QSRs: Equity Investments Have Upstaged Franchising - 2008-06-09

As many sectors of the Nigerian economy gravitate with geometric growth towards maturity, the quick service restaurants (QSRs) are not left out as their relevance continues to rise above waters in corporate, family and individual worlds. In a chat with M2's Goddie Ofose and Bright Nwogwugwu, Kehinde Kamson, MD/CEO, Sweet Sensation,gives a deep insight into activities in the sector, emphasizing that franchising is fast giving way to equity investments as the former has failed to boost the business in Nigeria unlike its foreign counterpart. Pix by Sunday Ohwo

Talking about franchising, every big brand is trying to employ this strategy to expand and create new products. How efficient and effective is this strategy to grow fast food brands in general?

First of all, I will correct your impression that every big brand is trying to franchise. That is wrong. If you say in QSRs, some are trying to franchise, that would be close to the truth. Actually, the truth of the matter is that only very few are doing that because those who have tried are not finding it too funny. I am not sure that they are impressed with that business model in Nigeria For instance, if you started your business in Lagos with so many outlets and you want to go to Kaduna for instance, that could probably be a 'strange' market that you have not dealt with; you could get somebody who originates from Kaduna , who is interested in the business of hospitality. That is another secret of franchise. Nigerians generally believe that franchise is just being part of a business you may not have passion for, but you are interested in making money. You know, the rule of the game here is about cash. . In other parts of the world, the Franchise model thrives extremely well. We have not tried it and we do not hope to try it yet, until we are convinced beyond all reasonable doubt that it is the best way to go. Why? Franchise has its strength and weaknesses. For the strength, we know that franchise is a very good way to move forward, to grow, to run the growth race. Your franchisees will take care of part of your finances. They will also be the ones to channel workforce, while you give them training on what the company's standards and procedures are.

In a hospitality industry, your franchisee must be carefully chosen; not someone who has a natural flair, probably even a relevant qualification. It must be someone who has a natural flair to want to serve, who has been dreaming of setting up something like your brands, and finds an easy way out to identify with an existing brand. You don't put people who are only interested in making money on a franchise. And that is one weakness of franchise. If it is not carefully managed, it may ruin the brand.

The strength of franchise is that when franchisees are carefully chosen, then you could facilitate growth, and replicate the passion everywhere. These days, there are other means of growing business that have become very popular, like bringing in equity for investment. And all those different forms have now begun to compete with franchise; you know, franchise brings in people to be part of your equity too. Going out to the open market, asking and inviting people to be part of your business, have already eroded the advantage of the franchise. Franchise here has not, however, got to an advanced stage. Take McDonalds for example; there is a central processing factory where everything is processed. From there, what the branches have is sent to them. The McDonalds recipe is seriously protected. There are secrecy laws that protect them, and then the franchisees cannot turn around and think they can reproduce a McDonalds. Never! The simple burger meat, the simple burger bread, all these spices are applied from a central processing place; they just bring them to the unit and mix them together; put the burger meat inside the dough, all made from a central processing factory where all the secrecy issues have been taken care of. That is not how it works here; there are no secret laws under the sun. So there are no secrecy laws that protect people in Nigeria . Integrity is not foolproof yet and even bankruptcy laws do not favour the franchisor in Nigeria . See what happened to other brands that started as franchisees like Chicken Licken. You notice that the laws in Nigeria concerning bankruptcy do not yet encourage or support a foreign franchise that is coming in. So it is a huge risk factor with franchise. I guess if you get to talk to those who are operating franchises or you get to look into their businesses without talking to them, you may begin to identify what the pains of franchise could be and what the strength of franchise could be. But one big problem with franchise is that, there is a way that business runs in Nigeria because of the dearth in infrastructure that makes you have to contend with many issues like energy, water, etc. You are your own water works, you are your own energy base, and you are your own everything, your own distributor. These are things that people out-source generally or that has come basically in the infrastructure. You have to contend with that which leaves you with narrower margin. Franchises do not thrive on slim margins.

Why do customers in Nigeria have different experiences when they patronize same QSR brands located in different locations?

In the US , business drivers or operators or practitioners in fast foods are not battling with other issues other than running their businesses effectively and providing the best products for their customers. The focus there is on service delivery and on quality products. This does not mean the focus of Nigerian practitioners is not on quality. The problem here is that there are so many issues that we get involved with that contest for and compete with that first focus. Now, in NigeriaNigeria , because you have issues. You know what it takes to move things up and down the place, considering the traffic jams we have here and the time issue. Imagine that you are moving products from say Olowora ( Lagos suburb) where we have a factory, to several locations in Lagos . You get into the traffic hold up and the thing is already cold. Even if you keep food in a cooler for more than six hours, the heat is going to go off. So what are we talking about? We have those logistics issue; we have so many issues around us that make some of those things impossible. But even then, Nigerian fast food operators - I believe you know we come under the umbrella called AFFCON (Association of Fast Foods and Confectioners of Nigeria) - have come up with really ingenious ways of making sure that the experience is the same all through our several eateries. That is why we have an identity. That is why we will in a matter of months, maybe the next two months, have AFFCON membership sign on our doors to say that we are AFFCON members and we can guarantee our customers the right experience. Of course, nobody is perfect, but you can definitely be sure that any member company of AFFCON, having gone through stringent certification procedures and criteria, cannot be a dangerous place to eat. And even within that umbrella we all have ways of making sure the experience comes close to the same. At least, I can speak for Sweet Sensation. We have a centralized spicing utility that ensures that everything that stopped as a garnish or as a spice over every meal is already configured if we are to have a central processing factory, you would have more complains. Why I am saying this is that the central processing factory does not mean that all the food is made there. It means input; major inputs to your final product are being produced there. For the sake of temperature, freshness and good service delivery bring those to the particular outlet and combine to do the final heating together before presenting it. So, certain things are moulded, they may not be baked until they get to the service units. It will be disastrous for any food business that actually does that in

QSRs are supposed to be providers of fast food. But today, many of them have gone into local dishes. What is responsible for this trend?

