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McDonald’s Margins

A stock research company called Trefis who is blogging at Forbes.com noted that McDonald’s company owned stores had a combined EBITDA margin of 24%, while franchised stores provide McDonald’s corporate with an 88% EBITDA margin.  Trefis doesn’t detail how they sourced information to arrive at these margin calculations, but there point was McDonald’s earns 4x as much by franchising a store rather than owning it directly. McDonald’s owns about 6,200 (20%) of its 30,000 restaurants. [chart removed—it wasn’t displaying properly]

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Wingstop average sales $770,000

I love comparables.   The average unit sales were higher than I expected: source: Chicago Business Wingstop has 465 restaurants around the country, with most in Texas, California, Florida and Louisiana. The chain does about 80% of its business in takeout orders and averages $770,000 in annual sales per restaurant, Mr. Evans said. The chain sells 10 wings for around $6.30 in the Chicago area. Popular flavors include original hot, lemon pepper and hickory barbecue.

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Self Service Fro-Yo

There has been an uptick in self serve frozen yogurt, and I think that is a smart move.  Why pay employees to do a task that customers would get the pleasure of doing, and they’ll pay for whatever they use?  You can run a busy store with two employees, one at the cash register and another cleaning up and refilling toppings. The self service works like this – the customer fills their cup with as much frozen yogurt as they like and put on their own topping, and then proceed to the checkout where the yogurt is weighed and priced at $.30/ounce.  I’ve seen cookie shops in London, UK sell cookies by weight, and it works as people typically will make things a little bigger and end up paying a little more. One player that “looks” good is the almost 100 location Yogurt-land (and it should with a $350k build out cost – see pic ).  They like to move into former Cold Stone Creamery locations, another smart move.  Others are Fiji Yogurt (5 locations), Yogurtini (1 open, 8 about to open). They have a new location in Weston, FL which I saw and it looks great. See my previous post about rolling your own frozen yogurt shop if this concept interests you.

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Franchisee Influencing the Menu

This was satisfying to read: Hardy’s Franchisee pitches menu item and wins. I am always surprised that Franchisors do not leverage their franchisees more in soliciting innovations.

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Oversaturation Hitting Qdoba

In Boston, the area developer is not paying its bills.   If Qdoba was the only fast fresh Mexican game in town they’d be doing fine.   That segment is being flooded with new concepts and the industry is suffering.   But, over-staturation is the norm now with with every ‘hot’ franchise segment nowadays.   Things will eventually shake out with the strong surviving.

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Seattle’s Best Coffee in Burger Kings; $1 Menu Update

Seattle’s Best will replace BK JOE’s coffee program in Burger Kings by September 2010. I’m sure this is a good financial deal for Seattle’s Best (owned by Starbucks) and will help BK increase its perceived coffee quality, but in the long run I believe this will hurt Seattle’s Best perceived brand quality.  Why?  Because BK is unable to enforce quality standards in its stores. Most people have an above average perception of Seattle’s Best Coffee, a somewhat premium coffee brand akin to Caribou Coffee or Gloria Jean’s.  On the other hand, Burger King quality image is quite poor, with people citing dirty stores, low quality meals and lazy employees.  Quality issues are due almost entirely to unmotivated employees and lack of leadership from the absentee franchisees.  It’s clear as soon as you step into a BK that there is little company pride or culture.  And when your employees don’t give a crap, your coffee standards (brewing methods, time in the pot, keeping coffee at ideal temperatures, etc.) will be ignored, to the eventual detriment to Seattle’s Best. On a side note, Burger King is wisely taking a page from McDonald’s by dropping a slice of cheese from it’s $1 double cheeseburger.  The article mentions that BK is signaling removal of the $1 double cheeseburger from the dollar menu in the spring, and it’s testing higher prices for its $1 Whopper Jr.   Was the $1 double cheeseburger really worth all the fighting with franchisees?

