With rapid growth came certain problems and the backing of a larger organisation was required as more capital was required to sustain the planned development of the company, floatation was consideration, but it was finally a deal was agreed with Securiguard who acquired 100% of the share issue of City Link Transport Holdings in 1989.
And finally Securiguard was acquired by Rentokil Initial, and Rentokil Initial is determined to develop Initial City Link into its flagship business.
The decision to Franchise:
In November 1972 City Link Transport Holdings Limited was established in order to separate the administrative and operational divisions of the company. As a result of this City Link continued to expand rapidly. This is when the critical stage was reached in order to sustain the business’ size and growth rate the decision was taken to standardise all operational and logistical procedures, so it was decided to implement a franchise scheme.
The suitability of franchising operations in Initial City Link is a tricky issue. As the franchisee does not purchase a single franchise agreement for one outlet, the franchisee instead purchases a franchise zone, such as Tunbridge Wells, Maidstone, Newcastle, Sunderland etc. This means that the franchise is not a small operation, with 3-5 employees, as such for running a single outlet. But with a workforce of about 50-150, and depots 17 500+ sq ft. this virtually means that the franchisee is running a whole network of outlets instead of one.
Franchised delivery companies such as Initial City Link, are difficult franchises to operate as one franchisee relies on another franchisee for business, which in turn will affect the franchisee’s profit and hence Initial City Link’s profit. This means that all potential franchisees must be carefully vetted and interviewed. This is why the company directors at Initial City Link, take such a large and ‘hands on’ approach to new and potential franchisees. Unlike a franchisee agreement for a single outlet that even if it went completely ‘belly up’ it would not harm the companies image and profits significantly to cause a problem.
But in turn this also offers certain advantages, because even if the franchisees territory was suffering a downturn in business, that franchisee would know that even if they had less business, but all other areas were receiving a ‘normal’ level of business, this means that they would still receive some form of income as they are bound to be delivering some parcels for other franchisees.
The system that Initial City Link operates is in principle like this. All prices are pre-determined and set by the Head Office, and is issued to all franchisees; this price list has to be adhered to. If deliveries are within the franchisee’s own area then 100% of the cost will be retained by the franchisee (*royalties to be paid). But if the delivery address is outside of the franchisees area, then payment will made in return for delivery to franchisee that carries out the delivery.
* This is an agreement between the franchisor and the franchisee which means that a certain pre-determined percentage of the franchisees net profits are paid to the franchisor as royalties.
Evaluating the decision to franchise operations:
In this section I would like to analyse Initial City Link Ltd.’s decision to franchise operations
Initial City Link keeps control over their franchisees, by ensuring that they agree to a rigorous franchise agreement, which includes the following clauses:
- Operate under Initial City Link system
- Ensure maintained continuous high standards of the Initial City Link network.
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Handle ALL collections and deliveries within your territory
- Ensure that all prices being charged are within the brochure limits
By ensuring that their franchisees adhere to these terms it puts Initial City Link in control over its franchisees, which means that both parties’ interests are protected. It ensures that both parties are protected by the following means:
- By ensuring that all outlets carrying the Initial City Link logo operate under the same system, and management style, it ensures uniform service, which should mean uniform quality across the country. This encourages customers to continue using the Initial City Link service, no matter where they are in the country
- Also by ensuring that standards are being kept uniform across all the outlets, it means that the head office can implement actions which will constantly deliver a high quality of service.
- By ensuring that all the deliveries and collections no matter where they are from have to be delivered, once again enhances customer satisfaction in the product, which can only be a good thing, as this encourages repeat custom. This also ensures that all parcels, wherever they are sent from are always delivered.
- By attempting to exercise control over the prices charged by their franchisees, Initial City Link is therefore once again ensuring that their outlets will be offering the same uniformly priced products, and services no matter where the outlet is.
When analysing the control exercised over its franchisees, it is clear to see that they are attempting to ensure that the same level of service is offered throughout the country. By doing this they are trying to tackle and eradicate the biggest problem in franchising, which is the problem of poor performing franchisees, which could and probably would in the long term damage the companies image and hence long term profits.
This also removes the ‘franchise look’ which is basically when all the outlets have similar designs, products, prices etc. but the service and the quality of the product constantly varies. This could put people off using the service and turn to other delivery companies, which therefore means that they would be losing customers and hence profits.
This strategy eradicates the problem of differing standards of service, speed and products being supplied from different franchisees.
