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I wouldn’t buy it

UPS Loses a Round in Court

The Mail Box Etc. conversion to UPS Stores continues to generate bad PR for UPS. Mail Box Etc. stores were generating a living for most franchisees, but the UPS Stores emphasize UPS shipping services where the margins are very low.   This was not a ruling on whether UPS misled the franchisees, but just a procedural ruling permitting the case to go to forward with a hearing on the merits. United Parcel Service Inc. franchisees have won the right to sue the world’s largest package shipping firm as a group over claims it misled them by saying that converting their Mail Boxes Etc. stores into UPS Stores would be more profitable. “This is a huge win,” said Howard Spanier, a Malibu, Calif., franchisee who said he converted his store last year, according to a statement Friday. The class action was certified Wednesday by a California appeals court, overturning a trial court ruling rejecting the franchisees’ request. UPS, based in Sandy Springs, is accused of withholding critical documents about tests of the UPS Store business model it conducted in several U.S. cities. The franchisees claim the conversion was “disastrous” for some of the stores.

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Update to “What a Quiznos Franchisee Makes”

Download the Quiznos Profit Spreadsheet Based on the 115 comments, the most popular post on FranchisePundit.com has been What a Quizos Franchisee Makes, posted on April 10, 2005. The purported author of the financial projects also founded the web site QuiznosSucks.com (don’t bother going there, it now defunt and replaced with a domain aggregator’s advertising search engine). More of his experience is posted in this forum thread (pdf) on ToastedSubs.info. Here is the main snippet: QuiznosSucks 08-10-2005, 11:35 AM Yeah, Corporate is aware of Quiznossucks.com. Richard Sauls, the fellow who is responsible for the site, is himself a former Quiznos franchisee. Corporate actually sued to force him to kill the site and lost. My own feeling is that Quiznossucks makes them a bit nervous. It was developed on a shoestring and to little fanfare, but now averages in the neighborhood of 30k hits per day. I know that ever franchisor has its share of unhappy franchisees, but the situation with Quizno’s has reached a fever-pitch. From my research, the only comparable situation I have found is UPS Store franchisees. Ultimately, the Quizno’s business model doesn’t work. particulars vary from region to region, and depend heavily upon the franchisee’s rent and debt load, but break-even for a Quizno’s store is astronomical for this type of operation. The only thing keeping this house of cards aloft are second and third owners, who buy existing stores based on cash flow, at a fraction of the cost of a new store. I actually had a Q owner in my area approach me to see if i was interested in buying his store. The store was 3 years old, and he was running at break-even for the first year-and-a-half, with sales around 6700 per week. The Q opened a store near him (you have …

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Franchise Industry Shakeout Coming? {Part 4 of 4}

Are the number of Franchise Consultants, and Brokers going to continue to grow? Or, as I predict, will this part of the Franchise industry start consolidating?……. In the last 3 articles I have written about the phenomenon that is taking place..Too many consultant/brokers in the franchise world, and the  plethora of  new ones just entering an already crowded field. Here are links to Parts 1, 2, and  Part 3, just in case you wish to refresh your memory. Am I writing about this just because I am a franchise consultant? Am I writing about this  because I do not want more competition? Am I writing about this because I just left a Franchise brokerage group that I really am not feeling the love for? I am writing this to open up a discussion. I want to know how consumers feel about us. I want to know how franchise company execs feel about us. I am also writing this so that some prospective franchise brokers that are being courted by the franchise brokerage groups to buy their franchises that sell franchises to others, can take a breath..and find out before they buy, just what  it is that they are buying. Janet Sparks, a veteran franchise industry writer, just wrote about one such wonderful franchise company, “The Entrepreneur’s Source” that once again is  is the position of defending itself against a class action lawsuit brought on by former franchisees. Article They have a large number of franchisees, and at one time in little old Cleveland,Ohio, had 3-4 franchisees at the same time. {As of this post, I only know of one franchisee in Cleveland who remains in business} So, if “The Entrepreneur’s Source” as an example, has no problem selling 3 or 4 franchises in a shrinking metropolis like Cleveland, Ohio, …

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‘Seinfeld’ Soup Nazi Franchises Troubled

