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BBB Says Wendy’s Meat Never Frozen

Burger King complained to the National Advertising Division (NAD) of the Council of the Better Business Bureau regarding “Wendy’s, Always Fresh, Never Frozen” burger claim. Long story short, Wendy’s substantiated their assertion. Fresh is possible, Burger King.

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KFC Jacuzzi

You’ve probably heard that a couple of teenage female KFC employees took a bath in the big kitchen sink and took pictures.  I’m sure the franchisee was outraged to wake up and deal with this PR disaster (not to mention the parents of the kids).  A news crew was outside showing the pictures to customers who unanimously said “GROSS!”  Ditto…see image to the right.   The article mentioned that zee fired the employees. 

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How to Make Subway Look Like a Good Opportunity

Entrepreneur.com’s Janean Chun posted an article entitled,  Can You Buy a Big Franchise?  The topic seemed interesting so I read it.  The article essentially says you too can own popular franchise brands, if you meet the net worth requirements.  She supports her proposition by interviewing a Subway agent in California as a credible source, where he implies that Subway is a strict selector of franchisees who only work with entrepreurs, not investors.  What a hoot.  Disgruntled franchisees would disagree.

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More Quiznos Franchisees Can’t Turn A Profit

Quiznos seems to be in perpetual defeat.  Here is another money-losing franchisee from Quiznos:   “We can’t make money,” said Quiznos franchisee Marty Tate, who said his Erie, Pa., store leads the region in sales. Mr. Tate, who is not part of the lawsuit, said 40% of his sales go directly into advertising, royalties and food for the next week. He added that three of seven locations in his county have closed in the past year. Mr. Tate said that when his contract expires next spring, he will open his own independent store. Advertising funds are always somewhat of a mystery. Typically, the franchisee will pay about 5-8% into an advertising pool that is supposed to be leveraged across all applicable markets. Unfortunately, there is often not as much bang for the buck as the franchisor would like you to believe, particularly in the creative production and media buys. Quiznos example: Then there’s the issue of advertising. Quiznos’ agency is Cliff Freeman & Partners. According to TNS Media Intelligence, the chain spent $83 million in measured media in 2007 and $55 million in the first half of 2008. Despite the increase, many franchisees said that they rarely see their own ads, and most say the work isn’t memorable. (By comparison, Subway spent $361 million in during 2007, according to TNS. “The last good Quiznos commercial was Baby Bob, and that was 2004,” said Mr. Tate, who said he’s complained to executives about the creative. “I would challenge anyone to remember the last Quiznos ad they saw.”

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Dream Dinners Hammered by Forbes

Dream Dinners is an example of good idea but profit challenged business model.   It’s just too expensive to attract and retain customers. A Forbes article looked through the Dream Dinners FDD from the state of Washington, and focused on the required audited financial statements. As of Dec. 31, the company boasted $2.9 million in assets, against which it carried $3.4 million in liabilities. (Such negative book value implies that if Dream Dinners were unwound today, shareholders wouldn’t get much.) That’s a snapshot, but here’s a trend: Last year, the company lost $628,000 on $7.5 million in sales; compare that to 2005, when it earned $928,000 on sales of $4.5 million. …. Typically, new business concepts need up to five years to season before they can be franchised successfully. Dream Dinners–along with its next largest competitor Super Suppers, now with 165 stores–both began franchising in less than two years. Franchisees accused the franchisor of false promises and unsubstantiated financial projections. A major point of contention has to do with rosy promises Dream Dinners seemed to have made to its franchisees. Under the Federal Trade Commission’s franchise law, franchisers are not permitted to make “predictions” about franchisees’ financial success–unless they do it in the Uniform Franchise Offering Document, which typically contains a host of disclaimers. Dream Dinners “totally disregarded these regulations,” says Garner. It not only posted financial projections on its company Web site, he says, it also put them in a Power Point presentation given to potential franchisees. Jennifer Hemann, a former Dream Dinners franchisee in Maryland and one of the plaintiffs in the suit, alleges that she was shown that Power Point presentation–which included estimated profit margins for a given volume of customers–when interviewing with the founders. “They told us, ‘Our lawyers said not to show this to …

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Trend: Franchisors Decrease Company Owned Units

