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07 May 2010FRANCHISING: Retsol/Engen Deal to See Bakeries Converted
Recent Gauteng Business News
Retsol Stores (Pty) Ltd (Retsol), the franchise management and investment company, has signed a Heads of Agreement with Engen to become the exclusive bakery franchisor (with their brand, Corner Bakery) within Engen Quick Shop outlets in South Africa. There are currently over 530 Engen Quick Shops in South Africa, approximately 254 of which have unbranded bakeries / pie shops (currently managed as a product category within the Quick Shop outlets) and the balance which are branded as Corner Bakery / Snack Zone outlets.
The Engen bakery network of over 530 outlets has been managed by Retsol since 2007 and is the largest forecourt bakery network in South Africa. The deal will see Engen Quick Shop bakeries rebranded as Corner Bakery outlets, whilst the business model will convert to a franchise format, in a two-year franchise conversion process that began on 01 April 2010. Corner Bakery specialises in fast food and bakery goods, as well as Equatorial Coffee, an exclusive Corner Bakery coffee brand.
Wayne Duncan, Chairman and Director of Retsol, comments: “Engen has one of the biggest retail networks in South Africa and is the biggest in the forecourt convenience market. For Retsol as a franchisor, this is an ideal situation, not only from a brand growth perspective, but also because there is no need to source suitable dealers or sites. This is due to the fact that the Engen dealers are the franchisees and Engen owns or controls these sites, most of which are in prime locations. During the franchise conversion process, we will be signing individual franchise agreements with the Engen dealers. With regards to Equatorial Coffee, in excess of 90 sites already serve it and we plan to double this within the next six to 12 months. As one of the only fair trade coffee brands in South Africa, Equatorial Coffee provides a unique point of difference to Corner Bakery.”
Duncan says that, depending on the space available for an outlet, Retsol will either install a fully-fledged Corner Bakery offering fast food, a bakery, coffee, chicken and sandwiches, or a smaller derivative, offering only a bakery, sandwiches and coffee. The Corner Bakery format is very flexible, which is essential for the brand to fit into the Engen system, as it is comes with a high degree of complexity due to the company’s multi-branded strategy. This strategy sees strong brands co-habiting with the Engen brand, with potential for overlap of products, so a certain product will fall away from the Corner Bakery menu in a particular site, if it is already on offer by an existing partner.
Pierr Roodt, Engen’s National Retail Marketing Manager, says that the Corner Bakery franchise forms a core component of Engen’s strategy: “We are constantly looking for exclusive consumer differentials. Corner Bakery is exclusive to Engen and the better the outlets do, the more of a destination they become.”
Commenting on why Engen chose to partner with Retsol, Roodt says, “Engen had previously entered into partnerships or collaborative deals that were not successful, so moving forward we decided that a new partner would need to be put through a rigorous, 24-month proof of concept period before we aligned with a new partner or signed any new agreements. They would also need to be willing to put their necks on the line in what is a very challenging retail category, and provide us with evidence of the value they would add, in terms of hard numbers and results, during the agreed proof of concept period.
“There are a number of key factors which made the Retsol team the perfect partner for Engen in terms of our Corner Bakery strategy. Firstly, they successfully managed the Corner Bakeries for two years, with a 50% increase in sales over this period, providing us with proof of concept and the confidence that they will be able to establish a bakery brand in all of our stores, representing 15% of the total Quick Shop sales. In addition, Retsol is one of the few companies in South Africa with bakery experience - having owned Bread Ahead - plus extensive experience in franchising. And lastly, there is a good fit in terms of culture and values. The challenge for Engen and Retsol is that we are starting from ‘ground zero’ with Corner Bakery, unlike going into a relationship with well-established brands such as Woolworths, Wimpy, Nandos or Steers.”
Retsol has created a unique franchising model for the Corner Bakeries: As turnover increases, the franchise fees decrease. Duncan explains: “Because Retsol is a “pure” franchising company – we don’t make and sell products – we align ourselves 100% with the franchisee: Our business model revolves around aligning our primary business objective with the franchisee’s business objective, which is to increase turnover. We both stand to benefit from this “pure” franchise model. For the franchisee, the benefit of our sliding fee scale is of course decreased fees, while for Retsol, increased turnover means that the franchise is being run properly and profitably.”
Retsol was established in 2002 with the vision of becoming SA’s leading, privately-held franchise company. Following a restructuring in February 2010, Retsol has retained the Corner Bakery brand while the ‘shopping centre brands’, Ola Milky Lane, Juicy Lucy and Chicken King, have moved to Java Brands.
Duncan concludes, “Retsol’s management vision is to grow our current brands in South Africa and Africa, and we are very excited about the growth opportunities for Corner Bakery and Equatorial Coffee. In addition, Retsol’s key strategic objective is to be a franchise and investment holding company, so we are constantly evaluating new opportunities for brand acquisition in retailing and franchising.”
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