Franklins*
Kevin Hendry Geoffrey Kiel
University of Queensland
It is early October 1999, and Hong-Kong-based
Dairy Farm International Director Bill Dickinson is
on the overnight ight to Sydney. Bill is returning to
Australia with his family for several weeks of home
leave. While he is looking forward to his holiday, Bill
also knows that he needs to spend some time with the
senior management of Franklins in Australia. The
Dairy Farm Board has been concerned about the per-
formance of its Australian subsidiary for some time.
Repeated attempts to x the problems have not been
successful and the Board is now talking about sell-
ing the business. Bill was recently appointed to the
Dairy Farm Board after a very successful career in
retailing throughout the AsiaPacic region. He has
been away from Australia since 1987 and does not
know a great deal about Franklins other than what he
has read in recent Board papers. However, the Board
thinks his home leave is a perfect opportunity to have
someone take a fresh look at the business.
Franklins:The beginnings
The Franklins story began in Newcastle with brothers
Frank and Harry Lindstrom, co-owners of 54 retail
stores.1 In 1941, the brothers decided to go their sep-
arate ways. Frank moved to Sydney, registered the
name Franklins Stores, and opened eight new stores.
In 1954, Franklins Stores was bought by Harold Cor-
nock, who, along with former partner Norman Tieck,
had owned and operated the CT Stores Cash and
* This case was written by Kevin Hendry and Geoffrey Kiel. While it is based on Franklins, certain aspects have been modied for teaching purposes. All
names from 1990 onwards are ctional. It does not purport to accurately represent actual events, facts or gures.
University of Queensland
Carry chain. Cornock added one store, and between
1954 and 1957 all Franklins stores were converted to
self-service.
In those days, cost-cutting was vital. Cornocks
core positioning was to have relatively small, pile it
high, sell it cheap operations. The merchandising
range was heavily oriented towards a wide assortment
of dry, packaged groceries. Fixtures and ttings were
strictly functional and were accompanied by minimal
requirements for housekeeping in order to keep costs
as low as possible. The result was lower prices to the
consumer.
The partnership between Cornock and Tieck
was renewed in 1958 when Tieck joined Cornock
at Franklins. Over the next few years, Cornock and
Tieck took over 17 Oram stores, 10 McEwan stores,
2 Sargents Safeways stores and opened another six
new stores. By 1961 the Franklins chain had expanded
to 40 stores.
Tieck launched the Strictly No Frills policy in
1968. This policy has been credited with driving much
of Franklins success during the coming decades.
Along with strict cost-cutting guidelines in the ofces
no carpet, no unnecessary letter writing there
was a bare bones approach to outtting the stores.
Tieck said: Maybe [the stores] are not palaces, but
this makes it possible to save money and pass the
savings onto the most important people in our store
the customers.2 In 1968, there were 70 such stores
carrying 4000 lines and Franklins had an annual
1
2 Franklins
turnover of A$30 million. Franklins continued to
grow and by 1973 there were 78 stores with a com-
bined turnover of $100 million. In May 1978, the No
Frills generic brand range was launched with Tiecks
promise that the quality will be the same as that
the contract manufacturers put into their national
brands.
In 1979, Cornock and Tieck sold Franklins to
Hong Kong Land, which was subsequently taken over
by Dairy Farm International. The chain consisted
of 79 stores in Sydney carrying 7000 lines and it
commanded a 30 per cent market share in that area.
Paul Simons, formerly joint general manager of
