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Franchisor Strategy: Let Retirees be Franchisees

Article (India) Amid stiff competition from Chinese shoemakers, Bata India (BIL) is exploring a brand new franchisee model to launch its upcoming retail stores. It has decided to give older members of its workforce who are close to retirement an option to quit their jobs and run the new Bata outlets as franchisees. Interesting approach to finding qualified franchisees. Most franchisors do not have this type of large operating company to leverage before they choose a franchise model, but those who do may want to try this route.

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Managing Staff, Help from Franchisors

This article provides a good primer on employment issues in the United States, and franchisee/franchisor liability. The franchisor does expose themselves to employment risks even if it tries to protect themselves in the franchise agreement: As employment law has evolved, the risk of potential liability to the franchisor under this type of arrangement has increased. In particular, a number of state anti-discrimination laws (such as those of New York, New Jersey, and California) impose liability upon third parties for aiding and abetting discrimination. Even where a franchisor takes a completely hands-off approach with respect to the franchisee’s employees, it may still face potential liability where it knowingly tolerates or condones discriminating practices. In practice, this type of aider and abettor liability now places franchisors in a Catch 22 position. If a franchisor knows of discrimination by the franchisee but fails to act, liability as an aider/abettor may result. Conversely, if the franchisor does take action, that action itself may lead to the imposition of liability as an agent and/or joint employer. This is further compounded by the fact that the size of jury awards and the willingness of juries to give large awards has also increased over the last few years. Here is how franchisor, Jackson Hewitt, gives employment advice: For example, Jackson Hewitt, the nation’s second largest individual tax preparation company, periodically surveys its franchisees to determine what issues are of most concern to them. It then retains independent employment counsel to provide seminars on those topics at its annual franchisee convention. The company also follows up with the franchisees by way of a post-seminar survey to ensure the training is effective and responsive to their concerns. Training on such things as how to properly interview and hire employees, what to watch for in dealing with discipline/discharge issues, …

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Financial Performance Representations

A good primer article on FRP (Financial Performance Representations) was posted by attorney Gary Duvall from the law firm Dorsey & Whitney LLP. He believes that two trends may increase the percentage of franchisors who will be using financial performance representations in the FDD: the general availability of cost-effective financial reporting software that communicates easily between franchisee and franchisor the new FTC Rule allows more information to be given to prospective franchisees outside Item 19 of the FDD. Why, in Duvall’s opinion, don’t more than 25% of franchisors provide earnings claims? He gives three reasons: Lack of reliable financial data Variability of financial results due to each unit’s local business environment “Sell the Sizzle”, meaning unit results are likely lower than potential franchisees’ expectations On a side note, one representative I spoke from an Arizona-based BBQ franchisor stated that he did not believe earnings claims were good for franchisees because they discouraged the franchisee from doing research.  I believe he was right in that providing an abundance of information and financial results may lessen the overall research done by a franchisee.  I don’t believe that is the primary reason these executives decided not to disclosure FRP. Back to the article…Duvall adds: if a franchisor has reason to know that franchisee profitability is extremely low, for example, that few if any franchisees are profitable, or that most franchisees will probably close in the near future, non-disclosure of these problems as a risk factor arguably violates the duty to disclose all material facts, although this is a grey area of the law.

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Charitable Goals of Franchisees

I found this article interesting about a group of Boston Pizza franchsiees and their fundraising goals. Even if the franchisees do not have the funds to make significant contributions to charities, organizing or participating in charity events by providing products and services is usually an efficient deductible expense that can be more effective that advertising. The Enrights’ restaurants have raised more than $600,000 for the Boston Pizza Foundation since 1999 through various fundraising initiatives and partnerships with local businesses. In the past two years alone, their 10 restaurants across Winnipeg have raised more than $300,000 for the BP Foundation through its Valentine’s Day promotion. … Richard and Kim Enright and their franchisee partners have also developed a $100,000 scholarship endowment fund for the University of Manitoba’s Faculty of Education. Their Garden City location’s “Celebrity Server Night” featuring the Winnipeg Blue Bombers, Winnipeg Goldeyes, Team Canada athletes and entertainers, raised more than $5,000 for the Seven Oaks General Hospital Foundation.

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An insiders view on why eBay Franchise Drop Stores failed

Scott Pooler, a former official eBay Trading Assistant, and a master franchise representative for an eBay drop store franchise chain weighs in on the subject of franchising and stand alone eBay drop stores in Trading Assistant Journal, a weblog that provides news and commentary for eBay consignment specialists. Scott’s experience on both sides of the fence reveals certain truths, and since he was at one time a proponent of the franchise model, his views are helpful to anyone considering the purchase of a new franchise eBay drop store or opening one on their own. These views are Scott’s opinion and do not reflect upon eBay any eBay franchise drop store chain in particular or upon eBay consignment as an addition to any other type of business. His views regarding the stand alone drop store franchise model and why it has failed are worth reading. Read the whole story Cross Posted at Let’s Talk Franchising

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To Franchise or Not to Franchise?

