The pathway for an successful entrepreneur goes like this: You have an idea; you put it to the grind. Pretty soon, when the business model proves to work, you make money. The next step beyond this is natural, which is to expand and what better way to do that then by franchising the businesses.
The art of franchising
Franchising is a business model that can be seen as one of the more convenient ways to rapidly expand a business.
Franchises are a way of marketing or distribution in which the franchisor grants the franchisee the right to use the brand or mark, trade secrets, any confidential information, intellectual property, and the right to operate a business according to the franchise system as determined within a specified term, at an agreed location.
In other words, franchise is a business venture between the franchisor (product owner) and the franchisee (investor) in which the franchisor will provide the product and business system while the franchisee invests in capital by the means of funding, manpower and continuous effort to sustain the business.
Studies have also shown that the failure rates for franchised stores are less than five per cent as the franchise system is built on a proven business model by an already established company or franchisor.
With such proven success, the franchise industry in Malaysia has been contributing significantly to its growth.
According to Franchise Development Division in the Ministry of Domestic Trade Coorperatives and Consumerism (MDTCC) Minister, Datuk Seri Ismail Sabri Yaakob, the franchise industry is expected contribute RM26 billion to gross domestic product (GDP) this year.
Deputy Minister of MDTCC Datuk Paduka Ahmad Bashah Md Hanipah supported this by saying, “The franchise segment has also contributed significantly to the country’s GDP with roughly RM23.6 billion last year alone.”
In addition, in a text speech for the launch of Asean Franchise Expo and Symposium 2013, Ismail Sabri said, “Malaysia’s franchise industry has shown remarkable increase and growth especially in these past four years.
“I believed both the government and the industry players are very encouraged by this spurt in growth. With business-friendly policies, sound and effective strategies, competent implementation including strong commitment from all, the government is convinced that franchising will enable more home-grown businesses to expand their brands at a much faster pace both locally and abroad.”
To cap on this, the National Franchise Development Blueprint 2012 to 2016 came to fruition. This blueprint aims to further develop the franchise industry with its various possibilites here in Malaysia.
Meanwhile, Ismail Sabri highlighted that the ministry itself has made various effort and initiatives to promote and develop home-grown franchises because these businesses can evolve into internationally recognised brands.
This is due to the advantage that franchising enables business owners to expand with less capital investment and risk, since the investments are from the franchisees themselves.
As such, he added, various initiatives and programs have been introduced by the government with the objective to enhance the support infrastructure for franchise development.
“These initiatives have so far resulted in the increase of 68 per cent in franchises registered, in which a total of 651 franchise systems registered in Malaysia as of the end of February 2013.
“By comparison, in 2008 only 366 franchise were registered. From the total 651 franchise system registered, 450 or 69 per cent are home-grown, while 31 per cent or 201 are foreign franchises.
“The food and beverage (F&B) sector is still the largest sector in the country, making up 35 per cent of the total registered franchise systems. The number of franchisees has also increase by 40 per cent to 5,465 franchisees since 2008,” Ismail Sabri was quoted as saying in his text speech.
Meanwhile, in Sarawak, the franchising trend can be seen as growing, driven by the state’s rapid growth.
“(Sarawak’s franchise industry) is growing and more in demand especially in the F&B line because franchisors have realized that collecting royalties is the purest play,” a successful franchisor said.
BizHive Weekly takes a look at two established Sarawakian franchisors to get an insight on their success stories:
SugarBun: Sarawak’s long-term franchise
When it comes to local franchisors, undoubtedly, to most Sarawakians, fast food restaurant SugarBun comes to mind.
From its humble beginnings and through years of building various vigorous business plans to solidify its growth, SugarBun has achieved numerous feats which placed it as among Sarawak’s leading food and beverage (F&B) companies, contributing significantly to the growth of the state.
In addition, the home-grown fast food chain, managed by SB Franchise Management Sdn Bhd (SB Franchise Management) and a subsidiary of Borneo Oil Bhd (Borneo Oil), has etched itself in Malaysia’s business history as the first Malaysian fast food restaurant to penetrate the international market.
With a history dotted with success, it is interesting to note that in 1979, the internationally-known SugarBun first started out as an ice cream parlor in Kenyalang Park. In 1993, with only 12 stores at hand, the original founder relinquished the reins of the company to new shareholders and thus began SugarBun’s steady climb to business success.
