Lifestyle of a nation
With many years of retail experience between them, Wayne Duncan and Craig MacKenzie established Retsol when they had the opportunity to create an ice cream retail business in partnership with the biggest household name of them all. Wayne Duncan spelled out their vision to John OÔÇÖHanlon.
Back in 2002, Unilever had acquired two established South African brands: Milky Lane was a soft ice cream created 50 years ago, while Juicy Lucy introduced South Africa to health drinks during the 1970s. Retsol was founded to provide the management expertise needed to make a success of the franchised network that supported Milky Lane and to develop the Juicy Lucy brand, which it subsequently purchased outright.
UnileverÔÇÖs ice cream brand in South Africa is Ola (known in Europe as Walls, the manufacturer of Magnum and Cornetto). ÔÇ£We rebranded the franchise as Ola Milky Lane,ÔÇØ director Wayne Duncan explains. ÔÇ£Unilever owns the trademark, derives revenue through the sale of ice cream and benefits from market exposure and supply chain; we manage the entire business under a long-term agreement.ÔÇØ
The plan was to develop Ola Milky Lane as South Africa's leading retail ice cream brand and transform the traditional ice cream parlour into a fun, modern ÔÇÿtime outÔÇÖ destination. When the business was founded there were 75 outlets, now there are 110. ÔÇ£We have more than doubled the size of the business over the period so there has been strong organic growth,ÔÇØ says Duncan. Franchisees can choose from three formats, normally located within existing malls or retail parks, from a sit-down facility with the full product range to a small mobile takeaway unit selling just soft ice cream.
Retsol is also a big player in the fast food market; and chicken is South AfricaÔÇÖs favourite fast food. Though the world market leader Kentucky Fried Chicken is also the dominant player in South Africa, home-grown brands have flourished and moved into the space behind. ÔÇ£We wanted to get into the mainstream, so we acquired Chicken King in 2006 and have been growing the brand steadily,ÔÇØ says Duncan.
One reason for RetsolÔÇÖs success is undoubtedly its collaborative business model. The relationship between a branded business and its franchisees is not always a happy one, as Duncan and Craig MacKenzie both knew from personal experience. They made some tough decisions at the launch of their business and have stuck to them: the first was to keep the business lean. The nature of franchising is that there are very few assets on the balance sheet, Duncan explainsÔÇöthe franchisees own the assets. ÔÇ£Some companies mix asset owning with franchising but we decided we didnÔÇÖt want to do that. We do not want to be seen to compete with our franchisees by cherry-picking the key outlets.ÔÇØ It makes business sense too: he estimates that having an owner-operator adds around 15 to 20 per cent to the turnover above what would be expected from a managed outlet.
So RetsolÔÇÖs focus is upon increasing retail turnover. Some companies add to the royalties they receive by negotiating rebates and discounts from their suppliers, others by becoming manufacturers themselves. ÔÇ£We have been presented with tempting opportunities to go down that road, but we feel that to take revenue at both the turnover level and the cost of sales level would not be right.
ÔÇ£We think we should help the franchisee maximise turnover. Both Craig and I have been franchisees ourselves and we know it is a constant issue when you see your franchisor taking a cut of turnover and also potentially inflating the price to make some money off the cost of sales as well. We want to distance ourselves from those practices in the marketplace,ÔÇØ he asserts.
With ice cream, health and fast food under its belt, Retsol turned its attention to that other classic franchise, coffee. It has not so far entered a head-to-head battle with Starbucks by opening a chain of Equatorial Coffee outlets in South Africa, though it does have one free-standing coffee shop in Botswana. Instead, it is offering the brand as a specialist add-on in the larger Ola Milky Lane, Juicy Lucy and Corner Bakery outlets until it has gained enough traction to justify further investment.
The companyÔÇÖs most recent venture was an agreement to manage Corner Bakery franchises within the forecourt convenience stores of South AfricaÔÇÖs leading petrol company Engen. With almost 300 locations, this is now the biggest business by outlet numbers in the stable, though not yet the most profitable. ÔÇ£It operates as a store within a store and I am confident it will be a big part of our business going forward,ÔÇØ says Duncan. ÔÇ£ItÔÇÖs a very exciting space to be in because convenience retailing is growing globally.ÔÇØ
One key to successful franchising is distribution, he believes. ÔÇ£We took a decision upfront that we would not become involved in logistics. Some competitors buy ÔÇÿwalls and wheelsÔÇÖ and get into warehousing and distribution. But we created a close partnership with KLL, one of South AfricaÔÇÖs leading food distribution companies. KLL acts as a consolidator for us so our franchisees can make a single phone call to them to get all their supplies, and our suppliers in turn deliver direct to KLLÔÇÖs warehouses.ÔÇØ This translates to direct savings for franchisees; and as the network grows, KLL can make drops to all the Retsol outlets in a single trip.
But even more important are the people behind the franchises. The most successful ones are run by families who align their business with their aspirations, Duncan says. Potential franchisees are thoroughly vetted and even given psychometric tests to make sure they have the right type of personality. ÔÇ£ItÔÇÖs better to agree upfront that the business is right for this person than to regret the decision six months or a year down the line.ÔÇØ
With much to learn about business management, safety, hygiene, customer relations and labour issues as well as the product itself, every new franchisee goes through RetsolÔÇÖs training academy in Johannesburg. Thereafter, they are supported by quarterly get-togethers, an opportunity for networking and further training. ItÔÇÖs quite simple, Duncan concludes: ÔÇ£The more profitable our franchisees, the more sustainable our business becomes.ÔÇØ
Now well established at home, Retsol is looking to move into the growing markets throughout Africa. We should expect to see more Ola Milky Lane shops in neighbouring countries, Duncan says, as fast as service and distribution support can be put in placeÔÇöthereÔÇÖs already one master license agreement as far north as Ethiopia.