Performance differences between corporate-owned and franchised hotels are slim to none, according to new research. Leah Sipher-Mann h Sipher-Mann writes in Michigan in the News that, for a company pondering the question, “To franchise or not to franchise?” new research from Michigan’s Ross School of Business suggests that performance differences between corporate-owned and franchised outlets, when chosen right, could be slim to none. Ross Professor of Business Economics and Public Policy Francine Lafontaine and colleagues Renáta Kosová of Cornell University and Rozenn Perrigot of University of Rennes, studied the effect of vertical integration on the performance of individual hotels. They found that a company’s decision whether to franchise or own a particular hotel has little effect on yield (average price) or performance. Lafontaine and her team studied an unnamed multi-chain hotel company that has both franchised and corporate-owned hotels under each of its several brands, running the gamut from budget to luxury. They collected data to determine whether organizational form for each hotel has an effect on any of three outcomes: monthly revenues per available room (i.e., what the industry calls “RevPar”), price or yield (average room rate per month), and monthly occupancy rate. Across all three variables, Lafontaine and her colleagues found that franchising per se does not have a statistically significant effect. “We conclude that the firm chooses which outlets to franchise and which to own in a way that yields no differences in pricing or performance, in the end, between the two sets of hotels,” the authors state. “This result is important as it suggests that when firms can choose, they indeed adjust organizational form in such a way that there are no real differences in outcomes.” “This does not mean that franchising and company operations do not have different incentive effects, because they do,” says …

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Advice for South African Franchisees

Preliminary advice for the would-be franchisee in the country of South Africa is very similar to advice given to would-be US-based franchisee.  Best point in the article: “Thus every franchisee will be expected to operate a carbon copy of the franchisor’s original business, and individuals who thrive on ‘doing things their way’ are unlikely to be happy as franchisees.”

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Suzanne’s Kitchen Meal Assembly – Closed

This is somewhat old news, but I missed it. We previously wrote about Suzanne Somer’s meal assembly business venture called “Suzanne’s Kitchen”. Well, it closed last April and was only open for a few months. From the abbreviated archive of Lexington, KY Herald-Leader: Apr. 19–Five months after opening, Suzanne’s Kitchen, a do-it-yourself meal preparation business represented by actress Suzanne Somers, has closed its flagship store in Tates Creek Centre. Former Gov. John Y. Brown Jr., mastermind behind the Suzanne’s Kitchen idea, said yesterday that the store closed last weekend because he wanted his business team to “revamp the whole format to get something even more convenient.” The second Suzanne’s Kitchen store, in New Jersey, has also closed. Brown said both would reopen, though he did not estimate when. Culinary ability wasn’t required at Suzanne’s Kitchen. Ingredients were diced, … Hat Tip: mysterymiss in the comments.

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Franchising Solar Power

{Cross-Posted at The Franchise King Blog} Go Green! Well the franchise world is invading the green world, and it is starting in California. {Big surprise} Continue reading…. Yep! The California Department of Corporations {Not The California Department of Corrections!} has approved a request by Solar Power Inc. to start selling franchises. The retail store setup will be called Yes! Solar Solutions. There is already one up in Roseville, Ca. Read in Sacramento Bee The retail store will provide design services for each home or business that wants solar power, and install the panels, also. In addition, solar powered coolers,backpacks etc. will be offered. Here is something about solar energy solutions that you may not know: The local energy utilities will actually buy back any extra solar power you are generating from your home or business! It comes in the form of a credit. They roll back your meter’s dials by the amount of extra energy you produce. That is fantastic! Stay tuned..this is just the beginning….

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Franchise News Roundup – 11/26/2007

Gas prices hurting delivery drivers. New owner of Shoney’s hopes to fix the brand by improving the food freshness, more upscale menu items, and upgrade the buildings. Quote: Franchisee Glenn Wood rum, who owns 21 Shoney’s in South Carolina, Georgia and Florida, said he sometimes disregarded corporate norms in the past in an attempt to boost his own profits, but now he’s looking forward to more continuity from headquarters. “Any change in the right direction is what we want,” he said. You will be seeing a lot more co-branded Noble Roman’s Pizza and Tuscano’s Italian Style Subs.  ….The Area Development agreements entered into thus far provide for the sale of a total of 868 units over multi-year periods as defined in the various individual agreements. The company will continue to market its traditional co-brand business by offering additional development territories. Additionally, the company has also sold 53 traditional co-brand franchises directly to individual franchisees… The company’s traditional co-brand franchise program would be strengthened by several operational enhancements. These enhancements include: more rigorous franchisee selection criteria; a longer, more robust training period for new franchisees; more direct franchisee involvement in the construction and marketing processes; and intensified monitoring and enforcement of operating standards and unit performance. Recognizing that these steps could slow the speed of franchise development within territories covered by existing Area Development agreements, the company intends to offer reasonable accommodations to the exclusive development time frames specified in those agreements so as to align the interests of Area Developers and the company in sustainable growth of the traditional franchise program. In Taiwan, franchisee are mostly between 30 and 40 years old.