The chain of stores was evolved to fast food chains and the company was taken to greater heights when it was listed under Borneo Oil on the Second Board of Kuala Lumpur Stock Exchange in 1997. Consecutively, the company also took up the franchising business strategy and started its SugarBun Franchise Opportunity.
Within the first 10 years of its listing and the start-up of the franchise, SugarBun’s company-owned business grew rapidly compared with the franchise business model.
Like all businesses, SugarBun’s journey since its establishment more than three decades ago, did not come unhindered by obstacles.
In the mid-80s recession, the fast food chain was greatly hit by the closure of two supermarket chains in Sibu and Kuching.
“The company-owned business did not sustain the economic crisis and the pressing management problems was the decision maker for the company to go full-fledge into the franchise business when the company converted all the company-owned restaurant in 2008 and since then, went into full-fledge franchising,” general manager of SB Franchise Management and executive director of Borneo Oil, Raymond Teo revealed to the BizHive Weekly.
SugarBun’s move to fully franchise its business, Teo highlighted, became the point where the company truly saw its business growth gaining momentum, rapidly.
“For the past six years until the second quarter of 2013 (2Q13), SugarBun Brand has made a great impact in Malaysia’s economy, especially in Sarawak’s market,” Teo added.
Since SugarBun had fully incorporated the franchising model, he pointed out that the restaurant had seen robust steady growth with new outlets opening up every year.
As of 2Q13, Teo who has been with Borneo Oil for more than 20 years, noted that SugarBun had opened 37 new outlets resulting to a total of 65 restaurants spread throughout East Malaysia, Peninsular Malaysia as well as other Asian countries such as China and Brunei.
One of the key secrets to the success of SugarBun’s rapid expansion, Teo further revealed, is the company’s Area Franchise Development strategy.
He explained that ‘Area Franchise Development’ is a good strategy to further expand the business outside Sarawak and into Sabah, Peninsular Malaysia as well as overseas because the strategy opens up joint venturing opportunities with overseas developers who can navigate the culture, open and operate numerous units at once.
To note, SugarBun had recently awarded Area Franchise Licenses for the states of Sabah and Johor to two of its successful long term franchisees – Johtamas Holdings Sdn Bhd in Johor and Goldfire Medic Sdn Bhd in Sabah – which require them to open at least a certain number of outlets each year.
This move, Teo noted, was to pave way to achieving the company’s goal of opening up 100 SugarBun restaurants this year (2013).
“Under a five year contract, Johtamas and Goldfire Medic are required to set up at least two restaurants each in the first year, minimum three in the second year and a minimum of five each year thereafter,” he added, noting that within five years, both franchisees are required to open at least 20 restaurants.
“At this moment, we have interested investors from Myanmar, Indonesia, India, Papua New Guinea, Singapore, Thailand and Outer Mongolia enquiring about the SugarBun Franchise Opportunities,” Teo unveiled.
Aside from its growing success in expansion, over the years, SugarBun has also recorded many ‘firsts’ in Malaysia which include being the first Malaysian homegrown fast food restaurant to achieve the MS ISO 9002 certification, and the first Malaysian fast food franchisor to be public listed on Bursa Malaysia.
SugarBun is also the first Malaysian fast food chain to incorporate a Junior Library into major restaurants and the only fast food chain in Malaysia to have a 100 per cent local workforce.
On the motivation to franchise SugarBun, Teo said, “The motivation for a Franchise Business Model is non-other than for business to expand or in other words, businesses in franchising will grow double or triple in size compared with conventional business/company-owned businesses.”
Nevertheless, the growing success of SugarBun still comes with its challenges. Teo noted that the right location for SugarBun’s franchises still remain the biggest challenge to the company.
Apart from that, the food cost versus selling price as well as quality control and attractive new products to rival other franchisors, are also the company’s on-going challenges.
When asked on opportunities entrepreneurs may find in the franchising business, Teo said, while the franchise business looks simple, franchisors need to have a proven business model that work and is profitable.
He noted that most entrepreneurs these days are looking for shortcuts to be successful. Teo advised entrepreneurs to start out by leveraging on strong and established franchises.
SCR: Riding on a history of successes
For SCR Corporation Sdn Bhd’s (SCR Corporation) SCR or formerly known, fondly by locals as Singapore Chicken Rice, its tale of success is unlike any other.
