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Dunkin’ Donuts going free of trans fat

Looks like the R&D team (or their consultants) at Dunkin’ Brands (Dunkin’ Donuts, Baskin Robins, Togo’s) have been hard at work reworking their ingredients. Hopefully this won’t be too much of a burden on the franchisees and no new equipment or costlier ingredients will be required. About 400 locations nationwide that took part in a four-month test already have made the switch to a new blend of palm, soybean and cottonseed oils. That includes all restaurants in New York City and Philadelphia, which are forcing restaurants to phase out their use of artery-clogging trans fat. The ice cream chain Baskin-Robbins, another unit of Dunkin’ Brands Inc., plans to be zero grams trans fat by Jan. 1. … Dunkin’ isn’t positioning its namesake product as health food – a shift that would involve more disbelief suspension than might be possible for a treat synonymous with portly, doughnut-gobbling Homer from television’s “The Simpsons.” “The goal was not to make a healthy doughnut, it was really to create a doughnut that was better,” said Joe Scafido, Dunkin’s chief creative and innovation officer. “Certainly, we did not create a healthy doughnut.” … This past spring, hundreds of restaurants began taking part in a test to gauge customer reaction to the blend that Dunkin’ ultimately selected. Managers at participating stores were split into two groups, with one receiving conventional cooking oil, the other receiving the experimental oil, and neither group knowing which type they received. Dunkin’ closely watched sales and customer response at restaurants with the experimental oil. “We got no negative consumer feedback, and we sold 50 million doughnuts in that time,” Scafido said. What are Dunkin’ Donuts’ competitors up to with the fat? Dunkin’ is ahead of Krispy Kreme Doughnuts Inc., which has yet to roll out a zero gram trans fat …

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Follow up on the NexCen Pretzel Acquisition

From a NexCen Press Release: The combined purchase price for the transaction is $29.4 million, and consists of $22.1 million of cash, and NexCen common stock valued at approximately $7.3 million. These transactions double the number of brands in NexCen’s quick service restaurant (QSR) portfolio, which also includes the premium, hand-mixed ice cream chains MaggieMoo’s(R) and Marble Slab Creamery(R).As of June 30, 2007, Pretzel Time and Pretzelmaker had a combined 376 franchised or licensed units worldwide. Of those, 327 are in the United States, with the remaining 49 international locations located in six countries. For the trailing twelve months ended June 30, 2007, aggregate unaudited revenues for the Pretzel Time and Pretzelmaker brands were approximately $6.4 million. NexCen estimates that aggregate revenues for the two businesses for the full year 2007 will be approximately $6.7 million. Based upon the partial year of ownership, NexCen expects to recognize approximately $2.7 million of revenue from the businesses for the remainder of 2007. NexCen expects these transactions to be accretive in 2007 and, after integration into NexCen’s operations, to generate combined operating margins of approximately 60%, consistent with NexCen’s expectations for its QSR franchising operations. First, paying 5x revenue is absurdly high for an established traditional business with low barriers to entry and similar competitors. Most companies would pay 5 times EBITDA (earnings before interest, taxes, depreciation and amortization), and I imagine an organization like Pretzel Time and Pretzelmaker have expenses and obligations or close to the revenue figure. The stock market noticed the same overpriced acquisition along with other trouble at NexCen as the stock price dropped by almost 50% in the past few months: Not good. NexCen also owns brands The Athlete’s Foot, Bill Blass, MaggieMoo’s, and Marble Slab.

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Quiznos New Leadership

Quiznos CEO puts turnaround skills to work The former Burger King boss is applying his turnaround expertise to the troubled sandwich chain, whose dissatisfied franchise owners have complained about low profits, company operating requirements and the franchisee recruiting process. Since jumping into the fray in January, Brenneman has worked to reduce food costs by as much as 4 percent, improve communication with franchisees and test new products, like a Quiznos taco, to boost profits. … Last year, private equity firm J.P. Morgan Partners became an ownership partner, and Brenneman later became a partner through his company, Turnworks. Through the roller-coaster ownership ride, the chain expanded quickly, to at least 5,000 stores. Today it’s ranked third behind Subway and Arby’s by Technomic, an industry analyst firm.  Although Quiznos does not release much information, Technomic restaurant industry analyst Darren Tristano said Quiznos has average sales of about $425,000 a year per store while Subway has average sales of about $375,000. Quiznos’ success has come with growing pains. Lawsuits by franchise owners in Illinois, Michigan and Wisconsin allege the company draws in prospective owners, who pay $25,000 for a franchise, but doesn’t give them complete facts about restaurant locations and business operations. … Lawyer Justin Klein contends many franchisees sign contracts only to wait a year or more for the company to build a restaurant. The suits also accuse the company of requiring franchise owners to buy all supplies from Quiznos at higher prices than if they bought locally. The company denies the allegations and filed motions to dismiss the suits. Brenneman, meanwhile, has reached out to franchisees and targeted their food and other costs. If he can cut food costs by 3 percent and coupon discount offers by 4 percent, Brenneman believes he can add $25,000 to $30,000 in franchisees’ profits. …

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You Must Source Goods From Our Country [India]!