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Are you thinking of Franchising your Business?

Franchising your business offers you some intriguing benefits: Attracting franchisees to invest their capital into your brand. Franchisees are manpower to work the business as stakeholders. Increased number of franchises contribute to the establishment of the brand. Gain royalty income without capital investment or an increase in contingent lialbility. Retain control of the trademark and the business format. Before you consider franchising your business: Make sure the first units economics are strong and profitable. Then open a second unit to see if you can replicate the success of the first. If the second unit succeeds, try opening a unit at least an hour away. This will show you if your processes work without your being around all of the time. If your experiment succeeds, you will be in a good position to consider franchising your business. Cross Posted at: Let’s Talk Franchising

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Fundamentals of Franchising: Franchisee’s Perspective

Rush Nivet posted on his blog Rush on Business that last week he had the opportunity to attend the ABA’s Forum on Franchising. He writes: What a great event! First and foremost, it was an opportunity to network with some of the best franchise lawyers in America. Second, I really enjoyed hanging out with fellow Iowa franchise lawyers, Matt Krigbaum of Cedar Rapids and David Bright of Iowa City. These guys are excellent lawyers and terrific individuals. If you are Eastern Iowa I recommend you talk with them regarding your franchising questions. The initial seminar session I attended was the Fundamentals on Franchising. Some top-notch franchise lawyers spoke during this 4 1/2 hour session but of particular interest to me was the talk by Ron Gardner of the Dady and Garner Law Firm in Minneapolis. The law firm is regarded as one of the best firms in the country representing franchisees in disputes with franchisors. In my franchise law work I counsel and negotiate on behalf of franchisees so the talk was very informative. Some highlights of Gardner’s talk: If a franchisor is making certain promises you should attempt to have those promises included in the franchise agreement. Often a franchisor will say certain things to entice a franchisee to enter into the franchise agreement. But when you read the agreement these promises are no where to be found. Get those promises in writing. If not, you should have no expectation the franchisor will follow through on its promises. Franchisees and their lawyers must communicate together on much more than just the franchise disclosure document or the franchise agreement. In order to advise you properly it is important to know your background, your needs and your expectations. Without this information it is often difficult to know what it important …

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Visiting a Franchise Trade Show is a great way to learn about franchise opportunities.

Visiting a franchise trade show is a great way to gather a lot of preliminary information and survey what’s out there in the franchise world in a short period of time, and you can find them in most cities. The National Franchise and Business Opportunities show will be in Boston on Saturday and Sunday October 13th and 14th. The show will be open from 11:00 am – 5:00 pm. The National Franchise and Business Opportunities Expo is great for those who are considering owning their own business. When attending a franchise trade show, keep a few things in mind. The companies exhibiting at the show do not make up all the franchise opportunities available. A franchise trade show showcases only a limited selection of the 2500 franchise programs out there. You should take the opportunity to hear why the franchise representatives feel their opportunity is worth investigating. Ask questions about the business model, and the outlook of the industry. Use these guidelines to help you make the best of your franchise trade show visit. Before you attend the franchise trade show: Identify what your “must have priorities” are! Identify your financial situation. What is liquid, what can you borrowed from family and friends, and how much do you need to live on? What are your financial requirements? Be serious. Dress conservatively, leave the kids at home, and take business cards if you have them. Show the representatives you meet that you’re a serious prospect. At the franchise trade shows: Look at the floor plan of the exhibitors listed. Check off the businesses you recognize or that look interesting to you. Don’t waste time. Pass by the franchisors who are out of your price range or don’t meet your “must have priorities”. Prepare a short list of questions: 1. what …

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The Original SoupMan and Cold Stone Creamery Franchises Team Up