SCR is perhaps a clear example of how a simple common Malaysian food –- the chicken rice -– can be turned into a successful business.
The home grown family restaurant first started out in 1987 as an ordinary chicken rice selling restaurant, which was established on a modest scale of about 1,200 square feet, on the ground floor at Jalan Song Thian Cheok, Padungan.
Managing director of SCR Corporation Johnson Tan revealed that the initial idea of establishing Singapore Chicken Rice was “to help a friend who had been working for him in Singapore to have a job in Kuching.”
Kuching-born Tan and his friend (William Chen, now a partner and director of SCR Corporation) had managed to start a chicken rice selling business with the aid of a Johorean-born chef in Singapore (Tang Get Meng, also a partner and director of SCR Corporation) who initially, had his own chicken rice business in the neighbouring country.
With that, they incorporated a concept that is unlike any other chicken rice selling businesses which back in those days, were mainly sold in coffee shops.
Tan and his partners had managed to create an ambiance that truly made SCR stand apart from other restaurants; which is to be the first to sell chicken rice in an air-conditioned shop with its workers serving customers in uniforms.
It is with this concept that SCR found its initial success. Tan said, “We started getting long queues everyday, for eat-in and take aways.”
He further recalled that the first few months had been messy for them as most of his partners and himself have never been in the food selling line, before.
Nevertheless, through vigorous hard work and an unwavering motivation to see success, SCR soon saw its growth accelerate within the first 10 years since its start up.
The road to success, however, has not been easy for SCR. The group faced its first bitter experience with its initial third outlet which was closed down due to its location. Thereafter, SCR revealed that its first attempt in penetrating the international market (Brunei market) had also turned out, initially, as a painful experience for the restaurant.
Undeterred and buoyed on the success of its other outlets, SCR continued to expand its businesses to booming towns in Northern Sarawak, Labuan and Tawau.
This growth momentum soon motivated Tan and his partners to give the Brunei market another try. After striking a deal with SCR’s first Brunei partners, the restaurant soon opened its first Brunei outlet at Gadong which is currently one of SCR’s top income outlet.
To date, SCR franchising and strategic planning general manager Johnny Leo highlighted that the restaurant had seen its growth accelerate by leaps and bounds, to 40 outlets throughout Sarawak, Sabah and Brunei.
In 2007, SCR had introduced its first alternative business concept; the SCR Xpress. Following the same philosophy that made SCR ubiquitous, SCR Xpress is a step up in terms of ambiance and dining variety.
Driven by the need to expand and growing demand, SCR had soon realised that it has to branch out from being just a company-owned chain of restaurants. On July 2012, SCR incorporated the franchising business model into the restaurant, and hence began SCR’s aggressive expansions.
Tan disclosed to the BizHive Weekly, “It’s our company’s vision to go regional instead of just concentrating in East Malaysia. We expect the franchising programme would have a lot of response in the coming years.
“That will give us the motivation to expand faster into new markets especially within the Asean countries as these countries are rice-based which suits our type of business.”
He also said that the franchising business strategy is expected to make it more convenient for SCR as the restaurants will be operated by its franchisees. He pointed out that this solves one of SCR’s crucial constraints, which are labour constraints.
Meanwhile, Leo said, “This year, we are planning to open 17 new outlets. To date, we have opened seven new outlets. While the second half of this year, we are planning to open the remaining planned 10 outlets.”
He further noted that there have also been several regional enquiries on SCR’s franchise. Johnny added that currently, SCR has identified an interested party in Jakarta, Indonesia.
“We have already decided on the memorandum of understanding (MoU) early this year. We are now waiting for them to come up with the locations. Upon confirmation, we will start the outlet in Jakarta,” he explained.
On the technical front, Leo said, to ensure consistent dining quality throughout every outlet, the company had a standard operating procedure (SOP) system put in place as a guide for franchisees.
“We also provide training programmes to ensure quality duplication of services,” he added. Leo noted that investors are just required to come up with the appropriate capital and a mind set to expand, while the rest will be handled by SCR as the company already has a convenient system ready for investors.
Meanwhile, on the outlook of SCR, Leo highlighted that as far as franchising is concern, SCR is targeting to have 100 outlets (inclusive of current outlets) within the next five years.
“We expect an average of 15 per year. This year alone, we have 17 new outlets and in five years, perhaps altogether 100 outlets,” he said.
