Home | Great Idea

Great Idea

Tim Horton’s wants to eat Panera’s breakfast

tim-hortons-insidePanera Bread had its origin in St. Louis in 1987 where it is still called St. Louis Bread Company. Tim Horton’s, a fast service coffee and donuts shop with limited sandwiches, doesn’t care about the heritage and is planning to open 40 units in St. Louis and pushing more out nationwide through franchising. There have been mixed reviews stemming much from low brand recognition in a crowded market. I as a consumer look forward to more good fast morning options.

Source: http://www.stltoday.com/business/local/tim-hortons-signs-st-louis-franchisee/article_a660a9c3-990c-5482-a542-efa8a1eed504.html

 

 

Advice for Franchisees Saving for their Kid’s College; Education Bubble

Are you a franchisee thinking about how to best fund college for your children? Your research will quickly lead you to 529 plans, and in my opinion and experience as a purchaser it is probably the best option for college savings. You will also hear about Coverdale Education Savings Accounts but for tax complications and low investment levels it is probably more trouble than it is worth.

529 Plans are sponsored by states and enable USA-citizens to save after-tax money in an investment account that will accumulate earnings tax free and withdrawals are tax free if used to pay defined educational expenses. Some states offer small income tax breaks for investing in a 529 plan. For example, in Illinois:

Individuals subject to Illinois state income tax can deduct from their taxable income up to a maximum of $10,000 per year for contributions made toward the purchase of any College Illinois! Prepaid Tuition Program contract.* Married couples filing jointly can deduct up to $20,000 per year.** This state tax deduction reduces the individuals’ adjusted gross income (AGI) by the amount contributed up to $10,000 (or $20,000 for those filing jointly).

Contribution Limits

Contributions are included in the annual $13,000 exclusion from federal gift taxes for gifts made to any one person. But, unique to 529 plans, a contributor can give up to five times that amount ($65,000) in one year and treat that contribution as if it were made over five years for gift-tax purposes.

Fees; NY direct sold @ .17% is lowest in USA

You’ll have to do the math to see if the tax savings in the long run outweighs the higher fees of your state’s 529 plan. A benchmark to use is New York’s direct sold 529 plan which imposes a combined annual fee of .17% starting in March 2012, the lowest of any state right now. Investment options include a diverse and respectable range of Vanguard funds.

Prepaid Tuition – now too risky

I have previously recommended and have purchased myself 529 prepaid tuition plans, whereby a parent prepays tuition at todays value to protect against tuition inflation that has historically been over 5%.  The state prepaid plans generally have provision to pay out-of-state and private schools the same future value of the tuition. The state-sponsored prepaid college tuition programs were supposed to shift the investment risk from families to the government. But, many states now are struggling to make investment returns that keep up with annual increases in tuition and shortfalls are causing plans to turn into a Ponzi scheme. Some state bolster the appearance of safety like Florida who backs their plan with the full faith and credit of the state. Nevertheless, the program managers can and are starting to change the payout rules. You’ll have to research it.  I would only use a prepaid plan in combination with a 529 savings plan which YOU entirely control.

My main goal of this article was to provide some advice based on my experiences purchasing these plans over the  years. The recent development of the New York state 529 plan offering a .17% total fee is so enticing I had to share it with readers.

[EDITED May 20th, 2012 by FranchisPundit]

I’d like to respond to a some emails by adding perspective to this blog college, tuition, savings and jobs.

Two very successful entrepreneurs and billionaires, Peter Thiel and Mark Cuban, have written eloquently  on the education bubble issue and they believe student loan defaults will be as bad as the housing bubble as graduates can’t find jobs. See the links below for their provocative articles:

  • Peter Thiel, co-founder PayPal, hedge fund manager, early investor in many startups including Facebook.
  • Mark Cuban, co-founder of Broadcast.com acquired by Yahoo! for $5.9 billion, owns NBA’s Dallas Mavericks, Landmark Theatres, and Magnolia Pictures, and HDNet.

Their premise is that college degrees at expensive universities are a pseudo-scam. Students assume they can “flip” their degrees into a higher paying, more likeable job. So students in college trade 4 to 5 years of income, business experience, and pay for housing and room and board for a 50+% unemployment and underemployment rate. At many private schools the total combined investment can be over $75,000 per year.

Another side issues is if you sacrifice and save money for your kid’s college, the schools and government punish you because you have too many assets or income for need based tuition support.
The nobility usually associated with saving for college is eroded after considering some of these issues. As a parent, it is a difficult personal decision to allocate your extra cash to college savings for you kids, new business ventures, or retirement savings.

Franchisor’s Business Coaches

Most franchisors with 20+ units assign dedicated business coaches to franchisees to ensure operating compliance, help solve problems and bolster sales.