Many eateries are not introducing local dishes. Many are also introducing local dishes. I think the introduction of local dish just corresponds to demand. It is desire that stimulates demand. So perhaps those eateries do not just introduce local dishes just because it is fashionable. It must be that somebody must be there to eat it. It must appeal to somebody and for God's sake, even well known brands, like McDonald when they go round the world, at least they are in some other countries outside Nigeria ; McDonalds is planning to go to Ghana , our neighbor. They are getting close to it, and of course, McDonalds is in other parts of the world apart from Europe and AmericaNigeria , but they are not doing so in the UK . They will definitely sell rice even as expensive as sourcing that product has become. Because, even in Nigeria , rice is not in our staple, but it is looking like it is our staple. People will think we are growing rice in Nigeria , but what we are growing is less than 0.002% of what our needs are. So it is adapting to people's needs. And because so much goes into the cost of running locations in Nigeria ; so much money goes even to identifying property. You know what has happened to property recently? Entry costs are so high for eateries now. That is why eateries are also going public asking people to come in. Somebody can take them to their next level of growth. They cannot do it alone. You get to common Egbeda in Lagos and you have to rent a property there for N5million, which is what Victoria Island was doing only two years ago. You get to Idimu, also in Lagos , and you want to buy a plot of land there and they are telling you N30 to 40 million if it is on the main road, and your business has to be on the main road. So you find out that with so much going to the cost of running the eatery, so much product diversity must come out of it, so that you have more legs walking in to sustain the brand. . But what I am trying to say is that, wherever they go, they adapt to the local needs there. People have different tastes, it is true there is a McDonald product line but I know that McDonalds will not serve Africana. That will be too much outside their scope. But I tell you, McDonald will sell rice in

Some customers actually complain that some of the eateries actually serve leftovers. What do you do with your leftovers?

Our leftovers go to our staff with a very careful, very strong guidance so that the privilege is not abused. Well, there is a way that leftovers going to staff can be abused, by deliberately producing more so that they get more. Do you understand? But we have this control which we try to enforce. You know, like in any part of the world a company must always try and lock in any loopholes in a system. All our leftovers go to our staff, especially the staff in that particular shift, but we do try to ensure that we do not make huge losses by having them abuse those privileges.

In the face of monotony in the industry, what value added services do Sweet Sensation offer that make customers keep coming back?

I have partly answered that question when I told you about our continuous desire to celebrate our customers. When you celebrate them and you try all these marketing services that actually add to their experience, there really cannot be any experience other than that of the food if you don't tie marketing strategy to it and that's why we celebrate them. During these times, we offer them special treats; it could be by gifting or by lucky dips or some kind of rewards for good patronage. Sometimes we do big things for our big customers; sometimes we do little things for the regular come-in customers and that is when you walk in at least at an interval of once in a month, there is something happening, there's a kind of promotion. That is why we anchor with other brands. We have done things with Mimee, Nestle and a couple of other brands. I don't want to mention them because I don't want to spill out what is still in the strategy process. But of course, the market place is now calling for more harmonious strategy process. You could find little partners on the side that they do things together. It is all part of the song.

We hear that you are planning to re-brand. What are the modalities you have set out for the new task?

Definitely, we are going to do that in the process of our next level growth. The brand will be doing things to look better in the eyes of its followers. One of the strategies employed is catching the attention of your followers to drive home the message of seriousness especially with an effort to re-brand or to re-strategize or to re-energize. However, we are already married to our colors. The vibrant colors of orange and green remain part of Sweet Sensation. No re-branding can take that away. Same thing with our logo, it remains. What we will do is to strengthen its support. Maybe, in terms of packaging, maybe in terms of advertisement, but definitely the message will be consistent driven.

QSRs rarely take CSR seriously, what obtains in your own case?

Our CSR strategies are multi faceted. We look at different areas of adding value to the society. And one of the key areas we have taken up for the month of May is to focus on the second most important organ of the human body, the kidney. That organ does a lot of work in the human body over time. And we thought that as a food related company, it will be very ideal for us to get our customers to screen their kidney and know what state they are in, knowing that millions of people die silently from kidney related problem, not knowing there are procedures and methods that can be used to solve that problem before it eventually leads to death. Remember Steve Kadiri? I think he is on the second illness now, related to kidney. So many notable people have gone to the world beyond out of the fact that they neglected the vital role their kidney performs in the human body. So we do not want to take the health of our customers for granted; it is part of our focus on the total well being for our customers. It will be a very good idea to focus attention on their kidney; to get them to know more about their kidney; to get them to screen their kidney and we are doing that in collaboration with Kidney Consultants International and a group of meteorologists that came in from different hospitals, in two of our centres in May 1st. We are into support of the less privileged homes; we are into support for schools through the provision of school vans and renovation of dysfunctional school amenities. We are into feeding the hungry in our society. There are so many people out there that will love to be a part of us but for one reason or the other, they could not get in. we also try to reach out to them at various times in the year, we try to get our products across to them, let them have a feel of Sweet Sensation. We are also into the promotion of talent; we are into the promotion of various family values. We are also into welfare for children home, welfare in academic institutions and also in sporting activities. We are major supporters and promoters of these causes.