Woolworths, joined Franklins as the deputy chairman.
He continued to follow the same strategy of low cost,
but expanded into regional New South Wales, then
Victoria, South Australia and Queensland. Under his
control, the chain continued to expand and prosper.
Retail World3 reported in June 1987 that [t]he
need to think small about overheads is regarded
by group management as the single most important
legacy inherited from the companys founders
Management is lateral rather than pyramidal with
(then) Managing Director, Graeme Bowler, sharing
the same 1672m 2 ofce as everybody else. Franklins Australia emerged from recession, price no longer held
national market share grew from 4.6 per cent in 1981
to 11.3 per cent in 1987.
Three players dominate
Three key players Woolworths, Coles and Franklins
had grown to dominate the Australian grocery retail
market. (See Table 1 for trends in Australian grocery
retailing.) Together they accounted for around 64 per
cent of all grocery sales. While Franklins continued
to grow during the 1980s, Woolworths had not fared
so well.4 In fact, Woolworths performance in 1986
and 1987 was so poor it led to a change in ownership
and senior management. Brierleys IEL Group took
control of the business and Paul Simons returned
from Franklins to run things. The late 1980s also
saw Coles begin to lose market share in the grocery
retail sector following the companys merger with
Myer in 1986. This was the beginning of a long
period of upheaval within the Coles grocery division
that saw four different managing directors of Coles
Supermarkets in 10 years.
In the late 1980s and early 1990s, Australia
was in a recession. An independent research report,
appropriately titled Effects of Shopping in Tough
Times, reported that 73 per cent of consumers were
economising, 53 per cent had reduced purchases at
supermarkets and 45 per cent had changed brands.5
Franklins took advantage of this trend. In September
1991, Retail World reported, (Franklins) has never
used traditional methods of expensive advertising to
promote itself, nor has it bothered with expensive
store presentation. Franklins policy has always been
to cut back in every area possible in order to have
cheap grocery prices. It is a formula that has remained
the same for 50 years and has led the chain to be
the biggest grocery retailer in NSW.6 Franklins had
thrived for 50 years mainly by being an aggressive
discounter of packaged groceries.
Competition intensies
However, the economic situation changed in the early
1990s and Franklins 1993 results suggested that
problems had developed.7 Sales only grew by 1 per
cent and prot before interest fell by 15 per cent. As
the same importance with consumers in determining
store or brand choice.8 Instead, consumers wanted
convenience. In addition, Franklins was about to
face some tough competition. Many of its stores were
surrounded by fresh-food specialist outlets that were
not keeping newly extended trading hours. Franklins
had been relying on their presence to offer a virtual
one-stop shopping experience.
At Woolworths, Paul Simonss inuence was
beginning to take effect. He drove a complete change
in corporate culture, removing the elite hierarchy
that had developed in the 1980s, as well as refocusing
their strategy and emphasising price competitiveness.
Woolworths promised that its prices would be no
more than one per cent above the lowest-priced major
operator, which in most cases was Franklins.
Woolworths aimed to provide low prices in a
service-oriented environment. They also launched
The Fresh Food People strategy in 1986/87. The
grocery chains dominance of packaged foods retailing
meant there was little opportunity for growth in this
area. However, the chains had relatively low market
 Franklins 3

