Warning in Wagamama Australia voluntary administration

However, this reactive approach to growth can be a dangerous and may have contributed to the demise of Wagamama’s Australian master franchisee, Edible Concepts Holdings, which entered voluntary administration last week.

It appears that Wagamama grew too geographically dispersed, particularly as all but one of its stores were operating profitably.

(Without further information available yet on the Wagamama case study it’s hard to define whether this was the cause or just a contributing factor).

As mentioned, all but one store in Melbourne, which was closed when administrators took over last week, operated profitably.

This suggests it is not the concept or model where the problem lies; the issue is likely to be more in the management side.

Afterall, the Wagamama’s brand, headquartered in the UK, has more than 100 outlets operating in 17 countries across Europe, the Middle East and America.

In Australia, Wagamama launched in 2002, and now has four stores in Queensland, two stores in New South Wales, two in Melbourne, one in Canberra and one in Perth.

Servicing a small number of stores, so geographically diverse is unlikely to be economical.

A better approach would have been to establish several stores in each geographic location before moving interstate.

If Wagamama had further built out New South Wales and then Queensland before entering a third, fourth, fifth and sixth geographically disperse regions they would have been able to better utilise the company’s resources.

This would enable the franchise to better leverage their supply chain and logistics, which is one of the benefits of franchising.

The idea is to create efficiencies, rather than expenses.

The geographically disperse nature of franchise operations were also one of the (number of) factors that contributed to the decline of the Quiznos franchise in Australia back in the early 2000s too.

And the same principles apply when expanding internationally.

It’s highly recommended franchises build out national operations and have them operating profitably and efficiently before expanding internationally. 

When you are ready to grow internationally, again you need to build up your brand presence in one market before expanding wider.

(You also need to plan your international growth: conduct thorough research into the best market/s, understand the local culture and any adaptation to product or service offering required, as well as the best model for entry and find the right partner, rather than taking a reactive approach).

It can be so easy to take a reactive, rather than sustainable approach to growth, particularly in the early days when you’re so busy working in the business and looking for opportunities to grow.

It’s easy to overlook a more strategic and sustainable approach, particularly if you have limited franchising experience.  It can be hard to know where you should be focusing your attention and resources to achieve the greatest results.

This is an area most franchisors struggle with, particularly in the first ten years or so of franchising.

That’s why we have been working with former Brumby’s Bakeries Managing Director Michael Sherlock and his former business coach Alan Anderson to offer a solution.

If you want some outside expertise from two senior franchise practitioners that have ‘been there and done that’ when it comes to creating a large and successful franchise brand, then I strongly recommend you consider attending the Franchise Growth Master Class. It’s a unique opportunity to receive individualised, expert advice and guidance at group training prices. Learn more…

As for Wagamama moving forward, as the stores are profitable it’s highly possible the franchise will find a buyer for Australian operations, and if the new owner has enough resources to expand operations within the existing markets the franchise can go from strength to strength – provided a strategic and sustainable approach to growth is taken.

This article was first published in 2012.