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I wouldn’t buy it

When Blogs Attack – Cuppy’s Coffee & Java Jo’z

While some claim any free PR is good PR, that doesn’t hold true in the franchise world. I would wager that the vast majority of people before they become franchisees do some searches on the Internet (or their loved ones will do it for them) about the franchise. Blogs come up high in search engines because, in part, to frequent postings and incoming links. They serve as a powerful self-disinfecting spotlight. But, this spotlight can be abused by franchisees who failed because of their own fault. Nevertheless, franchisees will flood towards franchisors that are committed to ethically maximizing both for themselves and franchisees. The Java Jo’z / Cuppy’s Coffee story There has been a lot of negative blogger buzz with shark ferocity surrounding Cuppy’s Coffee and Java Jo’z. Apparently, Cuppy’s Coffee (formed in May 2006) purchased the assets of Java Jo’z Coffee & More, LLC. Allegedly, Java Jo’z orally promised a return of the $20-30,000 franchisee fee if the franchisee did not build out. However, things turned bleak – the CEO was sent to the pokey for tax issue, the assets were sold to Cuppy’s Coffee, and now there is supposedly no money to return the franchise fees. The Franchise Agreement does not provide for a refund of franchise fee, but allegedly oral promises were made to franchisees by Java Jo’z and its CEO, Roy Snowden. The asset sale under impending bankruptcy is suspiciously ill-timed and no one has released dollar amounts to determine whether fair value was paid. And if it was, where is the money? Should people be concerned about the ethics of Cuppy’s? Probably not at this point. Many details are unknown and just because people lose money does not mean anything unscrupulous occured. I have a few questions: 1) Why did Aaron Weinstock from a …

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Stone Cold Sales

Telling nugget of information in this article about Stone Cold Creamery: So far per store sales at its 12 international stores in the Pacific Rim are running at about $1 million annually, about three times higher than at U.S. stores. (In the U.S., stores have two to three workers on a weeknight shifts and five to seven on weekend nights). Pulling in $300,000-$400,000 in gross sales per store is below what most franchisees would consider a fair return on investment. LABOR COSTS WEEKDAYS:12 hours day x 360 days per year x 3 workers x $10/hour average $130,000 WEEKEND EXTRA:5 hours day x 150 days per year x 3 workers x $10/hour average $22,500 TOTAL: $152,500 If labor costs are 30% of your overall costs, this infers that your costs are about 3.33 x $152,500 = $507,825 That seems extraordinarily high but its hard to be more accurate without more data. —- Discussions on Stone Cold Creamery in the discussion forum

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More on the Quiznos Class Action in Wisconsin

More biting accusations from 28 Quiznos franchisees in this class action in Wisconsin. Here are some excerpts: Quiznos Sub forces its franchisees to buy food and supplies from the company or its approved vendors at unfair prices and sets retail prices too low for the stores to make a profit, according to a lawsuit filed by 28 operators of Quiznos franchises in Wisconsin…. The lawsuit, which seeks millions of dollars in damages for lost investments, accuses Quiznos of fraud, violations of federal and state antitrust laws, racketeering, breach of contract and violations of Wisconsin’s fair dealership law, attorney Justin Klein said Tuesday… “They tell you who you can buy from and who you can’t buy from,” he said. “The prices are unreasonably high. Quiznos gets rebates from approved vendors.”

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PC Repair Franchises

Here is an article discussing 10 tips on making it in the PC repair business. Most important tips (#2 and #5)… #2. Determine who your ideal customer is. If you’re looking to sell and service computers within your local community and remain a one-person operation, residential clients may suit you best….If you decide to target the non-residential market, think small. “Niching is one way to go,” says Reaves. My comment: If you are going to put any serious time into this business, you need to understand what strategy will give you the most return on your time. Are you going to offer an innovative service in a growing market segment that meets an otherwise unmet need? You better! Do you have the people skills to sell your consulting services through networking and intelligent promotions? If not, either take in a partner who can sell or stick with your day job. #5. Market your business everyday…. “I easily put in five to 10 hours a week of promotion,” says Jason Kaufman, owner of Computer Troubleshooters of Mamaroneck, New York. “This doesn’t mean just sitting at a desk, punching out press releases. You’ve got to get your face out there, go door to door if you have to, to let people know you exist. If you’re bashful–not comfortable putting yourself out there or handling rejection–you might find this business isn’t for you.” My comment: Contrary to popular belief, a franchisee has to work just about as hard to make a their franchise profitable as an entrepreneur going the non-franchise route.  Generating (1) sufficient free cash flow and (2) within a few years generating a 12%+ return on invested capital are two metrics partly dependent upon sales.  Inability to generate enough sales to justify continued investment in a business is the leading …

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Part-time Work = Part-time Profit?