Table 1 Trends in grocery retailing

Pre-WWII Small corner stores dominate the grocery trade in Australia.

The rst self-service grocery store opens in New York in 1930. These early supermarkets become popular in the
US by the late 1930s.
1950s There is a rapid move to self-service grocery stores in Australia by 1957.
Focused discount retail chains are trialled in the northeast United States.
1960s Supermarkets begin to take modern shape with expansion into fruit and vegetables. The bigger chains also buy
out franchise butchers.
The rst New World Coles supermarket opens in Victoria in 1962.
Regional shopping centres are developed.
Discount chain operations begin to rapidly expand.
There is consolidation as successful competitors form larger retail chains.
1970s High levels of ination affect consumer behaviour. Shoppers become more price conscious and willing to shop
around for discounts.
There is a focus on cost-cutting at the store level, e.g., supermarkets move to narrower isles and dim lights to
lower electricity bills.
Some major chains begin to vertically integrate, e.g., into meat distribution.
Coles is the rst Australian retailer to exceed $1billion in turnover (1975).
1980s Regional shopping centres dominate the retail trade in Australia. Supermarket majors are able to negotiate prime
positions as anchor tenants.
There is rapid consolidation of state-based supermarket chains to form three dominant national operations.
These chains continue to expand in terms of both stores and product ranges. A greater emphasis is placed
on fresh food versus packaged goods to win more business from smaller specialist retailers.
Customers place a higher value on convenience due in part to changed working patterns. Dedicated convenience
chains expand (e.g., 7 Eleven) on prime arterial road locations offering parking and longer trading hours.
After resistance from small business, trading hours at shopping centres are progressively increased across
Australia.
New technology is introduced by Coles and Woolworths, e.g., scanners, EFTPOS facilities, and advanced
computerised systems to reduce costs.
Coles merges with Myer in 1986.
1990s Following trends in the United States, there is a move to big box retailing and even larger regional shopping
centres. Supermarkets grow in oor space.
Woolworths oats on the Australian Stock Exchange in 1993.
Customer loyalty card systems expand.
There is blurring of industry boundaries with supermarkets aggressively moving into liquor, health and beauty
products, owers, magazines, pre-prepared meals, banking services and fuel retailing, etc.
The major retail chains continue to pursue cost savings via centralised buying and productivity improvements
in logistics.
Overseas-based discount chains review options for entry into the Australian market.
Retailers experiment with Internet shopping.
Mini-supermarkets (e.g., Coles Express and Woolworths Metro) are established by the majors in key inner-city
urban renewal locations to provide an up-market convenience offer that includes fresh food and pre-prepared
meals.

Sources: Joint Select Committee on the Retailing Sector, 1999, Fair Market or Market Failure? A review of Australias retailing sector, (Parliament of Australia: Canberra),
August, Appendix 6; M. Levy, B. A. Weitz, 1998, Retailing Management , 3rd edition, (Irwin McGraw-Hill: Boston, Massachusetts) Chapter 2; ColesMyer.com;
Woolworths.com.au.
4 Franklins

shares in fresh produce and value-added areas such
as bakery. Diversication into these areas was seen as
a potential source of protable growth. In addition,
fresh food had a greater prot margin than dry and
frozen groceries. Woolworths used the increased
prots from this push into fresh foods to decrease the
price of dry and frozen goods, eroding Franklins cost
advantage. Woolworths back to basics approach
and successful market repositioning led to increased
operating margins and market share, culminating in
the companys highly successful oat in July 1993.9
Coles followed Woolworths move, enlarging
the fresh food section in Coles Supermarkets and
expanding their Bi-Lo discount grocery chain.10
Franklins was being caught in a competitive pincer
movement!
New direction
Franklins response was to take on Woolworths and
Coles directly with a one-stop store concept offering
fresh food as well as their traditional range. This fresh
strategy had been intensely debated at the local level
for months. The local board, as it was called, was
actually the senior management team. Fortunately for
Bill Dickinson, three of the team that developed the
original fresh strategy, Neil Bates, David Greene and
Jane Nichols, were still with the organisation in late
1999. Not surprisingly all three were as committed
to the strategy as when they rst proposed it back
in 1991 and they provided invaluable insights into
the decision-making processes at that time as well as
subsequently.
Initially, the Franklins team was seriously divided
on the strategy. The opponents argued that the fresh
strategy represented a complete turn around in the
companys mission and culture. They believed that
the organisation did not have the people, the skills
or the systems to implement such a radical change.
The opponents produced gures from Europe, which
indicated that discount grocery chains had over 40 per
cent market share in a number of countries. Gordon
Shaw, the most vocal of the critics, had just returned
from a trip to the United Kingdom where private
labels share of the dry and frozen groceries market
was over 35 per cent and still growing. According
to Jane Nichols, Shaw argued strongly on two key
points:
1 Cut right back on the number of lines carried to
less than 1000 and focus almost totally on the
No Frills brand. This option was modelled on
several highly successful European operations.
2 Change the store format to more of a
warehouse style operation and focus on bulk
retailing of selected product lines.
According to Greene, the other two members of
the management team at the time, Richard Wilson

Table 2 Financials for Australias leading food retailers ($A million)