SoupMan Bid to Turn ‘Seinfeld’ Fame Into Empire Goes Off the Boil David B. Caruso, Associated Press reports: The chef who inspired the Soup Nazi character on “Seinfeld” makes a heck of a crab bisque, but a group of stewed investors says he’s having problems expanding his popular stand into a franchise empire. Soupmaker Al Yeganeh closed his original Manhattan shop, famous for its strict ordering rules, in 2004 to focus on franchising Original SoupMan stores across the country. The company launched around 40 stores in its first two years and introduced its frozen soups to groceries. But disgruntled franchisees say many of the new shops 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. Other franchisees told The Associated Press they want out of their contracts because of poor profits or bad relationships with the company. Several have sent the company letters threatening to sue. Kevin Long, whose Original SoupMan franchise in Scranton, Pa., lasted just one winter, accused the company of misrepresenting how much it would cost to open and run the business. He and other franchisees said the company also had early problems with its bowl and cup sizes, which were larger than expected and inadvertently gave patrons more soup than they paid for, and never lived up to promises to provide a product line that would sell during the summers, when demand for hot soups is low. “They are just trying to get as many stores open as possible, and they aren’t supporting them whatsoever,” Long said. Prices of $7 to $11 per 12-ounce bowl also made it tough to attract repeat customers, he added. At least three stores …

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Franchise industry shakeout coming? {Part 3 of 4}

So, is their really going to be a shakeout in the Franchise industry, as it relates to the overcrowded franchise consultant/brokerage field? There has to be……. The numbers will bear this out, I believe. The math: Number of US Citizens interested in exploring business ownership is S {Smallish} Number of Franchise/Business opportunities is I {Increasing} Number of franchise consultants/brokers is RS { Really Scary} So if S + I is divided by TMC {Too Many Choices}and divided again by FDW {Future Downsized Workers}, then the equation must be recalculated to reflect the Ginormus {Huge} amount of new Franchise consultants/brokers entering the field. However……..The FR {Failure Rate} must be put into this newer equation as an IN{Infinite Number}. So, according to my calculations: 1. More people will be downsized, and may start exploring opportunities in the world of franchise ownership. 2. More and more new franchise concepts will be introduced, with franchise companies using different ways to reach out to prospective franchise owners.{Consumers are already being bombarded by thousands of marketing messages every day, so this will only add to the confusion}. 3. With more and more choices in franchising being offered, and the possible number of new franchise consultant/brokers that could be in the market in the next year or two {who will also be adding marketing messages to the already bombarded consumer}, a consolidation in our industry will be inevitable. {I feel this is starting already} So what type of consultant/brokers will be the survivors? {End of Part 3. Part 4 Soon} Posted by Joel Libava, from his  The Franchise King Blog 

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Franchise Industry Shakeout Coming? {Part 2}

My first post about the topic of there being too many franchise consultant/brokers in the industry now, has prompted a pretty good discussion on a blog I contribute to, BlueMauMau.org, a very popular blog that is targeted to current and future franchise owners. More……… There were over 60 back and forth comments about this topic as of Sunday evening {8-5.} I am quite passionate about this subject, so  are some others in the industry….check out this discussion. {Please come back here when you are done, to continue reading.} The biggest problem I have with the amount of new “consultants” coming into our industry, is how they are being sold the bill of goods. Jim Coen, a 25 year franchise industry veteran up in New England, and fellow blogger,  gives one example of a franchise that sells franchises, to those that want to sell franchises. {Confusing, huh?}  See Below: No Experience Necessary Huge Demand and growing demand for our service No Cold Calling Required Work with the best franchises Tremendous Income Potential, earning up to $25,000 for a single transaction Complete Training Start from your Home Work Part time Only $19,900 to get started $19,900 is quite the bargain, with no cold calling! Some franchises that sell franchises to those that want to sell franchises, have $30k-$50k Franchise Fees up front. To those folks that may be reading this, that are thinking about  becoming a “consultant”, what do you think “no cold calling” means? What this means, in a nutshell, is that these franchises that sell franchises to folks that want to sell franchises will be sending you somewhat qualified “leads.” Well kind of “leads.” More like what I have been calling them for the last 5 years, inquires. A “lead’ is someone who is fairly interested in learning more …

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Franchise Industry Shakeout Coming?