FIPB faces franchisee fan fury-Policy-Economy-News Finance ministry officials are of the view that the move will lead to discrimination since many foreign brands such as Chanel, Marks & Spencer and Tommy Hilfiger are already present here, and restrictions will deny a level playing field to those who are waiting to enter the Indian market. The food processing ministry is worried that infusion of technology brought in by brands like Pizza Hut and McDonalds—which operate here through franchisee arrangements—will be hampered. Similar is the concern of the textile ministry since a number of global brands operate here through franchisees and their arrival here has led to introduction of modern technologies. Protectionism is a fact of life in foreign countries, but rarely works out for the best in the long run. The economic benefit is usually muted by higher prices.

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Franchisee Now Prefers non-Franchised Businesss Route

Despite Sales Awards, Printing Franchisee Opens Second Business, Plans Move Twenty years since Mizerak signed a contract agreement to run an Allegra Print & Imaging franchise in Dulles, he is opting not to renew when his contract expires this year. Instead, the Purcellville resident is going out on his own with, Unity Business Solutions, a similar business he launched in January and plans to move to Leesburg in September. When Mizerak signed the dotted line with Allegra, he said he “didn’t have any experience and normally a franchise gives you backing and cushioning. Franchises normally are successful when a lot [of startups] fail.” Within about five years of running the franchise, Mizerak said he decided “you don’t need it anymore.” A franchise termination fee worth about $75,000 kept him with Michigan-based Allegra. While being a franchisee served him well during his first two years of business, in hindsight, Mizerak said, he probably would not have gone the franchise route because “it’s hard to be entrepreneurial because you have to stay focused on what the franchise dictates. I didn’t particularly care for that.”

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Franchisee Pays ~$200,000 in Damages for Gender Bias

Taco Bell franchisee loses gender bias lawsuit Katrina Hillis and Diana Pepper, who were store managers at Taco Bell restaurants in McMinnville and Sparta, were awarded $93,000 in damages …. The lawsuit claimed that a “glass ceiling” at Management Resources (franchisee) kept most women from rising above store manager into upper management. The suit said 60% of Management Resources store managers were women but only 15% of its higher-ranking executives were women.

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Revenue to the Franchisor

Spicy Pickle plots growth curve The above article lays out the revenue for this relative startup franchisor.  $221,643 in franchise fees and royalty in the 1st quarter, but still recognizing a quarterly loss of $538,229.  The loss is mostly likely due to higher marketing, commission, and administrative expenses.  Franchisors make the most money on the front end with the franchise fee – a one-time windfall of $30,000 for the franchisor from which their variable costs involve commission to the sales person and some executive time – with related expenses of manuals/documents, site selection assistance, and training delivered over the next year. A small franchisee may produce $350,000 in gross sales, meaning the 6% royalty will generate $21,000 over a 12 month period plus a few thousand in vendor commissions and other revenue.  With the average franchisor selling 12 franchises during the life of their business, it is easy to see why many franchisors struggle despite the illusion of rolling in the money dough.  The profitable franchisors sell new franchises at a fast and consistent clip.

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When It’s Time to Walk Away From the Franchise?

Baskin-Robbins losing two shops Most franchise agreements have a term of about 10 years with options to renew. If the franchisee wants to renew, they must sign the then current franchise agreement, which may require upgrades to the building, menu, operations, adherrence to the new operations manual, etc. Sometimes those required upgrades just don’t make economic sense for the franchisee because the economic realities show that you won’t make that money back over the next few years. If you are already netting less money than you hoped (say $40,000/year), do you invest the $70,000 to keep the franchise? Or, do you walk away from your entire investment, all the machinery, investment in the fixtures and local brand, the relationships? One longtime Baskin-Robbins franchisee in Champaign, Illinois faced such a decision, and decided to not continue. Panchal has operated the store since 1991, but said Baskin-Robbins wants him to spend $70,000 renovating the shop. He said if he were making $300,000 a year, he might do that, but the revenues and location haven’t been that strong. … Stover figures he sells about 3,000 gallons of ice cream a year. The ice cream, made by Dean Foods for Baskin-Robbins, comes in 3-gallon tubs that yield about 72 scoops each. About 60 percent of his revenues come from ice cream sold by the cone or the dish. Desserts, such as ice cream cakes and pies, account for another 20 percent. The remainder comes from miscellaneous products, such as prepackaged ice cream.