Here is a laser skin care franchise that is pitching itself as a viable part-time business. Sounds good, eh? The franchisor is implying that you can work part-time hours and earn full-time profits. How then does the franchisor make money? By upcharging you on the equipment you must buy and subsequently rent, earning a % on each rental deal you source, charging a $30,000 franchise fee, and charging a flat-monthly royalty that is highest when you first start. The franchisor seems to be in a great position to profit in the first two-years regardless of whether you ultimately succeed. After becoming a LaserShare franchisee, you will purchase the equipment from a specific vendor that we refer you to. The next step is to identify medical practices or other potential business to enter into, what we consider, is a unique long term “revenue sharing lease” and marketing arrangement with. Once, the “revenue sharing lease agreement” is entered into with the medical practice or other business, the practice or business will provide the space for the laser equipment as well as providing the operators of the equipment, most of whom will usually be members of their staffs already. As the LaserShare franchisee, you will provide the laser equipment, marketing/advertising assistance, and initial guidance in launching or expanding the laser skin care component of their practice or business. And, you may set up as many relationships as you like, thereby increasing the utilization and the number of revenue sharing relationships. Does this sound like a casual, part-time opportunity? We have tried to keep it simple. You pay a one time fee upfront of $30,000 and a FLAT monthly royalty, not tied into sales or other revenue volume that declines substantially over the first 24 months to a small one time annual fee …

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UPS Store Numbers

Interesting nuggests of information about the UPS Store outlets… Since the acquisition, a UPS spokesman says, overall sales have grown “impressively.” The company doesn’t break out results for its retailing chain. But sales data reviewed by The Wall Street Journal show that domestic UPS Store outlets averaged about $295,000 in revenue last year. Five of the stores had more than $1 million in sales subject to royalty. That number excludes the sale of stamps and other postage and some weekend delivery charges. Mr. Mathis adds that same-store sales, a key indicator, rose last year. As for capping prices franchisees can charge, the company says it did so because “our research showed that the high rates franchisees were charging simply didn’t sync with what customers were willing to pay.” Customers also found differences from store to store confusing. Hat Tip, as usual: Paul Steinberg in the forum While I can understand that pricing consistency is an important marketing tool, it hasn’t hurt McDonald’s or other fast food franchsies that drift from the menu and $.99 specials often. It would be clever for the UPS stores to try and open up “eBay drop off” concept and co-brand it….similar to Dunkin’ Donuts, Baskin Robbins, and Dunkin’ Deli. It would generate a lot of PR, drive business, and reposition the brand as a high-tech, small business friendly store.

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GNC Turnaround?

GNC‘s same store sales for franchised locations were up almost 5.9% during the 2nd quarter from a year ago. The 1st quarter sales were up 1.5%. At least it’s better than 2003 and 2004 when franchisees experience double digit quarter drops in same store sales.

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Bally’s Total Fitness tries more franchising

Franchisees should obviously be cautious of the extra burden of buying into a brand that is very tarnishes with customer service issues, Bally’s Total Fitness being one of them. Currently, 30 of 390 locations are franchised. At least you’ll be able to glean some performance results from the public filings (NYSE: BFT, but ignore that the stock dropped 5.26% today). I know my father pays under $100/year because he bought a membership 15 years ago, and I refuse to give the company any more money after they failed to cancel my membership per the agreement until I made my 12th telephone call to customer support. Franchise fee: $30k Royalty: 4% of cash receipts Advertising: 4% of cash receipts Investment: ~$1.5 million (you need at least $200k liquid assets)

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The Friday Franchise Five: I’d Wouldn’t Buy These

I came across a few franchsies that I would not want to own: Snack-In-The-Box: UK based firm that delivers candy to the workplace (difficult to work and sell) Nick-N-Willy (founded by former Quiznos exec)/Take-and-Bake: this take-and-bake pizza idea where cusotmer get the raw dough with toppings didn’t catch on 10 years ago, and won’t catch on despite some short-term success driven by PR and unique gourmet toppings. Gourmet pizza that is already baked is where I’d make my bet if I had to enter the pizza business. The Dinner Station/Meal Assembly (check out the nice store pics): The industry is already seeing a high number of closures; I’d do this perhaps without a franchise MRI/recruiting franchise: I knew several smart people that tried to make the MRI recruiting franchise work, but had a very tough time generating any placements, and placements from MRI corporate contracts were nil (operating profits and same store sales were down from last year) It’s Just Lunch: Some locations have been turning over several times each year, with franchisees literally giving them away to escape the cash drain.

