Denis McFadden, Just Cuts, Franchising and India

Date: JUN 26th, 2009

Topic: Franchise News

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What does a franchisor do once he has nearly four decades in business and a network of almost 175 stores across Australia and New Zealand under his banner? Why, head to India, of course. "The 300 million middle-class population loves brands," says Denis McFadden, founder and chief executive of hairdressing chain Just Cuts. "They''''re all watching cable TV and they want what they see."


The country is ripe for what Just Cuts has to offer, McFadden enthuses, with options at either extreme of the wealth scale, but not in the middle.

"In India they cut hair in the roadway with a mirror, or you're getting a haircut in a hotel spending a lot of money, and there's nowhere in between."

Heading to the subcontinent would seem like a strange move for a service provider whose existing outlets mostly populate shopping centres and main streets across suburbia. But McFadden is no conventional chief executive.


The 61-year-old fell into hairdressing after his time at school was marked by learning difficulties caused by dyslexia - a problem that still afflicts him today - and he wanted a career that would minimise the need to read and write: "I was about seven when one of the nuns took me aside, realising I couldn't read. I had a good memory for things."


He did a four-year apprenticeship with a Sydney hairdresser ("My grandfather always thought it was a funny job to take on") and then trod the well-worn path of baby boomers heading for London. Next up was a two-year stint on board a P&O cruise ship as the vessel's on-board stylist, a job with the perks of luxury cruising - friendship, romance, world travel and the company of some generous tippers. On returning to London in the late 1960s, he bought his first salon in Marble Arch, forging a decade-long career styling some of the city's most sophisticated beehives.


Fast forward to 1983, and the enterprising McFadden, who had since returned to Sydney, spotted a gap in the market for tasteful but cheap haircuts that did away with appointments and price confusion. And so Just Cuts was born. The move towards franchising was more an accidental stumble than a cunning ploy. One of McFadden's employees, just 21, decided she wanted to set up her own shop, using the Just Cuts branding. Through her father, the aspiring franchisee asked McFadden the tough questions.


Store manual? Sure.

Franchise agreement? No problem.

Corporate guidelines? Fine.


McFadden had none of them, really. For reasons not entirely obvious, the tradition of small owner-operator hairdressers in Australia remains strong. Just Cuts, one of the biggest players, has a market share of only 2.7%.


McFadden says his target for Just Cuts is 5%, although he says growth will come through winning more clients to existing stores rather than significant additions to the 150-store Australian network. "We've tried to bring monitoring and motivation and key performance indicators to an industry that's untouched by big business, at least in Australia."

For McFadden, the key to successful franchising is systematisation. While McFadden cringes at the thought, it's possible that the chirpy scripted opening "Have you washed your hair in the past 24 hours?" could become as ubiquitous as the inquiry about the desire for sliced potato to be added to an order at a popular fast-food emporium.

Systematisation, along with other tools such as mystery shoppers, help the company achieve consistency across stores and protect the reliability of the brand.

"It's possible some of them have a bad day," he says. "That's why you've got to systematise it. But I can't systematise a smile, that's why in the recruitment phase you've got to find people who like people."


He compares his franchise to the musical Phantom of the Opera, a comparison that seems obscure until McFadden says that at any given time there might be three or four productions of Phantom in different parts of the world, but each is almost identical. Systematisation.

It has been said that in times of economic uncertainty, two of the safest investments are funeral homes and hairdressing salons. Both are services that just about everyone needs - regardless of the thickness of their wallet.


McFadden says recent economic uncertainty has had no noticeable effect on the business. Like many brands at the middle to lower end of their respective markets, Just Cuts is well positioned to withstand rougher weather as customers cut back on extravagances.

The intimate nature of the service also means it is almost immune from many of the forces of a globalised world. Neither imports nor technology are a threat.


"Hairdressing might be the only thing where someone's going to touch you," he says. "No machine is going to cut your hair."

India is the second foreign market for Just Cuts after its 1998 venture across the ditch to New Zealand, where it now has 23 stores. Its connection with the South Asian powerhouse started with an export trip for Australian businesses keen to break into the market.


Two visits later, McFadden had signed a master franchise agreement, and the first Just Cuts store, in a New Delhi shopping centre, is just a few weeks away from opening. McFadden says the salon will be the first of 250 over four years.

Doing business in India has its challenges, not least of which are the Indian traits of tardiness and a willingness to mouth agreement but a failure to follow through, McFadden says. He also expresses frustration at the poor state of the banking and legal systems.


In Australia, the franchise arrangement means that despite the company's stores generating turnover of about $75 million annually, just $3 million makes its way to McFadden's privately owned company, generating a profit of about $500,000 last year. He has toyed with the idea of listing the company, perhaps on the ASX's "little brother", the Newcastle Stock Exchange.


He detects big opportunities for growth overseas, having just returned from a franchising fair in France where he had some nibbles from Europeans keen to establish the brand there. In a business environment dominated by heavy-hitting MBAs, McFadden stands out from the crowd. After finishing school in London aged 16, he's never returned to formal education and is instead a rabid devourer of self-help books. He says the skills he uses are not readily taught in the classroom.


"I don't think I could do it," he says. "It comes down to being street smart, and some of those very bright people do not have street smarts, and I'm not sure you can be taught street smarts." And his dream for the company that has consumed the past 25 years of his life? "Ten master franchises, all around the world." And with his track record, there's little doubt that he means it.


THE PROFILE
CV DENIS McFADDEN

Favourite holiday spot: I just bought an 80-acre (32-hectare) farm in Canyonleigh in the NSW southern highlands. I'd rather be there than anywhere.

Most admired leader: Michael Gerber, author of the e-myth series, and all the authors of all the self-help books I've ever read.

Favourite pastime: Sitting on my ride-on lawnmower. Both thinking and lawn mowing.

Favourite meal to cook: McFadden Meatfeast. I'm famous for my barbecues.

Favourite film: Beowulf, and anything else as long as it's got action, drama or humour.