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Recent Same-Store Sales Rundown

Weather seemed to be the common culprit cited by management explaining why same-store sales fell during the first part of 2007. Panera Bread: During the four-week period, company-owned bakery-café sales declined 1 percent and franchise-operated stores’ sales increased 0.2 percent. Frisch’s: Same-store sales declined 0.8 percent at Big Boy outlets, while Frisch’s Golden Corral restaurants posted a same store sales decline of 5.8 percent Mexican Restaurant’s, Inc. (Mexican Restaurants, Inc. currently has 80 company operated restaurants, 19 franchise restaurants and one licensed restaurant. We operate 6 different concepts, which include Casa Ole, Crazy Jose’s, Monterey’s Tex Mex Cafe, Monterey’s Little Mexico, Tortuga Mexican Kitchen and La Senorita. While a large majority of our restaurants are located in Texas, we also operate restaurants in Oklahoma, Louisiana, and Michigan.) For fiscal year 2006, total system same-restaurant sales decreased 1.2%, Company-owned same-restaurant sales decreased 0.9% and franchise-owned same-restaurant sales decreased 1.9% from fiscal year 2005. Popeye’s Chicken & Biscuits:Total domestic same-store sales increased 1.6 percent compared to 3.3 percent in the prior year, and total global same-store sales increased 1.1 percent compared to 2.6 percent in the prior year. Company-operated same- store sales increased 9.0 percent, primarily driven by the re-opening of the New Orleans restaurants which were impacted by Hurricane Katrina. Carl’s Jr. Company operated same-store sales increased 4.9%, the seventh consecutive year of positive same-store sales for the brand. Hardee’s trailing 13 period average unit volume of $916,000 at the end of fiscal 2007 is a $42,000 increase over the level reported at the end of last fiscal year and the highest average unit volume for Hardee’s since 1995. Hardee’s was also able to leverage its strong same-store sales to reduce restaurant operating costs. Hardee’s restaurant operating costs for the year were 81.9% of Company operated restaurant revenue, a 260 …

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Subway Franchisee in Germany not Happy

Article link in Business Week Birkel and Mauk [former district managers for McDonald’s) thought they could use their know-how to start their own business — as franchisees for Subway, the US sandwich chain. Full of hope, they scraped together their savings, took out a loan for €184,000 ($243,000) and opened a new fast food outlet in the town of Michelfeld in the German state of Baden-Württemberg. …. In the beginning, everything went better than they could possibly have hoped. The Subway system, which allows customers to select their own bread and fillings for their sandwich, was a big hit with customers. The two new entrepreneurs made as much as €16,000 a week. But after three months, turnover began to decline, eventually averaging out at about €6,000 a week. What with the costs of rent, electricity, personnel, interest and advertising, combined with high prices for tuna, chicken and bread and the fees charged by Subway, in the end nothing was left over for Birkel and Mauk. “We didn’t earn a single cent even though we ourselves often stood behind the counter for as long as 12 hours a day,” Birkel complains. After 15 months, bankruptcy was unavoidable — and the restaurant in Michelfeld was sold for just €20,000. “We lost everything we had spent years working for,” Birkel concludes bleakly. …. The franchisees’ objections begin with the English-language franchise contract, which makes a New York City court responsible for arbitration in cases of litigation. On a day-to-day level, the lack of territorial protection for franchisees is more annoying. The DAs are not paid a salary. Instead, they profit from the sale of licenses and receive a percentage of the monthly franchise fees — regardless of whether the franchisee makes a profit or a loss. The system puts the DAs under …

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O’Charley’s Franchisee Settles

O’Charley’s settles with franchisee A lawsuit between them wasn’t enough to sever the relationship between O’Charley’s and its first franchisee, a firm in Michigan that sued to get out of its 15-location development contract with O’Charley’s. …..   Saalfeld said the development schedule was altered; he wouldn’t say whether Meritage is still obligated to finish building 15 O’Charley’s restaurants. Meritage now has five O’Charley’s, all in Michigan, and more than 40 Wendy’s restaurants. The original lawsuit claimed O’Charley’s executives had misrepresented sales figures to get the franchisee to sign its 15-location development deal. A sales shortfall meant a lender never extended credit to Meritage, and the company had to sell some Wendy’s real estate holdings to finance the development of more O’Charley’s restaurants, according to the suit.    

