make sense for him to spend the money.
“The risk involved was strictly my risk, but not their risk,” said Bain.
“In other words, they don’t put any money up. They make no commitment and no obligation. All they do is collect money.”
After being in business 24 years, Bain, who is also a Calgary firefighter, gets most of his deals through repeat business, referrals and relationships with people that he knows.
His customers, he said, are more than willing to deal with a “small guy” like him, regardless of any brand name.
He said he still believes in Home Life’s formula and concept, but suggested it wasn’t right for him.
A franchisor must do market research for the franchisee and ensure that the company name is well known in a given geographic area, he added.
“Everybody and their dog seems to want to get in on this franchising thing, and I just don’t,” said Bain.
“I think that it’s overrated and overstated, because there are people that, I think, are given a bill of goods, that if they have a franchise, they can’t help but succeed.”
Although Alberta’s booming economy is perceived to be ripe for franchising activity, Don Koenig, president, CEO and co-founder of Humpty’s Restaurants International Inc., said the competition among franchisors is tight.
“We’re all seeking that potential entrepreneur who is going to be our next franchisee,” said Koenig, whose company has lost money the last two years.
Koenig and his wife Jan started franchising almost by accident. After operating three soup-and-sandwich stands in downtown Calgary in the 1970s, they converted one to a Humpty’s and then opened a second restaurant on Macleod Trail.
After that, they started getting inquiries. In 1982, they began selling franchises in Red Deer, Lethbridge and Edmonton. They now have 60 locations, including 37 in Alberta, and the company has gone public.
“(Owning a franchise) is certainly a recipe for success,” said Koenig. “However, there’s got to be a work ethic there. You can’t run any franchise two hours a day from a golf course.”
Of the one in 10 Humpty’s franchises that fails, he said, the restaurant’s management – not location – was the reason.
There are notable success stories. Edo Japan, a Japanese food restaurant that originated in the food court at Southcentre Mall in Calgary in the 1970s, has 100 units in North America and is looking to expand to Australia.
Booster Juice, an Edmonton-based franchisor that markets health-food drinks and operates juice and smoothie bars, opened 50 locations across Canada within two years and aims to have 80 by year-end. The company has also opened offices in the U.S.
But Koenig considers Alberta’s franchise start-up activity to be “minimal” compared to Ontario and B.C.
“To put a franchise system on the market now, you’ve certainly got to have something that is pretty new out there.”