For example, here is what Jimmy Johns claims to do:

1 coach per 26 stores and they visit for a full day at least once every 30 days. If there are any issues or suggestions they are discussed with corporate if necessary and a written response is provided thr following day.

The reasoning goes that nothing should linger and everything is fixed immediately.

As comparison, Culvers has one coach for about 20 stores, but obviously they are much bigger stores. I believe Culvers has had only one store closure. A ratio under 40 units per coach is better than average.

Burger King tries home delivery

http://www.usatoday.com/money/industries/food/story/2012-01-12/burger-king-delivery/52604104/1

At first I thought Burger King delivery was a dumb idea.  But, after thinking about it a while, it may prove to be a smart move – in the right locations and for the right premium.

Burger King is using custom packaging for the fries that won’t trap steam to make them soggy, but it will trap the emitted heat.  The delivery bags probably have a heating element too.

I could see delivery being a surprise hit with customers. There no reason pizza should be the only popular delivery food.  Jimmy Johns owes a lot of its success to delivery.

Taco John’s Tries Lowering Food/Labor Costs w/Workshops

Taco John’s, a “West-Mex” fusion fast food restaurant, held voluntary workshops in most of its territories for franchisees to learn ways to reduce their food and labor costs with a goal of 1% reduction. They were in the form of interactive round tables and discussion about how to streamline operations, and there was lots of networking between unit manager.  Also discussed were ways to better advertise locally.

It sounds like a great way to reach out to franchisees.  Hopefully it will help.

Last Minute Gift for 19-35 year olds – the book BALLSY

If you are in a bind and need a quick gift for someone in the late teens to 30s, I recommend the book BALLSY: 99 Ways to Grow a Bigger Pair and Score Extreme Business Success by Karen Salmansoh.

 

It is in-your-face, real world advice and inspiration for your career, whatever field you’re in.  It’s the opposite of academic, and gives the advice a wise old CEO would give after a few gin and tonics.  It’s not a long book, it only has a few sentences on each page with pictures, but it focuses on the importance of marketing yourself and your talents, dealing with people, and getting yourself into positions that will eventually lead to more opportunity and “luck”.  I’ve found a lot of it to be true after being in the workforce for 20 years, and would have benefited from this type of advice early in my career.

Here’s a some of my favorite samples:

Tip #1&2 /  More important than talent, have balls.

Sure, talent matters, but if you don’t have balls, your talent won’t matter – because nobody will ever find out about all your swell stuff.

Fact: If you’re seeking extreme success, you cannot be afraid to go against the crown, make mistakes, look dumb.

If you want ot reach extreme heights in your career, get over your fear of fail.  You must become confident in your abilities to deal with any crisis or obstacle if you plan to pursue your passions with cockiness, vigor and sense of playful adventure need to snag ‘em.

Tip #3 /  There are no wishy-washy rock stars, no wishy-washy astronauts, no wishy-washy CEOs, no wishy-washy nobel price winners.

Be like a cockroach, survive everything nature and man can throw at you for millions of years.  If you get sprayed with a lethal dose of negativity, you must quickly wipe off your antennae, find your bearings and keep going for all those goodies!  Indeed, you must use each spray as a spirit strengthener to build up a strong tolerance for dealing with future sprays of negativity…and thrive against all odds.

Tip #4 /  Mom was wrong, it is okay to talk to strangers

  • Start friendly conversations often.  Schmooze.  Network.  Join organizations.  Go to parties.  Go to galas.  Go to soup kitchens.  Never have cold feet about cold calling anyone you want to meet.  Depend on the kindness of strangers.
  • Every person you talk to = 3 degrees of separation from someone you might want to talk to.  The more people you know, the luckier you’ll be.

Tip #39 /  Whenever possible, play with people who are better than you.

TIp #73 / Learn Under a Substitute Teacher

  • When faced with a problem, substitute someone you trust and respect as being in your place – and imagine what they would do.

Tip #90 / It’s better to communicate difficult stuff sooner than to try to fix a really difficult problem later.

Always squoosh a work problem when it’s a mini.  The longer you wait, the bigger and scarier problems get.

How Quickly the Franchise Segments Fill Up – ShopHouse, Pei Wei


Chipotle’s new fast mexican asian concept dubbed ShopHouse has only been open a few months in Washington DC. Their menu consists of Banh Mi sandwiches and rice or noodle bowls with meats. The reviews on Yelp vary, with an average of 3 out of 5 stars. On the negative side, comments seem to congregate on the odd combinations of tastes, blandness, and unlikable slaw on too many items. On the positive side, employee helpfulness and value seem to rank high.