What happens to a segment of an industry that has too many players? The segment that I am talking about is one that is very close to my heart….. Our type of business {Franchise Consulting-Brokering}has been around since the late 1980’s. Until 2001 or so, our local firm has had very few competitors. However, our part of the vast franchise industry, like a lot of other industries, is gettingrather crowded. There seems to be a plethora of folks who think what we do is easy. Simple, and easy stuff, what we do. We try to help those wishing to explore business ownership, get into business! There are just gobs of folks that can write a check for $50k-75k, go to a bank for more, and prepare themselves mentally to possibly not make any money for the first year! So what we have now is a bunch of “franchise brokering groups” that are themselves selling franchises to folks to sell franchises. HUH? Folks that are paying $75k-$100k for these “home based” franchises are in for some surprises.First of all, the folks that are buying these unproven franchise brokering franchises are usually folks who have never been in the franchise industry! Their familiarity of the franchise industry consists of eating at burger and donut restaurants… This is not anything personal against some of the folks that are writing the checks to buy into these franchise concepts, but, this is not “easy money“! What is really going on is that franchising is “HOT”, and more and more folks want to learn more. Learning and doing {writing a big fat check!} are two vastly different things. Sure a nice comfy “home based” business sounds good. But in reality, one is not “home.” One is out networking, and figuring out where these “people” are, …

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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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More Trouble for UPS

UPS Store franchisee files suit against UPS – The Business Journal of Milwaukee: The suit, which was filed in U.S. District Court in San Francisco, accuses Atlanta-based UPS (NYSE: UPS) of wrongly profiting off of UPS Store and Mail Boxes Etc. franchisees by billing them for differences in shipping rates. According to the complaint, franchisees weigh and measure customer packages in their stores, and charge customers accordingly. They then ship the package to UPS, where the company re-measures the package and charges the store owners for the difference. The lawsuit argues that franchisees have no ability to contest the revised measurements and can’t reassess customers for the additional charges. It also claims that UPS uses “inaccurate” methods of measuring the packages.

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iSold It announces that it has troubles in an open letter to franchisees

David Crocker, Sr. Vice President of Marketing and Business Development for iSold It, LLC has posted on Blue MauMau an open letter to iSold it franchisees from Chief Executive Officer Ken Sully. The iSold It franchise opportunity has been named “Hotter than Hot” and the “Best New Franchise for 2007″ by a leading national magazine.  However, a letter currently circulating the Internet indicates this American Dream may have become an entrepreneurial nightmare. Mr. Crocker stated, “In the letter, it says that we are considering litigation, reorganization or liquidation.” Regarding a time frame to declare bankruptcy, he commented, “I cannot comment on when any liquidation might occur.” When asked whether the eBay drop off store model works, he said, “The model works for some and doesn’t work for others. There are stores that are profitable.” AN OPEN LETTER TO OUR FRANCHISEES As we have previously announced, we are now focusing all our headquarters resources on supporting our current base of franchisees, while limiting the sale of additional stores to new franchisees. We will continue to add new stores with existing franchisees under current development agreements and will also help facilitate transfers of existing stores to new owners. iSold It, now in its fourth year of operation, currently has over 170 franchised stores open. The chain has sold more than $100 million of merchandise on eBay since inception. As you may know, in December 2003, iSold It joined the fledgling eBay drop-off store category, still in its infancy. The first two iSold It stores, one company owned and one franchised, generated significant interest from customers, the press and franchise candidates. The initial customer response was so strong that, encouraged by their results, that first franchisee quickly went on to purchase additional development areas and opened more stores. As the category rapidly grew and sales volumes were easily tracked (due to the transparent nature of …

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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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NY Times Piles on Quiznos

 The NY Times highlights several despondent Quiznos franchisees.   The article does a good job of summarizing the major complaints and law suits currently pending against Quiznos. Hat tip:  Perry in the forum.