1995 1996 1997 1998 1999*

Woolworths
Sales 10 959 11 995 13 298 14 180 15 399
EBIT 365 396 464 514 515
Number of supermarkets 501 505 518 542 559

Coles
Sales 8 153 9 329 10 429 11 559 12 997
EBIT 262 295 342 387 427
Number of supermarkets 497 510 515 556 573

Franklins
Sales 3 598 3 898 4 070 4 150 2 108
EBIT (37) (53) 21 63 11
Number of supermarkets 261 260 260 262 277

* Woolworths year end August; Coles year end July; Franklins year end December (1999 half-year results used)
Source: Coles Myer, 1999, Annual Report; Woolworths,1999, Annual Report.

and Graham Mackay favoured a diversication app-
roach. They argued that Franklins would never win a
head-on battle with Coles and Woolworths, that the
companys share of the packaged groceries market
was plateauing and that growth would have to come
from elsewhere. According to David Greene, Mackay
was passionate about getting into the liquor market,
He had ling cabinets full of research reports on
the liquor market. He must have told us a thousand
times that it was the big opportunity in Australian
retailing
During his interviews with Bates, Greene and
Nichols, it became obvious to Dickinson that these
three controlled local decision making. Before his trip
he had been through the 1991 parent Board papers
and noted that Bates and Greene had presented the
fresh strategy proposal at an annual budget meeting
in Hong Kong. Their case was largely built around
Franklins dynamic growth in market share and
the huge opportunity that fresh food presented. It
indicated that Franklins share of the packaged grocery
market had grown from 11 per cent in 1987 to almost
16 per cent in 1991 and proposed a target share of 20
per cent of the total retail grocery market, including
fresh foods, by 2000. There was no mention of other
options for growth and only a eeting reference to
the changes at Woolworths and Coles. The proposal
called for A$450 million capital expenditure over a
seven-year period to refurbish stores and develop new
Figure 1 Franklins market share performance per state (packaged groceries)
35
30
Market share (%)
25
20
15
10
5
0
1987 1988 1989 1990 1991
Franklins 5
logistics systems. On an annual basis it represented
less than 2 per cent of projected revenues. The aim was
to have, by 2001, 50 Franklins Big Fresh outlets, 220
Franklins Fresh outlets and only 30 of the traditional
No Frills stores. Dickinson guessed that the parent
Board did not question the proposal too deeply. After
all, Franklins in Australia was a star performer.
In 1992, Franklins opened its rst market-style
Big Fresh store in Sydney, selling dry goods, fresh
produce, meat, sh and baked goods. In addition,
the store aimed to add value by educating customers
on how to use, combine and cook the products.
Early results with Big Fresh were very encouraging.
The locations were carefully chosen and Franklins
management were more than happy, especially when
their market share of the packaged grocery business
hit a new peak of over 16 per cent in 1993.
In 1994, they introduced Franklins Fresh a
smaller version of the Big Fresh concept. However,
the range of grocery lines was severely reduced in
Franklins Fresh compared to the No Frills stores to
allow for the introduction of fresh produce. The rst
Franklins Fresh store at Engadine carried 350 lines
of produce and 200 lines of fresh meat. Future stores
would include delicatessen sections and bakeries, and
sell exotic food and fresh owers. Franklins managers
believed that the move into fresh foods could boost a
stores sales by 2530 per cent.
NSW
Qld
Vic
SA
National
1992 1993 1994 1995 1996 1997 1998
Source: AC Nielsen.
6 Franklins
Figure 2 National market shares for packaged groceries
40
35
30
Market share (%)
25
20
15
10
5
0
1987 1988 1989 1990 1991
However, while Woolworths and Coles were
increasing their focus on cost-cutting practices, the
move into fresh food added to Franklins costs. The
Big Fresh and Fresh stores were given a more up-
market appearance compared to the traditional
No Frills outlets. While this was a signicant
improvement on the dark and cluttered No Frills
format, this upgrade had a price signicantly higher
capital and maintenance costs. For example, the Big
Fresh stores cost A$56 million to t out, compared
to just A$600 000 for a No Frills store.11 There was
also some criticism of the new store layout. Comments
such as perishables departments scattered all over
the store, and high perishables wastage appeared in
the trade press. In addition, Big Fresh had departed
from the traditional square box supermarket layout
with gondolas parallel to the side walls, perishables
and service departments around the perimeter and
checkouts at the front. Big Fresh had been designed
as a whole new retail experience, including theme-
park style displays and a rigidly designated pathway
through each store. The Big Fresh layout was quite
different and at least one observer suggested that
this would lead to consumer confusion.12
In 1993, Franklins began construction of a A$50
million warehouse complex, partially to support its
expansion into fresh food and partially to support
growth in the No Frills business. By 1995 Franklins
Woolworths
Coles/Bi-Lo
Independents
Franklins
1992 1993 1994 1995 1996 1997 1998
Source: AC Nielsen.
market share had fallen slightly (see Figures 1 and
2). However, senior executives continued to pursue
the Franklins Fresh strategy. As part of this strategy,
Franklins introduced a new category management
approach centred on national category managers for
food, non-food, perishables, corporate brands and
liquor business units.13 In an attempt to bring in new
thinking they recruited senior managers from outside
the retail grocery industry. Category management
was put in the hands of executives who had formerly
been with organisations such as McDonalds, Shell and
Pizza Hut. At one stage, one of the senior executives
told a Retail World reporter that Franklins intended
to transform grocery shopping in much the same way
that McDonalds had transformed the hamburger.14
Industry observers began to argue that Franklins
was losing market share to Woolworths and Coles.
Many argued that Franklins execution was the
problem. Comments were made that the organisation
was not keeping close enough tabs on its competitors
pricing, that its logistics were not up to scratch and that
its costs were escalating. Concern was also expressed
over the fact that there had been four different CEOs
between 1993 and 1997.
The parent company was also having problems in
the mid 1990s. Reports in the trade press indicated
that Dairy Farms south Asian operations were
performing well, but that the company had lost its way
 Franklins 7