Many restaurant groups are pursuing this market – Wagamama, Big Bowl, Stir Crazy, Panda Express (and all the indoor mall food court offerings), and Pick up Stix. Technomic claims that sales at limited-service Asian restaurants grew 5.9% in 2010, faster than any other menu category, and in 2011 sales at Asian dining spots are expected to rise 5% compared to 4% for all limited-service restaurants. If you’re a CEO of a restaurant group looking to ride the trends, this is your new market.

P.F. Chang’s, who also owns the popular casual restaurant Pei Wei, is creating a “more casual” concept called Pei Wei Asian Market, to compete in this fast service segment. It won’t be the notorious scoop style forged by Panda Express and Chipotle, but what they call a diner style with no table service. It sounds like the same style of Panera Bread but with a few more ready-to-eat packages at checkout.

The fast asian fusion segment seems to be one that will have staying power. I like the segment, and there is a place for the Panera of Asian food, a speedy and quality layer above Panda Express. Just like Chipotle forged Mexican cuisine into the weekly rotation of American lunches, the arguably healthy fast asian fusion will also continue to grow and improve.

— Franchising Options —

Most of the good concepts aren’t franchising at this time – Chipotle, ShopHouse, Pei Wei, Wagamama, Panda Express.

IF I wanted to pursue this segment going the franchise route, I’d probably look to Noodle & Company. The branding seems strong, the familiar chinese and thai menu works well for lunch and dinner crowds, and most importantly they seem to successfully attract lines throughout the week. A highly viewable location in a new, upper scale shopping plaza, in a dense residential community would be a strong location for this concept. A warning is there have been store closures in Portland and elsewhere, and at those locations people have complained about the quality of food. In contrast to busy open locations, people seem to praise the food dishes, so there seems to be variance in the quality of the food based on skilled preparation.

There are a good number of other franchises in this asian segment, but most are the “orange and bourbon chicken” joints that belong in an indoor mall. For example, Pick Up Stix in California is akin to Panda Express, but I wouldn’t be a buyer of the Pick Up Stix franchise.

Applebee’s Franchisee Who Pushed for Change

I enjoyed this short discussion with Zane Tankel, a 34-unit Applebee’s franchisee in New York. He pushed corporate for changes such as removing the baggy shirt and tie requirement (he says “who wants to look at girls behind the bar all buttoned up?”). His times square location is the chain’s highest revenue unit at $13.5 million last year. Here’s an example insightful answer:

Q. What have you learned about doing business in those neighborhoods?

A. When we open a restaurant and are interviewing, we will have guys show up with their pants hanging below their crotch, their hat on sideways, answering our questions antagonistically. Our recruiters will say to them, ‘If you’re here for a job, go home and get dressed like you’re applying for a job and then come back.’ Many will go home, change and come back.

I give Applebee’s credit for not axing him from the system, and instead learning to work with him.

How to Make Money as a Franchisee

Leveraging people and assets across multiple operating businesses is what enables most companies to make money, including franchisees.    The leveraging action turns what would otherwise be an individual, high-overhead and high-risk investment into a portfolio of lower-overhead and risk-managed investments.

In a previous job I worked for a commercial real estate investment and management company.   The company made money because they were able to use the same employees to manage dozens of leased properties, and leveraging one employee across dozens of properties increased the profit margins.

In franchising, a multi-unit operator can leverage skilled managers across multiple units.  And, the $25,000 saved across 50 restaurants adds up quickly to a nice income.

A great example of leverage in franchising is Frank Heath and David Paradise of Mississippi-based Mid River Restaurants.   Between them they own:

  • 12 Applebee’s in Louisiana,
  • 26 Hardee’s in West Virginia, North Carolina and Kentucky,
  • 10 Taco Bell restaurants in Louisiana and Mississippi, and
  • 12 IHOP restaurants in Ohio, Indiana, and Kentucky.

And, they are in the process of acquiring 33 St. Louis area Applebee’s for the rock-bottom price of $25 million ($757k each, below build out cost).  The seller is DineEquity Inc., the parent company of Applebee’s Neighborhood Bar & Grill and IHOP restaurants.

Mid River Restaurants has several advantages over other small and individual franchisees:

  • profit per restaurant is higher than most because of their controllable costs are lower with centralized management, accounting and service teams
  • cash flow is large enough to finance large, well priced acquisitions
  • the greater cash flow also enables them to hire and retain smarter employees who are likely to further enhance the profitability
  • the whole enterprise learns from four very well developed franchise systems, exposing employees to “best of breed” methods

Individual franchisees as a group tend to be lower skilled, lower financed, micro-managers, unleveraged and over worked, which is why franchisors prefer experience multi-unit operators.

