Whenever a company pivots its strategy generally risk increases and reward potentially increases.

KipMcgrath is a franchise model. They provide software, branding and a curriculum to tutor’s who are generally qualified teachers primarily in the UK, Australia and NZ. They take 20% of the top line + marketing fee’s for this service. This is towards the upper end of fees for franchise businesses and has increased in recent years from 10%. This has helped increased profits but now the majority of centres are paying the new higher fee.

My observation given recent announcements is that KME would now like to transition to an online tutoring business. This is understandable as it is likely a more highly valued business model, see Clueys implied valuation of 100m. They have also recently purchased four brick and mortar centres in Australia to be run by them.

This is risky.

Franchises have the unenviable position of balancing employee’s, franchisee and shareholder expectations. Let any get too unbalanced from the other and watch and RFG style implosion occur (minus the debt). Increasing the fee from 10% to 20% was already a step that greatly favoured shareholder Vs Franchisees.

To corporate I’m not sure how online lessons are different from in centre lessons. They are not responsible for the rent or bills associated with the premises required. They clip the same fee regardless of how the lesson took place. Alternatively they may direct incoming online requests to their new network of tutors they are employing through the corporate owned centres. This however would likely cannibalise franchisee businesses putting at risk their proven successful model.

I’ll be watching with interest as to how KME balance the various stakeholder interests. Hopefully they can find a synergistic solution where everybody wins or I suspect ultimately no one will.