Stopped at MiniStop
Stopped at Ministop.
As I met my friend just the other day, she looked quite agitated. She told me she just met with a representative from Ministop and felt that her questions were not sufficiently accommodated. She thought that in was only natural that she asks a lot of questions ? her money was coming from blood, sweat and tears. If she was really investing in a franchise, she wanted to be sure it was worth it.
MiniStop is a 24-hour convenience store. It is competitively aligned with Seven-Eleven has been in the Philippines since December 2000. My friend told me MiniStop works with Robinson?s Distribution Center (logistics partner). This immediately made me connect Ministop with Gokongwei?s group of companies. John Gokonwei is one of the richest people in Metro Manila and (somebody correct me if I?m wrong) owns Robinson?s Galleria, Digitel, Sun Cellular and Cebu Pacific Air.
The smallest investment in a Ministop franchise would be at least P1.2 Million (US$23,000). Based on my friend?s initial computations, she needed to make at least P35,000 (US$ 675) a day to break even.
My immediate reaction was? ?Whoa! P35,000 a day??
Let?s do a quick financial thought on this. P35,000 a day meant that the Ministop needed to get at least P1458 per hour. Assuming a shop visitor spends an average of P40 per visit, then the shop should get at least 37 people per hour to reach P1458.
The next question I thought was, ?Could it be done??
I frequent a Ministop myself and thought about my personal purchases. I visit the store at least 4 times a week. My purchases were around P30 ? P100 per visit. I think that is around P65 per visit. When I drop by, I see around 2 ?5 people inside. I stay for only around 5 ?10 minutes.
Based on this experience, a very quick computation would indicate that P65 for 3 people every 6 minutes would be P1950 per hour. This is for a shop located along H.V. De La Costa Avenue, Makati City, Metro Manila. I get this quick figure despite seeing 2 other Ministops just a 5-minute walk away.
My friend indicated that there are real MiniStop Franchisees that actually average P40,000 ? P65,000 per day. These were located at key locations where there are always people. One example she noted was the one at the University Belt.
The University Belt or U-Belt, is informally located in the districts of Malate, Ermita, Intramuros, Paco, San Miquel, Quiapo, and Sampaloc. U-Belt is the colloquial term for the high number of institutions of higher education that are located in the city. Among them are the University of the Philippines - Manila, the De La Salle University and the University of Santo Tomas. Since there were a number of dormitories in the area, students regularly came in and out of the shop. The owner-entrepreneur cited that when the convenience store just started, it was actually averaging at least P90,000.
My friend gave a statistic. 3% of foot traffic in an area would go inside the Ministop convenience store. That is 3 out of 100 people. Based on this statistic, 37 people in a shop per hour meant she required foot traffic of around 1,234 per hour. In Makati City or U-belt, these figures are not a problem.
The numbers weren?t really bothering my entrepreneur-fr
iend. She was more irritated by how her Ministop contact was treating her. There was a sense of holding back (on information) when she queried on other aspects of the business.
I could not blame her. Apparently, Ministop franchises required a rather long commitment. A deal with them meant that one would be stuck as a franchisee for 10-years. There was really no guarantee that one could be profitable continuously throughout this period. Would entrepreneurs find this appealing?
One had to take into account various changes in the area. What if competition came up? What if the general infrastructures of the area deteriorate? The population decrease? These are some of the risks any Ministop Franchisee should be willing to take.
Another detail she questioned was the fact that there was a profit-sharing agreement. As the profits increased, the Ministop Company would rake in more of the income. For example, if she was able to get P100,000 (or below) income per month, almost half of that would go to the company. As net income increases to P900,000, only around 10% of the profit would go to the franchisee.
Despite that, she thought it still could work out. They key to profitability would be the location of the business. It had to be somewhere there were a lot of people, little competition, and with very good infrastructure.
"So what are you planning to do?" I asked.
"Still studying the financial numbers," she commented. It was now turning out to be a question of getting at least a P50k monthly income. She also questions if it would be worth maintaining the store’s daily operations. Figuring a point of comparison, asked what the Treasury bill rates are lately.
"We’ll if it’s going to be hassle doing the daily stuff. Maybe it would just make sense to go for Bonds and T-bills even if the payoff is not as big." I replied.
"Why not just go into real-estate?" I asked.
She just shrugged.
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Comments
Franchise business in general has gains and at the same time has risks. Getting a franchise does not even guarantee you profits rather it minimizes risk because you don’t have to re-invent the wheel all over again. In franchising, you are basically buying the right to use their system (wrong or right) and you will have a very small room to exercise your entrepreneurial mind. Although the system encourages it, you would be required to follow protocols and policies.
The ministop franchise was basically adapted from Japan. (where convenience retailing was perfected by 7-Eleven, Japan) If I’m not mistaken, they have almost the same franchise package.
My advice to your friend is as follows:
1. Do the numbers - it would be best to know your projected bottom line as of now; handling a 24/7 business is no joke and your net would greatly determine your outlook and attitude towards the whole business.
2. Interview existing franchisees- try to talk/interview as many franchisees as you can. Franchising in ministop started way back 2002 and it would be good to know how they improved (or the other way around) thru the last several years. Expect to hear both good and bad, it would be up to you on how you digest it. Also, there is no perfect system.
3. Check the Industry / Competition - research as much as you can; affiliated organizations, DTI, Phil.Franchise Association, AFFI, Phil.Retailers Assoc.; they can also help; benchmark against competition since there are only 2 players in the industry; research awards and recognitions;
4. Franchisor Record in the industry - check on the company’s background, affiliation; do they adapt to fair franchising standards; do they have a fair franchsing contract; sometimes affordability should not be the only factor in getting the franchise; existing franchisees can attest to that; company reputation; visit their HQ; are employees friendly? accomodating? or are they just interested to get your franchise fee?
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