With the franchising system in place, Tan concluded by saying that SCR is growing in tandem with Sarawak’s rapid growth. He also noted that the spending power has also been increasing, which could lead to further growth
Bing Coffee: Setting a new stage for the local java taste
Up and coming locally established Bing Coffee Sdn Bhd (Bing Coffee) has recently announced its plans on franchising its coffeehouse, hence building a new stage to compete with other foreign coffeehouse franchises in the region.
General manager of Bing Coffe, Kenneth Lim revealed to the BizHive Weekly that the coffeehouse is ready to support a franchise system.
Lim explained that the coffeehouse chain, first established in 2004 with its first outlet located at Padungan Road, already has a plant in place to mass produce its food products and to ensure equal high quality and healthy food products are provided to its customers.
Bing Coffee sets itself apart from other foreign coffeehouse franchises by synthesising Eastern and Western tastes into its range of beverages as well as selection of cakes and other cuisines.
While Lim said that a date had not been set in stone, yet, he expressed his confidence in Bing Coffee achieving its franchise license by the end of 2013.
Currently, he noted that the coffee chain is in the process of acquiring its ‘halal’ certification.
“Acquiring the halal certification may take a while because a lot of process has to be done,” he added.
Aside from that, Lim highlighted that Bing’s foray into the franchising world is part of its effort to rapidly expand the coffee chain state-wide as well as regionally.
Paving way for stable future the franchise
Banking on the realisation of local franchises’ significant contribution in driving Malaysia’s economic growth, the government has initiated various efforts to safeguard a stable future for the franchise industry and to ensure that the industry retains its robust momentum.
One of the government’s major effort to drive the franchising growth in Malaysia is the five-year National Franchise Development Blueprint (NFDB) 2012-2016, which was first launched early last year by MDTCC Minister Datuk Seri Ismail Sabri Yaakob.
In his NFDB foreward text, Ismail Sabri said the NFDB is envisaged to provide clear and specific goals and strategic directions to propel th industry to faster and sustainable growth that is aligned with the National Development Agenda of achieving developed status, ensuring a high income economy through inclusiveness and sustainability.
“One of the main objectives and strategies is to develop an industry that advocates ‘Franchising for All’; making franchise accessible and creating more opportunities for all,” he stated.
The NFDB also aims to expand the focus from traditional sectors (such as food and beverages, clothing, health & beauty), to new sectors that have also been emphasised in New Economic Model (NEM) and Tenth Malaysia Plan (10MP) such as education, green products and services, medical tourism, as well as syariah compliant products and services to penetrate the Middle East and other Muslim markets.
The NFDB highlighted that its vision is for Malaysia’s franchise industry to be vibrant and robust domestically and positioned as a franchise hub for the Southeast Asia and Middle East markets, while its mission is to contribute towards national economic development agenda and creation of a high income society.
Additionally, the NFDB is spread out in three phases which are Phase 1 that starts from 2012 to 2014 (three years) and involves strengthening the franchise players/industry and the franchise development framework, Phase 2 which starts from 2015 to 2016 (two years) and involves working towards a vibrant and robust domestic franchise industry, in line with the vision of NFDB, and Phase 3 which starts from 2017 to 2020 (four years) and involves creating Malaysia as a Franchise Hub.
The comprehensive plan also sets out four ‘Strategic Thrusts’ that are supported by 36 strategies, 140 programmes, and initiatives as a guide to grow businesses across the franchising spectrum.
The four ‘Strategic Thrusts’ are aimed to enhance Competitiveness of Malaysian franchises, transform Malaysian business through franchising, develop a competent human capital in franchises, and establish a dynamic franchise ecosystem.
Along with the NFDB, MDTCC also noted that various agencies are available to support the growth of franchisors in the country.
Perbadanan Nasional Bhd (PNS) is an agency under MDTCC which is responsible for the development of the franchise industry and also provides financing support and facilities in terms of franchise consultation and advisory
On the other hand, the Malaysian Franchise Association (MFA) have been a strong supporting agency to the government’s initiative to promote entrepreneurship through franchising and relay information on the franchise industry to the government, current and possible franchisors and franchisees, the media as well as the public.
With that in mind, it can be seen the government has put in place a stable plan to ensure that the franchise industry continues to grow at its formidable pace and hence, contribute more to the country’s growth.