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Franchisee may buy Friendly’s Ice Cream

It was reported in the Rochester Democrat & Chronicle in an article by David Tyler that the Kessler Family LLC of Brighton, NY, the largest franchisee of Friendly Ice Cream Corp., may be interested in buying the chain. The Kessler company said Monday it has retained Mastodon Ventures Inc., a merger-and-acquisition firm in Austin, Texas, to explore “strategic alternatives,” including the purchase of some or all of Friendly’s assets. The move follows Friendly’s announcement last week that it had retained Goldman Sachs & Co. to explore its own set of strategic alternatives. Friendly Ice Cream has a network of 530 franchised and company-owned restaurants and distributes ice cream at 4,500 supermarkets. The company has been in a public battle with Sardar Biglari, head of the Lion Fund and Western Sizzlin Corp., which controls about 15 percent of Friendly’s shares. Biglari and associate Philip Cooley are seeking seats on Friendly’s board. The company has also drawn criticism from 91-year-old co-founder Prestley Blake, who was 20 when he and his brother opened an ice cream shop in Springfield, Mass., during the depths of the Depression, selling double-dip cones for a nickel. Kessler Family, run by brothers Dennis and Laurence Kessler, is the largest Friendly’s franchisee, with 46 restaurants. Reached Monday, Dennis Kessler declined to comment, citing the early stage of the process. Robert Hersch, a principal in Mastodon, said the Kesslers wanted to explore options because “they believe in the Friendly’s concept.” “Most of this is up to Friendly’s,” Hersch said. Asked if the Kesslers supported Biglari’s effort, he said, “no comment.” In addition to the Friendly’s restaurants, Kessler Family owns upstate Burger King restaurants.

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Top 10 of 2007

Entrepreneur’s Franchise 500’s Best Franchise Businesses — Franchise 500 Top 10 Entrepreneur managezine’s best of the best. Subway Dunkin’ Donuts Jackson Hewitt Tax Service 7-Eleven (the recently bought out the White Hen chain in Illinois) UPS Store Domino’s Jiffy Lube Sonic Drive In Restaurants McDonald’s Papa John’s Pizza link to the the remaining 500. Here are a few I noticed in particular (some for good, some for bad reasons): 384. Nature’s Way Cafe: Healthy foods, salads, wraps, soups, smoothies 325. Cash Plus Inc. : Check cashing & related services 312. Rent-A-Wreck: Auto rentals & leasing 298. Steak n Shake: Steakburgers, fries, milkshakes 273. Nestle Toll House Cafe by Chip: Cookies, baked goods, coffee, ice cream 252. HomeVestors of America Inc. : Home buying, repair & selling system 225. It’s Just Lunch Int’l. LLC: Dating service 212. Pita Pit Inc.: Pita sandwiches 151. Super Suppers: Do-it-yourself home meal preparation 105. Bark Busters Home Dog Training: In-home dog training 87. Qdoba Mexican Grill :Fast-casual Mexican food 75. CiCi’s Pizza : All-you-can-eat pizza buffet 72. Sport Clips: Men’s sports-themed hair salon 58. Jimmy John’s Gourmet Sandwich Shops: Gourmet sandwiches 56. Edible Arrangements: Floral-like designs from sculpted fresh fruit Franchise 500 Criteria (important): All companies, regardless of size, are judged by the same criteria: objective, quantifiable measures of a franchise operation. The most important factors include financial strength and stability, growth rate and size of the system. We also consider the number of years in business and length of time franchising, startup costs, litigation, percentage of terminations and whether the company provides financing. Financial data is audited by an independent CPA. We do not measure subjective elements such as franchisee satisfaction or management style, since these are judgments only you can make based on your own needs and experiences. The objective factors are …

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Smoothies Competition from McDonald’s

McDonald’s may add smoothies to menu | Crain’s Chicago Business Smoothies, iced coffee and other specialty coffees could be added to the menu at U.S. McDonald’s restaurants, a top executive of the world’s largest restaurant chain said Wednesday. McDonald’s already has scored a hit beverage recently with the addition of premium coffee to its more than 13,700 U.S. restaurants a year ago. Alvarez said coffee unit volume is up 15% as a result. “McDonald’s is so large that they don’t really need to invent anything at this point,” he said. “For McDonald’s, it’s more important to recognize new things that are working well for competitors and finding a way to incorporate it into their system.”

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