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Forums Down Temporarily

The forums are temporarily down due to technical issues with the web hosting company.  I’ll get them back up shortly.  Thanks for your patience!  Update Feb 9, 2010: We’re back in business, all is fixed. 

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Social Media, What Can Franchisees Do?

Most franchisees will not have social media addressed specifically in their Franchise Agreements.  So, there is not much stopping franchisees from participating in social media web sites.  New franchisees are now starting to see company’s social media policies in their franchise agreements.What is the big deal with a franchisee setting up a Twitter or Facebook page?  Here are a few: A franchisee’s page is neglected and it reflects poorly on the brand. A franchisee posts a coupon on his Twitter page but isn’t clear that it is only valid at his store. A franchisee’s personality can become evident over time with social media – is this good for the brand, is it confusing? In my opinion, from what I’ve seen with social media for 99.5% of restaurants – an proactive social media strategy is really on good for sending discount promotions to a ready pool of your customers.    You can sometimes get ‘buzz’ from online communities,  but the resulting increase in sales is almost always negligible.

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Comparing Royalties and Franchise Fees of the Better Burger Concepts

Concept Royalty Royalty Total Advertising/Marketing Fee The Counter $50,000 6% 2% Mooyah $30,000 Five Guys $30,000 6% 3% Smashburger $25,000 6% 4-7% Fatburger $65,000 6% 1.75% Cheeburger $22,000 – $35,000 5% 1% I’m not suggesting you pick a concept with the lowest fees, but what you receive in exchange for your royalty is important – brand recognition, supply chain discounts, location assistance, quality control of brand, human support, menu development, marketing assistance.

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Nando’s and the Peri Peri Chicken

One of my favorite fast casual restaurants is Nando’s who is famous for their marinated Peri Peri Chicken cooked over an open flame.  I ate at their London, England locations multiple times and it has quickly become my go-to restaurant when I’m there.   One Nando’s opened in the USA last year in Washington D.C., and I believe it is a corporate owned location. They do franchise in Canada, New Zealand, South Africa, Namibia, and Australia, but not the USA. Their mix of food is clever. While it is a sit down restaurant, ordering takes place at a central counter and the food is brought out to your table. For appetizers that are served immediately, the offering is Peri Peri nuts, spicy mixed olives, and humus with Peri Peri drizzle…all healthy, all tasty detours from the typical high-fat fried appetizers.  See their menu below:Nandosusa Main Menu Nando’s includes elements that would make it a strong franchise contender in my book (it doesn’t have brand recognition yet in the USA, however). — Great Tasting Food — Unique Customer Experience — Improves on an already familiar taste – chicken — Casual and fun environment — Employees seem happy — Branding is authentic….Portuguese presented in a fun way On the down side, — it doesn’t have brand recognition yet — food preparation is based on human judgment rather than fool proof systems. For example, the chicken is pulled from the open flames based upon a human’s judgment that the chicken is sufficiently cooked.

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Tooting My Stock Predicting Horn

Back in August 2007, I gave a NexCen Brands an “I wouldn’t buy it” rating after they grossly overpaid for the Pretzel Time and Pretzelmaker acquisition by paying 5x revenue.  At the time the stock price was around $7…fast forward 2 years and yesterday it closed at 36 cents and has been as low 5 cents in 2009.Your welcome!

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Pizza Hut’s Franchisee Sees Flight to Lower Costs Pizzerias

Source: Dallas Morning News Jim Schwartz, president and chief executive of NPC International Inc., said he was disappointed and “frankly frustrated” with the company’s 12.6 percent drop in same-store-sales from continuing operations for the quarter that ended June 30. It was the third consecutive negative quarter for the Overland Park, Kan.-based company, due in part to difficult comparisons to last year’s sales tally. That’s when Addison-based Pizza Hut launched its line of Tuscani pastas. Schwartz noted that cash-strapped consumers have been looking for less expensive meals, even among the pizza players.

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