Why do many franchisors tend to reduce their holdings of company owned stores?  To stabilize earnings from same store sales swings. Safety In Franchisees For franchised concepts, sales are diffused throughout the entire system, with the franchisor, or parent company, taking a little off the top for themselves in the form of royalty payments. Costs are also shouldered by the franchisees. The difference between franchisee and company-owned models is evident in the effect fluctuations in same-store-sales, a closely watched industry metric, have on earnings. At Darden, for example, each percentage point in same-store sales accounts for a roughly 14-cent swing in earnings per share, or roughly 5.1% of annual earnings, according to Larry Miller, restaurant analyst at RBC Capital Markets Inc. Compare that with McDonald’s Corp. (MCD), the fast-food giant that owns a little over 21% of its more than 31,000 stores, which sees EPS move about six cents, or 1.7% of annual earnings, for each percentage point change in comparable sales. The relative isolation of franchise concepts from same-store-sales swings is one reason why investors have flocked to place their money in companies like McDonald’s, whose stock is up about 29% over the last 12 months, and Burger King Holdings Inc. (BKC), which owns about 12% of its roughly 11,500 stores and whose shares are up almost 9%. “Right now, people are crowded around the defensive investments,” Miller of RBC said. Comparatively, Darden has lost more than 27% over the previous 12 months, while its casual-dining competitor Brinker International Inc. (EAT), owner of Chili’s Grill & Bar and others, has lost nearly 31%. To be sure, the mix between franchisee- and company-owned stores is far from the lone factor affecting stock performance. Also contributing to that is a penchant for consumers to “trade down” and eat at fast-food …

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Brave Entrepreneurs

If you were looking for a location for your new coffee & bakery business, would you commit to a location that had a Homer’s restaurant and Erbert & Gerbert’ both fail there within the past year?   And, direct coffee competition from Starbucks, Kopeli and The Coffee House are all within two blocks?  I would be extremely hesitant. Nevertheless, aspiring franchisor Natalie Bubak of Lincoln, Nebraska will open a nuVibe Juice & Java in the serial failed location.  Gutsy. After Homer’s closed last May, Erbert & Gerbert’s lasted only a few months, apparently a victim of competition from downtown’s plethora of sandwich shops. There’s also a great deal of coffee shop competition in the area — Starbucks, Kopeli and The Coffee House are all within two blocks — but Bubak said she thinks nuVibe is different enough that it will complement, rather than take from, the existing coffee businesses. “I think we’re going to help each other, really,” she said. Besides coffee, nuVibe also serves all-natural fruit smoothies and gelato. And Bubak said she’s planning on adding some breakfast and lunch items to the menu, including hot cereal and soups. She said the new breakfast items will help fill what people have told her is a void in downtown. Bubak said she has the opportunity to have expanded offerings at the downtown nuVibe because the space is so much larger — 4,500 square feet compared with the 1,500 square feet she has at her Pioneer Woods location.

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Starbucks Standards of Business Conduct

Starbucks’ Standards of Business Conduct manual (pdf) is an interesting read for those of us with too much time on our hands.  For those in franchises without much guidance on how to interact with employees and customers, this will provide you with a proven set of guidelines.

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Better Home & Garden real estate franchise

I’m sure they have research to support this effort, but the Better Home & Garden is expanding its brand to include real estate brokerages.I found this comment humorous considering he is the very first operating unit: Better Homes and Gardens Real Estate unveiled its new Web site, www.bhgrealestate.com.Wilkins hopes to benefit from Better Homes and Gardens’ technology, business systems and advanced tools to help support the growth and operation of their brokerage. Those tools include business planning and strategic services; sales associate talent attraction and retention; training and career development programs; and Web tools and resources.   From the Better Homes & Garden web site: Key differentiators of the Better Homes and Gardens® Real Estate brand include: Financially oriented service platform National agent recruiting program Targeted direct-to-consumer marketing programs Web 2.0 principles to engage today’s consumer, along with best-in-class systems and tools A focus on the environment through our green initiatives A developing international real estate network to enhance global networking opportunities At least their CEO is the former Chief Operating Officer for Coldwell Banker Real Estate LLC.