The decision to franchise operations in Initial City Link was a clever one as it was almost impossible for the company to keep a constant and consistent service across the country, with so many agents operating under their trade name, and with no uniform management, it meant that customers would be receiving different levels of service if they went to different agents. So by franchising operations this meant that the agents were then tied to a franchisee agreement which stipulated what rules and regulations the franchisee must comply with. This also allowed the company to ‘streamline’ its operations which would have resulted in reducing the running cost of the company and this in turn would have increased the business’ long term profits, which in turn would have made the business stronger and less of a take-over target.
The decision to franchise by Initial City Link was a good one as they could also implement ‘quality control’ measures to enable them to provide a quality service throughout their network. Also the decision to franchise is a good one as it allowed the company to ‘promote’ in a sense their better agents to franchisees, and those who did not have the same level of business acumen, to be guided by those more experienced agents.
I believe that an express delivery system is best expanded by franchising, as this allows the company to expand rapidly without the need to use its own capital, franchising also allows the business to expand much more rapidly and this has to be good for any business, even more so for a delivery company. As it is no good for the company not being able to deliver to a certain area of the country as it is yet to set up operations in that area, and it cannot afford to do so, simply because the capital for investment simply isn’t there. So this allows the business to expand rapidly to also allow the business to provide coverage for the whole country.
Also the franchising system that Initial City Link adopted is good because, as this is still a relatively new business sector; express parcel deliveries, there are not many proven ‘express delivery experts’ so by franchising out they can admit new entrepreneurs, into the business which allows new ideas to be raised, and that can only be good for a business.
The franchising system also allows for a ‘divorce of control and management’ which means that the directors whom control the overall business, and the franchisees who manage and run the franchises are not linked which means that the franchisees are not always worried about the whole business’ profits, but only their own, which means that there are less distractions to their job. Also this allows the company directors to concentrate on the ‘overall health’ of the business rather than the ‘nitty, gritty’ business of the day to day management of the outlets.
I believe that Initial City Link’s decision to franchise was a good one as, this allowed them to expand without the need to invest their own capital, and at the time of launch generated huge sums of money for the business, as they already had the ‘franchisees’; by this I mean that there were already outlets operating under the City Link name and it was simply a process of getting the existing agents to agree the franchise agreement, rather than having to find new franchisees. Initial City Link to this day still continues to sell franchise agreements; the latest one being Maidstone, Kent operating from late 2004.
This was also a smart job by the regulating authorities, as in one sense ‘they have killed two birds with one stone’ they have tied all these delivery agents to one unified contract and ethos, and also created a large network and sub-network of outlets.
By increasing their outlets it is obvious that their gross turnover (including that of franchises and company owned outlets) would have grown. The graph below shows the final turnover for franchisees:
Source: Initial City Link Ltd. Directors Report and Accounts 98’ & 03’
N.B Turnover: This is the total sum of money that has been received by the business over the fiscal year; this is not a measure of profitability.
Looking at the graph above it is clear to see that there has been a significant increase in the turnover of Initial City Link Franchisees, over the past few years.
Absolute Increase = Turnover 98’ – Turnover 97’
Percentage Increase = Absolute Increase/Turnover 97’*100
To calculate the increases for 2002-2003 replaces 98’ with 03’ and 97’ with 02’
This could be due to the increase in the need for urgent next day delivery of important documents. In a world where every second counts, it is vitally important that business use the best delivery companies available, which must mean that Initial City Link Ltd must be providing a good service otherwise they would not be getting repeat customers, and increased business.
This could also be because of the increase in the number of franchises and company owned outlets, which means that they have a wider coverage of the country which means that more ‘jobs’ can be accepted hence increasing the turnover of Initial City Link.
From the chart below we can see that there has been a drastic increase in the total turnover between 1998-2002, as there has been a massive jump in the height of the bars. This must mean that the company must have increased its output and reduced its costs from 1998. I believe that without franchising out operations the company would not be in the position it is in today. This is further proved by the second chart, showing the company owned outlets total turnover against the total turnover of the franchisee owned outlets.
Source: Initial City Link Ltd. Directors Report and Accounts 98’ & 03’
N.B Total Turnover: This is the combined turnover of the company owned and franchised outlet.
The table above shows the absolute and percentage increases in the total turnover of Initial City Link between 1997 – 1998 and 2002 – 2003.
Absolute Increase = Turnover 98’ – Turnover 97’
Percentage Increase = Absolute Increase/Turnover 97’*100
To calculate the increases for 2002-2003 replaces 98’ with 03’ and 97’ with 02’
Source: Initial City Link Ltd. Directors Report and Accounts 98’ & 03’
The table above shows the absolute and percentage increases in the total turnover of Initial City Link Franchises between 1997 – 1998 and 2002 – 2003.