in north Asia. There was also a performance problem
with Kwik Save, Dairy Farms UK discount chain.
At the time, Dairy Farm owned six supermarket or
convenience store brands, each of which was quite
different. Observers suggested that the rm was
having problems focusing on its diverse geographies
and that the low-growth Australian market was no
longer a corporate priority.
Since 1992, Franklins had spent around A$330
million in support of its Franklins Fresh strategy.15
Franklins sales for 1998 were US$2622 million
compared to US$2994 million for the prior year
(Dairy Farm reported results in US$). However, EBIT
was US$39 million compared to US$14.9 million
for 1997. This was an encouraging sign that the
fresh food format, the implementation of category
management, the improvements in the supply chain
and the management changes were taking effect.
Sales for the rst six months of 1999 were US$1354
million compared to US$1316 million for the same
period in 1998.16 However, the market share decline
had continued in 1999 and the latest estimate was
approximately 13 per cent, while Woolworths (37.1
per cent) and Coles (32.9 per cent) had grown.17 Of
even more concern was the fact that EBIT had declined
from US$13.6 million for the rst six months of 1998
to US$7.0 million for the same period in 1999.
Reassessment
Dickinson was concerned on several fronts. First,
there was the recent decline in Franklins EBIT
and its continued loss of market share to its major
competitors. Second, the research reports that he had
seen indicated that Franklins retail price advantage
over its major competitors was virtually non-existent
in 1999. He had also seen reports that the private labels
share of the packaged groceries market in Australia
was down below 11 per cent. This compared very
unfavourably with the trends of the early 1990s and
particularly with countries like Canada and the UK
where the share held by private labels was 21 per cent
and 55 per cent respectively. Third, the number of Big
Fresh and Fresh outlets was well behind the original
target. Fourth, there was the rumoured entry of Aldi,
the giant German-based discounter, who he knew
would be a tough competitor. Fifth, Woolworths had
announced Project Refresh, a major cost reduction
initiative that was likely to put further pressure on
margins.