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More Independent Tart Frozen Yogurt Outlets

The modern atmosphere and different taste driving the growth of the tart frozen yogurt industry will almost certainly continue for several more years.  But a crash similar to the previous frozen yogurt industry is likely to occur. Here are a few new entrants: Yagoot Yogurt (Cincinnati, OH) Tartini Frozen Yogurt Bar (Cupertino, CA) Ufood Grill is even serving them at their restaurant as a dessert Jubilee Frozen Yogurt (Chandler, AZ) Zoneberry serviced at Coffee & Tea Zones in Colorado Springs, CO. Sorbetto @ Starbucks Berrygood (Central Arizona)

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Performance of Franchisees’ Loans

Below is the Small Business Administration’s annual compilation of performance data on thousands of franchisee loans it has guaranteed covering loans made from October 1, 2000, to September 30, 2007. A “failed loan” below is when the SBA must step in and pay back a loan that it has guaranteed. However, does failure rate of a loan equal the number of failed franchises? No, because the chart below only captures the worst of the worst, when someone completely abandons their debt obligations. Definitions are tricky and can mask the true data. Franchisees who sell their units and pay off or transfer their loan or franchisees losing money are not caputred. But, the value in the report card can be a vague checklist for avoiding high-failing franchises. Hat Tip: WSJ REPORT CARD Class Leaders Franchiser Failure Rate Failed loans Total loans Comfort Inn 0% 0 158 Primrose 0 0 110 Edible Arrangements 0 0 104 Massage Envy 0 0 61 Holiday Inn Express 1 1 157 Culver’s Frozen Custard 1 1 150 Hampton Inn 1 1 88 Bruster’s Real Ice Cream 1 1 84 Little Caesars Pizza 1 1 72 Fastsigns 1 1 71 Super 8 Motel 2 8 363 Best Western 2 3 156 Choice Hotels International 2 3 144 Rita’s Water Ice 2 2 103 Arco 2 2 85 Zaxby’s 2 2 81 Anytime Fitness 2 1 65 Econo Lodge 3 4 119 Goddard 3 3 109 Subway 4 84 1,974 Dunkin’ Donuts 4 17 410 Sport Clips 4 8 191 Cartridge World Stores 4 5 112 Travelodge 4 4 91 IHOP 4 3 67 Class Trailers Franchiser Failure Rate Failed loans Total loans All Tune and Lube 48% 37 77 Philly Connection 48 30 63 Cottman Transmission 46 75 163 Blimpie Subs & Salads 37 58 158 …

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Subway Franchisee Upset

Source: http://www.stuff.co.nz/4599872a13.html Keely Clements also says her repeated pleas for support from Subway management were ignored, despite telling them her Northlands Mall store was losing money. That franchise was closed on Monday, after mall management terminated the lease, because it was owed $164,000 in unpaid rent. Clements also stands to lose her second store, in Kaiapoi, after Subway served her with papers to terminate her lease on July 1, meaning there was no way for her to on-sell the store and recoup capital. Clements has been protesting outside Subway stores in Christchurch this week to highlight her situation. Christchurch has 23 stores, one for every 16,000 residents. Clements worked at Subway before buying a franchise in Kaiapoi in 2005 for $480,000. After the success of that store, a year later she bought a second franchise at Northlands Mall for $410,000.

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First Watch to Franchise

When I lived in Cincinnati, First Watch was the place for the “power breakfast”, where movers and shakers would gather to strategize over coffee and omletes.  Meeting with a venture capitalist or political insider?  You would likely meet them at First Watch.  There is no First Watch where I live in Chicago, but here to breakfast is big deal for meetings with local favorites the Four Seasons,  Orange, Bongo Room, and East Bank Club. First Watch, the Florida-based chain with 76 company-owned restaurants in 11 states is planning to franchise this year.  It’s only open for breakfast and lunch, and is always located in affluent suburbs and downtowns.  Being closed for dinner, I was always skeptical that it could generate enough sales.  Apparently, that is not a problem.  Below If the site meets our criteria, we think it’s a good time to build right now. We’ve weathered this economic climate pretty well so far. We have a very low check average [$7.50], we think we put out a high-quality product, and our value perception is high with our customers. We think that’s actually helping us. So far it’s been OK. You’re not seeing declines in traffic or check averages? We are not. We’re actually on our 25th straight year of same-store-sales increases. We’ve had 24. You never want to say that you’re recession proof, and we certainly don’t think we are. All we’re saying is that for the pressures that the consumer is experiencing now, we seem to be an outlet for that. We don’t know if it’s a trade from another dining occasion, trading off the expensive dinner to maybe a nice brunch on Sunday at our place. But we’ll take that. Are you finding sites fairly easily? No, I wouldn’t say fairly easily. We’re pretty disciplined in what we’re …