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Quiznos lawsuits (Part 21,412,219)

This article is a few months old, but makes for a good reminder: The suit alleges Quiznos forces franchisees to buy food and supplies from the parent company, or its affiliates, at inflated prices, but sets artificially low prices for its products. That strategy makes stores unprofitable for franchisees, according to the suit. The franchisees further allege Quiznos unlawfully sells franchises by leaving out or misrepresenting facts about its business operations. The plaintiffs seek lost investment funds in the suit. Two similar suits against Quiznos, filed by Colorado and Arizona franchisees, were dismissed by Denver District Court judges in 2005. Those cases alleged Quiznos allowed franchisees to encroach on each others’ territories, overcharged for food and supplies, and misused advertising funds. A suit filed against Quiznos by 17 New Jersey franchisees last year remains open. Quiznos seeks the dismissal of this suit. Quiznos denies the charges.

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eBay Drop-offs

This article takes a look at the competing independents and franchise eBay dropoffs. With a couple of employees, Rodriguez estimated that his little store needs to make $12,000 to $13,000 a month just to break even. Helping him out is the fact that he is selling a lot of his own merchandise, tools and imported electronics, using the SpeedeSale log-on name to eBay. Also, he is an authorized UPS and FedEx shipper. …this is exactly what we mentioned before at Franchise Pundit – this business should be coupled with other offerings that can bring traffic in the door. now onto mortality rates… The mortality rate in general is high, as the trading assistants struggle to pay rent on a storefront while trying to find the right balance: what business should they go after, what should they refuse and how much should they charge? One of Sarasota’s first drop-off stores, 1StopAuctions, has closed its doors. Its Web site, which still shows up high on search engines, is up for sale on the Net. Its owners did not return a call for comment. In South Florida, where more auction drop-off stores have existed for a longer time, Rodriguez guesstimates that the failure rate is 80 percent or more. “Of the 20 stores that used to be around two three years ago, only five are still in business,” he said. An 80% failure rate is higher than I would have guessed. But there is NO WAY a town can sustain more than a couple of eBay drop-offs, let alone 20+. All those involved in the drop-off game now realize that to succeed, they must do more than sit in their shops and wait for valuable objects to arrive. “The reason we are on Main Street is to go after business-to-business deals,” said …

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Another Entree into the Meal Assembly

Entrée Vous franchisee signed his franchise agreement in May 2006 and will open with eight workers this week in Dayton, Ohio. The shop helps time-pressed consumers get dinner on the table. The shopper chooses entrees from an online menu and sets a time to come to the kitchen to prepare them or picks up pre-made dishes. Staff prepares the ingredients for the entrees. It doesn’t provide side dishes. The entrees serve between four and six and cost $21 each, about $3.50 per diner. Martin said customers must buy at least six entrees per month, which costs about $115. While the menu changes, the 14 entrees available this month include Chicken Wellington, Seafood Paella and Sesame Pork Stir Fry. A location of 1,400 to 1,600 square feet in a neighborhood strip center would be typical for an Entrée Vous kitchen The linked article above is confusing because it says the chef-founder formed Entrée Vous in 2006, but I saw advertisement that claims Entrée Vous was formed in 2003. My guess is the entity doing the franchsising was formed in 2006, but the chef operated a similar concept during the previous 3 years. To be honest, the picture above looks like a Chinese take-out, but I guess you can only dress up a 1,500 square feet strip-mall location so much. There is a lengthy discussion and debate in the forum regarding Meal Assembly franchises, Super Suppers in particular. Check it out for more perspective.

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Quiznos Franchisee Grumblings

A Quiznos franchisee discusses why he is dumping his 3-year old franchise in favor of opening his own restaurant at the same location: “Over the years, the cost of operating has gone up to the point where it’s not profitable, and it actually has never been profitable,” he said. “The business model is just too expensive and advertising fees have gone up recently.” The risk that the franchisor will increases the mandated advertising fee or cost of inventory is risk born solely by the franchisee. Tully said advertising rates and product costs hindered the Quiznos operation. He said he was only allowed to buy products pre-approved by Quiznos, which led to higher prices. “I understand Quiznos has a system and brand, and they want to promote the brand in every way, but the model is such that a lot of us are having trouble,” he said. What’s the attraction to running his own restaurant? “The nice part about running it myself is I’ll have control of it, and if something doesn’t work, I can throw it out right away. It also gives a closer relationship to the customer,” Tully said. ” “The nice part about running it myself is I’ll have control of it, and if something doesn’t work, I can throw it out right away. It also gives a closer relationship to the customer,” Tully said. “We hope to create the atmosphere of a neighborhood place.” Needless to say, I would’t buy it!

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