Table 3 Count of Franklins stores by state

1991 1992 1993 1994 1995 1996 1997 1998 1999*

NSW
No Frills 123 125 127 128 120 96 96 96 87
Fresh 1 7 25 25 26 37
Big Fresh 1 3 4 7 11 11 11 11
Vic
No Frills 33 33 38 38 36 29 29 25 22
Fresh 3 8 14 14 19 32
Big Fresh 1 3 5 5 5 5
Qld
No Frills 53 53 54 58 52 36 36 31 22
Fresh 8 22 22 27 39
Big Fresh 3 6 8 8 8 8
SA
No Frills 8 12 13 15 14 14 14 14 14
Fresh
Big Fresh
Total 217 224 235 251 261 260 260 262 277

* Expected count by year end

8 Franklins
There was a strong opinion in the local manage-
ment team that the rst one to blink would lose. Many
of the senior executives believed that patience was
critical. Enormous changes had been made in a very
short time period and they argued that the benets
were just around the corner, particularly since the
sales decline had been halted this year. The stalwarts
pointed to Woolworths results for the year ending
August 1999 in support of their case.18 The chain
reported an 8.6 per cent sales growth, but at EBIT.
They know just what a serious threat our Big Fresh
and Fresh stores are theyre desperately cutting
prices to force us into making changes but they cannot
keep going that way. We just have to hang in there for
a little longer went the argument.
In addition, several key managers were pushing
for more capital expenditure. Their argument was that
three store brands could not be efciently managed
Endnotes
1 Anonymous, 2001, From boom to bust: How Franklins reached
its use-by date, Retail World, vol. 54, no. 8, pp. 56; S. Narayanan,
1997, The Nineties A Power Game, Retail World, vol. 50, no.
18, pp. 3944.
2 Narayanan, op. cit.
3 Narayanan, op. cit.
4 A. Treadgold, 1996, Food retailing in Australia three retailers,
three strategies, International Journal of Retail and Distribution
Management, vol. 24, no. 8, pp. 613.
5 Narayanan, op. cit.
6 Narayanan, op. cit.
7 Treadgold, op. cit.
8 Anonymous, 2002, Franklins Rise and Fall where did it go
wrong? , Retail World, vol. 55, no. 1, pp. 67.
9 Treadgold, op. cit.
without further upgrades to the distribution centres
and the IT systems.
To add further concern, Dickinson had obtained
a spreadsheet of sales by store location including
store sizes. After a quick analysis of sales per square
metre, he determined that the best performing stores
were in fact the medium to smaller size No Frills and
Franklins Fresh stores in key metropolitan locations.
The Big Fresh stores were not performing as well
as he had thought. In addition, many of the poorly
performing stores were located in metropolitan fringe
areas or stagnant regional areas.
Dickinson did not have the answers, but he
knew something had to be done. The Dairy Farm
International Board was very concerned about the
numbers. He doubted that they would be interested in
giving Franklins more time. What they were looking
for was a solution and a quick one at that!
10
11
Treadgold, op. cit.
Anonymous, 2001, In Comes Aldi and Out Goes Franklins,
Marketing News, May.
12 B. Sanderson, 2000, Alty: Why Big Fresh failed, Retail World,
vol. 54, no. 12, p. 8.
13 B. Flanagan, 1997a, Franklins styles its own category management
plan, Retail World, vol. 50, no. 23, p. 3.
14 B. Flanagan, 1997b, Franklins reveals tailor made formats, Retail
World, vol. 50, no. 23, p. 3.
15 M. Hannen,. 2001, A hard sell for Franklins. Business Review
Weekly, December 1319, pp. 3637.
16 Dairy Farm International Holdings Limited, 1999, Interim Report:
1999 Highlights.
17 Anonymous, 2002, op. cit.
18 Woolworths, 1999, Annual Report.
20 N. Shoebridge, 1997, Franklins with Frills is Living Dangerously,
Business Review Weekly, 7 July, pp. 1822.