Franchise move serves up profits

Over the past four years under the ownership of Quadrant Private Equity, Balcatta-based Quick Service Restaurant Holdings has undergone a complete restructure of its business model.

The fruits of that restructure became apparent last week when private equity firm Archer Capital acquired the business for about $450 million.

QSRH has grown its Red Rooster, Oporto and Chicken Treat/Chooks brands to more than 600 restaurants nationally and worldwide.

However, over the past decade the company experienced problems relating to its predominantly corporate model, which forced it to make the change to a mainly franchised model in 2008.

“Today we are 75 per cent franchised but three years ago we were 75 per cent corporate, so we made a significant change in order to realign ourselves to a franchise model,” QSRH chief executive Mark Lindsay said.

Mr Lindsay described the period of 2002 to 2007, the year that Quadrant bought out major shareholder Nick Tana in a $180 million deal, as the ‘growing-pains’ period for the company.

“Almost overnight we became a big business, but we were still trying to operate with the same entrepreneurial flair that (the business) had in the 70s, but in fact we could no longer touch and reach all of our restaurants,” he said.

In addition, with franchising becoming increasingly popular over the past five years, Mr Lindsay knew the company would have to shift its focus.

“It (franchising) wasn’t the primary focus of our business and we still had a corporate mentality, so from 2007 to 2011 this was the period of reconstruction, reorganisation and consolidation and franchising became a key element of the future growth of our business,” he said.

Recruitment difficulties, inconsistent service and lack of ‘care factor’ from staff were just some of the problems associated with the corporate model.

“Basically we were flat-lining … we were trying to get employees to engage, our service delivery was inconsistent … and the little emotional or financial connection to the business was because of the fact that we were predominantly corporate,” Mr Lindsay said.

QSRH started a deliberate strategy to move to a mostly franchised model, which involved closing more than 40 underperforming stores and opening more than 100 franchise outlets.

“The challenges for us, particularly in relation to the restructuring, were many … the company versus franchise mentality that had operated in our business for a long, long time was at the cornerstone of our slowness to react,” he said.

In addition, the restructure involved replacing the majority of QSRH’s senior management team on the east coast with staff who were more attuned to the requirements of franchising.

“We had to retrain a number of key management and, during this period, we had a very high turnover of staff management due to unsettledness and uncertainty as to where the future was lying,” Mr Lindsay said.

Today, the company employs about 4,000 people in its corporate restaurants and 20,000 people indirectly through its franchised restaurants.

Mr Lindsay said the move to the franchised model proved profitable for the company, with brand revenues exceeding $700 million a year and underlying profit growth over the past two years exceeding 20 per cent a year.

“We franchised around 130 of our corporate stores in two years, delivering an average 8 per cent like-for-like growth and that was double what we were getting out of the corporate network,” he said.

Mr Lindsay said he hoped to franchise QSRH somewhere between 75 to 80 per cent over the longer term and to grow the business by more than 200 stores domestically over the next five years.

“The message was simple, franchisees were more committed to the business, had more emotion and had more of an impact at a store level than what our corporate people were doing,” he said.

“We’re certainly not perfect yet in relation to franchising, but we are well on the road to making that improvement.”