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Recent Same Store Sales, May 24, 2008

Below are select recent same store sales results from publicly traded franchisors and restaurants. SONIC: March: 0.4% decline in system-wide same-store sales resulting primarily from weather-affected sales;  May:  system-wide same-store sales improved as the quarter progressed and returned to the company’s targeted growth range of 2% to 4%; additionally, traffic for the quarter was slightly positive STONEY RIVER: 3.2% decrease in last quarter in same-store sales OLIVE GARDEN: U.S. same-store sales, or sales at locations open at least a year, grew 5.8 percent at the Olive Garden during the quarter. RED LOBSTER; LONGHORN STEAKHOUSE: Same-store sales fell TEXAS ROADHOUSE: Expects its same-store sales to be flat to up 1 percent for the year.

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Dream Dinners Hammered by Forbes

Dream Dinners is an example of good idea but unprofitable business model. It’s just too expensive to attract and retain customers. A Forbes article looked through the Dream Dinners FDD from the state of Washington, and focused on the required audited financial statements. As of Dec. 31, the company boasted $2.9 million in assets, against which it carried $3.4 million in liabilities. (Such negative book value implies that if Dream Dinners were unwound today, shareholders wouldn’t get much.) That’s a snapshot, but here’s a trend: Last year, the company lost $628,000 on $7.5 million in sales; compare that to 2005, when it earned $928,000 on sales of $4.5 million. …. Typically, new business concepts need up to five years to season before they can be franchised successfully. Dream Dinners–along with its next largest competitor Super Suppers, now with 165 stores–both began franchising in less than two years. Many of my law firm’s clients are small franchisors, and frankly most do not have experienced managers or have enough invested capital. The new managers often spend way too much time on franchise sales and not enough resources on marketing programs for their franchisees and brand/product development. The franchise sales process is always longer and more expensive than anticipated, and that focus ends up monopolizing the franchisor’s time and money. These franchise programs have an extremely high management risk, meaning that not only is the franchisor’s management unproven in this specific strategy, but they are underfunded which keeps the focus on franchise unit sales. I used to be extremely skeptical of consultants, and still am to large extent, but I have come to greatly appreciate the need and effectiveness of professional research and design teams to innovate and set the program up for success. The distinction is night and day between franchisors …

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Tart Frozen Yogurt a Fad? Roll Your Own?

Pinkberry Craze Frozen yogurt is hot again? Well, sort of. Given the implosion of the last frozen yogurt phase, you are wise to be cautious. The last frozen yogurt craze in the 1980’s and early-1990’s was lead by TCBY. According to the International Council of Shopping Centers, TCBY’s same store sales fell 10%-15% annually between 1997 and 2004, particularly when the low-cal and low-fat versions were introduced. The International Dairy Foods Association reported frozen yogurt production in the U.S. went from 118 million gallons in 1990 to 65 million gallons in 2005, a 45 percent drop.This time Pinkberry sure seems to be all the buzz lately, even being features in a recent American Express ad and having their hip tart frozen yogurt dubbed “Crackberry” playfully implying an addiction is possible. Here are photos of a Pinkberry in Manhattan. Founded by Shelly Hwang (coming off several failed small restaurant ventures) and Young Lee (a solo designer), they effectively brought to Los Angeles the tart frozen yogurt now famous in South Korea.Pinkberry has apparently been stretching the healthiness of its yogurt, and in early April 2008 settled a law suit where it was accused of misrepresenting its product as “frozen yogurt” and making bogus health claims, including that the dessert was “all-natural.” Pinkberry admitted no wrongdoing but is paying $750,000 to a local food bank and $5,000 to the “victim”. The article implies that the recipe is not all natural and has higher calories than the founder claims.Nevertheless, sales of the tart frozen yogurt are impressive. Pinkberry has put forth in the media unit sales of $250,000/month and has generated a plethera of copycats across the country, including Berrie Good, Yogurberry, BerrySweet, Red Mango, and recently Berry Chill here in Chicago. Pinkberry has supposedly ceased selling franchises for now. The Concept …

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