Cost reduction and efficiency strategies

In a growing franchise system, there will always be the need for cost reduction.Many of the franchise owners are struggling  with this so they are trying different strategies and approaches.

Here are some of them:

-Raw materials and stock

A variety of different initiatives have been undertaken to reduce the cost of raw materials and stock. Franchise companies, have negotiated new supply agreements that not only reduce costs, but also improve on-time deliveries, and in-store stock levels. They increase power over suppliers, and reduce costs, by attempting to increase co-ordination and volume of approved supplier purchases by franchisees.

Some companies have worked co-cooperatively or created alliances to address supply costs. For example, they recently sought to reduce its cost of goods by co-operating on product sourcing and business information with chains -which have more than 200 stores. This aimed to reduce costs through co-operating with a company that offers no competitive threat in the domestic market. Interestingly, not all attempts to reduce the cost of raw materials find favors with the public.

-Franchise set-up costs

Some companies have sought to directly address franchisee performance by focusing on set-up costs and made dramatic improvements to store design with a new store concept involving a prefabricated store that takes less days to build than their traditional outlets a new more compact and contemporary format – that not only looks more up to date, but also costs 30 percent less to build, and requires half the retail footprint. These changes should have a dramatic impact on profitability and return on investment.

– Efficiency and productivity

Smart companies are also looking for efficiency and productivity improvements. Not surprisingly, working very closely with suppliers to identify potential production and sourcing efficiencies, is working.  Expanding testing and use of labor saving equipment, and streamlining processes, including having many of their franchise restaurants change from standard beverage machines to automated ones.

Reduce its supply costs by establishing a centralized procurement division. The procurement function was designed to allow the company to consolidate purchasing of equipment, office supplies and other products, and centralize distribution and shipping of country bound items.

In one instance, the source of improvement went to the heart of the concept. Some companies tried to increase productivity and turnover by testing the removal of comfortable seating from their outlets.

-Staffing costs

Some companies are attempting to reduce overall costs by addressing staff related costs. In some instances, job cuts have been initiated. In other more long-term focused initiatives, companies have sought to address staff costs by introducing initiatives designed to reduce employee turnover.

When it comes to seeking cost, efficiency, productivity or profitability improvements, proactive franchise companies look to all aspects of the business. The big chain examples demonstrate that when it comes to seeking performance improvements, the most minor features, tasks and processes offer the potential for efficiencies and cost savings.

-Differentiation strategies

Cost reduction-oriented initiatives aren’t the only bright ideas employed by companies seeking a competitive edge over their rivals. Smart companies are also seeking to differentiate themselves from competitors in order to create a point of difference, build closer (and more meaningful) relationships with existing and potential customers, take market share, and build barriers to entry. Numerous examples are evident in the highly competitive fast food sector.

-Quality Improvements

Recent initiatives included promoting greater quality in a further attempt to differentiate companies from each other.  The quest for quality is obviously a serious one for.

-Brand value changes

One third of franchise companies have also attempted to differentiate their brand values. Testing and learning from experiences in other countries proved a fresh, sophisticated environment could generate increases in sales and profits. Companies introduce a range of healthy products and differentiate themselves from competitors by returning to social issues.

-Product/service/delivery changes

Several companies have also sought to improve operations by altering their price, product line and/or introducing new initiatives. Companies attempted to differentiate on price with a 1 euro value menu that was intended to stimulate traffic and better compete with their competitors. Also, they have been pushing franchisees to open 24 hours.

A number of technology inspired changes have also been implemented – presumably in the hope people will visit more often and/or stay longer (and therefore purchase more). Free Wi-Fi, e-loyalty card, paper loyalty cards, ordering products by mobile phone and Internet are just a small part of technology inspired changes.

-Store format changes

Many of the franchise chains have been reinventing their store format and concept in efforts to improve attractiveness and all-round competitiveness.




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