The table above shows the absolute and percentage increases in the total turnover of Initial City Link Company owned Outlets between 1997 – 1998 and 2002 – 2003.
Absolute Increase = Turnover 98’ – Turnover 97’
Percentage Increase = Absolute Increase/Turnover 97’*100
To calculate the increases for 2002-2003 replaces 98’ with 03’ and 97’ with 02’
It is clear to be seen that, although the turnover of the company owned outlets have grown significantly, but also the turnover of the franchises have increased even more significantly than the company owned outlets. This may be due to the fact that franchised outlets are more productive than company owned outlets as they are working for their own income, and therefore have a greater incentive to work harder.
Although the turnover of the franchises is less than that of the company owned outlets; this may be due to a larger number of company owned outlets than franchises, or some franchises covering poorer areas. But if we compare the turnover percentage increase between the two, a totally different picture emerges.
Looking at the table it can be seen that in both percentage increase calculations, the franchisees have experienced greater turnover increases than their company owned counterparts. So even though they have a smaller overall turnover, they are more productive year-on-year which is shown in the fact that the franchises have greater rates of turnover increase. This clearly shows that the majority of the turnover increases for the company as a whole is generated by the franchises, so without the ability of being able to franchise operations, Initial City Link’s turnover would not have increased at such a significant rate.
If this was the case it shows that Initial City Link has a stable and constant business growth which is always good for a business.
Source: Initial City Link Ltd. Directors Report and Accounts 98’ & 03’
The above graph shows the final profit/loss of Initial City Link Ltd, over the past few years, it clear shows that the business has been making losses, but during the last fiscal year it can be seen that the company is finally making a profit. The loss for the fiscal year 2002, was a massive loss of £16 134 000, which could be due to the fact that they had decided to acquire new machinery, introduce new working systems, or due to a down turn in business, possibly a result of global downturn, an after effect of 9/11. But by the end of the fiscal year 2003, it can be seen that Initial City Link Ltd, had made a profit of £665 000, this may not seem like a large amount, but it proves that Initial City Link is an effective company and through its substantial network of franchisees, and company owned outlets it can survive through tough times.
A decision to franchise operations of a company is not a success if the financial results have not improved as a result. But the social and environmental effects must also have been of the positive nature. Although Initial City Link Ltd. does not operate a specific social economic program, their parent company Rentokil Initial Plc. does operate a specific social and environmental action plan which is adopted by Initial City Link.
Initial City Link operates standard social and environmental practises, but they do not ‘exhaust’ themselves in the process of doing so. Their environmental policies include:
- Complying with all relevant environmental laws and regulations
- Reduce waste and re-cycle where appropriate
- Reduce the level of energy consumption by buildings, vehicles through sensible energy management.
- Reducing and avoiding where possible contamination of land, water or air.
- Providing environmental polices that meet customer requirements.
Their social policies are similar to their environmental policies in the sense that they do not have a clear and wide policy, but their social policy does include:
- Employees should exercise honesty and diligence
- Maintain high standards of integrity, morality and competence
I believe that these policies should almost be expected of such a company like Initial City Link. So I believe on the social and environmental front Initial City Link has failed. I believe that this is so, because implementing social and environmental policies beyond what is required by law costs money, and this affects the companies profits, and I believe that the franchisees do not wish to detriment their own personal gains.
In summary, I believe that Initial City Link’s decision to franchise was a good one as this decision has allowed the company to increase its profitability and size significantly as they have been able to expand without the need for them to invest their own money, which has allowed them to cover more of the country and to use other funds to start to diversify into other countries, and start franchising operations there as well, such as Luxembourg and Germany.
Even though their social and environmental policy has been extremely poor for a company of the calibre such as Initial City Link, their financial figures have reaped the benefits. In a world where competition is so fierce, especially in the delivery sector, social and environmental policies are not key points that the directors would be worried about.
Conclusion:
I believe that the franchising of Initial City Link territories looks bright for the future. As only recently they announced a new franchised outlet in Maidstone, Kent. This shows that Initial City Link continue to grow through franchising, which must certainly mean a bright future for the company.
In a corporate and personal world, where time is of the essence urgent deliveries will continue to have a flourishing trade. This must clearly mean that as market leaders Initial City Link will continue to expand and continue to fill the market niche that it has filled so well to this day. With the ability to continue franchising outlets, and expansion, other competitors will find it hard to break into a domestic market where Initial City Link has done so well to control. But with the likes of Parcel Force, DHL all becoming major players in the market, and with smaller firms such as ‘findit’ and Kelly Search all trying to get a foot hold Initial City Link Must continue to deliver a quality product it has done for so long.