Soup Kitchen International, the creators of the Zagat-rated soups of Al Yeganeh, the legendary soup man who inspired the “Soup Episode” on Seinfeld, and Cold Stone Creamery, today announced the grand opening of the first The Original SoupMan/Cold Stone Creamery at 2 Astor Place in New York, NY in early November. Recent Penn State graduate Daniel Petryszyn is opening the first hybrid, co-branded franchise that will feature both The Original SoupMan’s world-renowned soups and Cold Stone Creamery’s super-premium ice cream. Petryszyn’s Original SoupMan/Cold Stone Creamery, in addition to ice cream, will showcase Yeganeh’s 50 varieties of soup as the “centerpiece of the meal.” Each meal will be presented with a piece of fresh, crusty baguette, fresh fruit and a piece of imported chocolate — just like Al Yeganeh served it at his original shop. As Yeganeh explains it, this is simply “the way to eat.” Alongside Yeganeh’s 50 varieties of soup there will also be an extensive line of gourmet salads and sandwiches. “Customers demand choice and innovation,” said Dan Beem, Cold Stone Creamery President. “We’re pleased and excited to explore these opportunities with the Original SoupMan to introduce both the highest quality, most creative ice cream experience alongside premium, gourmet soups, all under one roof.” It was reported on Let’s Talk Franchising that  “Seinfeld’ Soup Nazi Franchises Troubled”  that disgruntled franchisees say many of the franchises didn’t make it through their first year: At least eight have closed for good. Two more have shut their doors for now, although the company said it has deals in the works to reopen them. Cross Posted at Let’s Talk Franchising

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Sona Med Spa Franchisee takes over as Franchisor

It was reported today that Byron Ashbridge and Joe Pitt, who operate five Sona MedSpa franchises in Charlotte, Greensboro and Raleigh North Carolina, have purchased the controlling interest in S0na MedSpa International, previously based in Franklin, TN. Since 2002, Ashbridge and Pitt have run some of the most successful locations in the company and will build upon their accomplishments in North Carolina to fortify, grow and improve the operation. This includes developing and implementing extensive staff training and marketing programs, and providing franchisees with proven systems and best practices to ensure optimal performance, customer satisfaction and profitability. The existing franchise locations will now be company-owned training centers and be the models for “best practices” in the medical spa industry. Franchisees will now have access to these company-owned centers in order to assist in the training and development of their respective staff, as well as determining marketing and operational tactics to use in their centers. It was reported at Let’s Talk Franchising on May 26th, 2007 that Sona MedSpa Was Guilty of Fraud, Investors Liable! In that case an arbitrator in Atlanta, Georgia awarded nearly $400,000 to a franchisee who was duped into buying a Sona MedSpa franchise on the basis of “faulty” information about Sona’s hair-removal services. The arbitrator not only held liable the Nashville-based franchisor, Sona MedSpas, and its founder, Dennis Jones, but also a group of prominent investors that acquired the franchisor, but then failed to correct the misleading information. The investors included Carousel Capital of Charlotte, N.C., its Chairman, Nelson Schwab II, Jim Amos, former President of Mail Boxes, Etc., and his daughter, Heather Rose. As a result of the investors’ failure to act on the information, the franchisee not only proceeded with his investment, but also repeated the faulty information to its own clients. Subesequently …

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Wendy’s franchisee bids for company

Potential buyout offer has support of family of founder Dave Thomas COLUMBUS, Ohio – It was reported in the Mansfield News Journal 6 that the owner of 134 Wendy’s franchises wants to make a bid for the nation’s No. 3 hamburger chain with two private-equity firms. David Karam, president of Cedar Enterprises Inc., said Wednesday that he and his partners have been invited by Wendy’s International Inc. to a second round of talks. He is backed by Kelso & Co. and Oak Hill Capital Partners. “I’ve been involved in the brand,” he said. “I see the great potential of it.” Cedar Enterprises, based outside Columbus, owns Wendy’sfranchises across the country that have a combined annual revenue of $200 million. Karam’s first-round proposal was enough to garner entry into a second round next month, where bids are expected. He would not disclose how much he is willing to pay for Wendy’s, but said the company’s current stock price is rich. Wendy’s shares rose 20 cents to $33.26 Wednesday. “Fundamentally, there’s great upside with the brand, but the reality is no one wants to overpay,” he said. Billionaire investor Nelson Peltz has said his company, Triarc Cos., is prepared to offer $37 to $41 per share for Wendy’s in a deal that would peg Wendy’s total value between $3.2 billion and $3.6 billion. Triarc owns the fast-food chain Arby’s and is also a major Wendy’s shareholder. Peltz said in July that he and his allies had increased their Wendy’s stake to 9.8 percent of all outstanding shares. Wendy’s formed a committee in April to determine how best to boost its stock price, including a possible sale. Wendy’s spokesman Denny Lynch and Peltz’s spokeswoman Carrie Bloom declined to comment Wednesday. In the past year, Wendy’s has spun off its Tim Hortons coffee-and-doughnut …

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