High-End Fast Casual

Ingredient

I’ve been noticing a new crop of high-end fast casual franchise concepts that are the size and atmosphere of a traditional sit down restaurant, but orders are taken at the walk-up counter.  Ingredient in Kansas City comes to mind.  They follow the recent trend of hearth oven baked pizza, homemade pastas, salads and sandwiches.

Vapiano is also an interesting urban-only concept started in Germany and now here in the USA.

vapiano

It is a very modern, high-end Italian fast casual concept.  The chefs are stationed around the dining room, and customers walk up to the chefs who prepare their order right there.  A customer’s food and drink totals are tracked using a chip card similar to one you’d see on cruise boats.  As the customer leaves the card is scanned and the customer pays. It sounds a bit like a modern cafeteria but the architecture is sleek and hip.  The average check ranges from $14.50 to $22, depending on whether it’s lunch or dinner, claims the owner.

How Franchisors Communicate with Franchisees

The franchisor’s job of communicating with franchisees is not as easy as you might think.  Some franchisees simply shy away from anything technology, some barely speak english, and some franchisees expect regular courtesy phone calls.

Fast Casual has an insightful article on how some brands communicate.

To communicate news and information, brands like Qdoba, FOCUS and Salad Creations use newsletters, representative committees that will communicate back to the franchisees, and technology tools such as intranets, online videos, webinars (voice-over presentations viewed from the franchisees’ computer)

Getting Into Catering

dimeMost restaurants have or would live to have a thriving catering business to augment sales.  A restaurant with a successful catering business typically increases sales sales by10% to 20%.  Here is a great article with advice from experienced caters on equipment, deposits, and marketing.  

“Our biggest catering customers are schools, offices and churches,” says Preston. “We market our service on our menus, on the Web, in the paper, and in schools and offices. We also hand out catering information at functions, feature it in our EClub newsletter, visit local businesses and leave info (then follow up with a phone call), and get involved in local charity events.” If you’re worried about spending too much money on advertising in the beginning, Skvorecz says, “Start slow and advertise to your existing customers by printing out your offerings and placing an easily visible sign on your countertop. Get through a holiday period and see how it goes; then consider expanding your ads into the Sunday paper or other media.” The possibilities for game days alone are amazing, according to Skvorecz. You can free up a lot of your time on days such as Super Bowl Sunday if customers have called ahead to cater their parties and already have their food before the game even starts.

“I can’t stress enough how important it is to have the proper equipment,” says Preston. “Keep your hot food hot and your cold food cold with a stackable Cambro (hot box); invest in midto high-quality chafing dishes; and don’t forget your canned heat! Make sure all catering platters, plates, flatware and serving utensils are kept in storage, and never (unless you want to buy more) put them into restaurant/pizzeria circulation.” Preston also advises being a stickler for details: “Be sure to qualify special requests and leave no loose ends,” he says. “The devil is in the details; I use email, which gives me a written record, which wins all discussions.” Get a deposit, too: “I shoot for 50% and will accept no less than 25%,” he says. “Of course, that can change with repeat customers.”

26-year-old Franchisee

A 26-year-old woman became the youngest franchisee in the Schlotzky’s system. Is she too young? You may think, until you read this:

Jessica Johnson worked at the Schlotzky’s in Teays Valley for nine years – working her way from cashier to manager.Then in October, even though some people thought it was a little crazy, Johnson got a Small Business loan and bought her very own store.That made her the youngest franchisee in the Schlotzky’s chain.”I was not scared to do this because I believed 100 percent” Johnson said. “I knew it was something I wanted to do and if for whatever reason it didn’t work out I knew there was someone looking out for me and it wasn’t meant to be.”Johnson says she has been focusing on catering, delivery and customer service to keep profits up despite the economy.

She is probably more experienced and ready than 90% of Schlotzky’s independent franchisees.

PR Through Surveys

subwaybar.jpgClever. Pay for a survey about Super Bowl eating habits, get free publicity, get your brand associated with “healthy” and “Super Bowl”.

SUBWAY Restaurants, which has long been committed to promoting “better-for-you” meal options among both children and adults, conducted an Omnibus survey of more than 1,000 Americans regarding their Game Day snack consumption habits and learned they overeat the most during the Big Game (27%)–trailing only Thanksgiving (85%) and Christmas (61%). More than half surveyed (59%) admitted to overeating during the Big Game and reported gorging themselves on nachos, fried chicken, chicken wings, pizza and other generic “junk food.”

Methodology: An Omnibus survey conducted a telephone survey on behalf of SUBWAY(R) Restaurants of a nationally representative probability sample of households; 1,090 interviews were completed among adults ages 18+ (53 percent female, 47 percent male). Interviewing took place January 7-9, 2008.