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Pet Care Franchises and New Competition

Camp Bow Wow continues to sell franchises at a fast clip. They have a nice offering and compelling business model for pet lovers. But keep reading… I’ve visited a good number of non-franchised doggie daycare and doggie hotels, and most were extremely well run and popular. In my opinion, it’s not the type of business that requires the burden of franchise relationship. For example, Camp Bow Wow requires a $50k franchise fee, 6% royalty, and $300k-500k in total startup costs. A sensible, business-oriented person would ordinarily do much better spending that $50k on advertising and promotions, keep the 6% spread, and not be burdened by the franchise requirements should you have to scale back or alter your operations. The Competition The margins in this pet-care business are high, and the big boys have noticed. PetsMart have invested heavily to convert part of their stores into PetsHotel, providing services such as day and overnight care, grooming, training, groomed while staying at the “hotel”. Many locations also have The Pet Hospital with Veterinarians on-site. If I’m a franchisee, how do I compete? There are a few ways, such as pick-up and delivery of pets (I don’t think PetsHotel currently does this)…but that’s a time consuming endeavor and another layer of expense. My Conclusion This is a tough decision betweeen I’m Neutral On It or I Wouldn’t Buy It with respect to doggie day/night care franchises. We’ve listed a few pet franchises before, and I can imagine low-competition areas where you can get away with the cost/benefit of a franchise. However, in my own community which even has its own pet service review web site (Chicago), I wouldn’t buy it. There is no evidence here that a franchise give you a leg up on the heavy day/night care competition here. – – …

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Ink Cartridge Franchises

Being a longtime technology geek, I’m always intrigued (but not often impressed) by technology focused franchises. One segment that has seen fast growth lately has been the ink cartridge refill/replacement business. Trends are important. Many printer manufacturers sell printers below cost in the hopes of profiting from lucrative ink sales. However, generic and private label inks of similar quality to the name brand inks are commonplace. Printer inks, like books or hard drives, have reached a commodity point where most suppliers of the product are of similar quality, so most competition ends up being on price. I would NOT want to be a small retailer where the low-cost seller wins, especially as a franchise where the inherent cost structures prevent you from being the lowest cost seller. Franchisors like Cartridge World, Rapid Refill, Smart Cartridge, and Caboodle Cartridge will argue that market acceptance of off-brand quality inks is rapidly increasing, providing ample room for aggressive franchisees to capture a piece of this growing market share. While it is true that market acceptance is increasing, so are the alternatives. Office Depot, Staples, Office Max, and nearly all retail stores now offer generic or private labeled inks and cartridges at substantially lower prices than their name-brand counterparts (HP, Canon, Lexmark, etc.). Internet retailers have matured to offer simple interfaces to locate the proper ink, with prices lower than franchise retailers with free shipping and no sales tax. Business (and many consumers) usually try to use a single source for all their office supply needs, including ink cartridges. Office supply distributors have adjusted to demand and now carry both generic and name brand inks as well. The competition in this market is plentiful from all angles – big, small, and Internet retailers. Most franchisees will not have the resources to financially sustain …

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New Quiznos Lawsuits

Quiznos is facing more class-action lawsuits over delays in getting locations approved for its franchisees, and keeping their $25,000 franchise fee. More from the Denver Post article: The case alleges “deceptive business practices” in the company’s franchise sales method and demands that the company stop selling franchises in New Jersey until all existing franchisees get locations or are refunded their franchise fees. In a separate case filed in December in the Ontario Superior Court of Justice, the plaintiffs allege that the company is violating Canadian franchise law by not disclosing to potential franchisees full details and processes for securing locations. Quiznos, of course, denies violating any law. Hat tip: Paul Steinberg Franchisors usually carefully craft the franchise agreements to enable wiggle room in stalling or denying approval of locations. Warning flags include evidence of high franchisee turnover or higher proportion of revenue from non-royalty revenue which can sometimes be gathered and deduced from the UFOC Items 19-21. I know of a major dating franchise where one location in a big city has been sold 3 times over in the past few years, with the most recent franchisee begging the previous franchisee who sold it to him to take it back for FREE because it was draining money. If he closed the business, he would have breached the franchise agreement and would be obliged to pay tens of thousands in fees, charges and damages. Update: March 1, 2006 You can track the Ontario case on Goldman Sloan Nash & Haber’s web site, the Canadian law firm representing the plaintiff. The firm posted the detailed statement of claim (complaint) against Quiznos. Hat tip: Michael Webster

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Delivery-only Restaurants

A participant in the discussion forum brought up a good point whether a “delivery only” local restaurant business was an especially good business model. Steak-Out was the franchise mentioned, which delivers char-broiled steak and chicken dinners, salads, sandwiches….you get the idea. Why do you get the idea? Because the food is similar to the restaurants we all know – Applebee’s, TGI Friday’s, and Chili’s. The difference is Steak-Out is delivery or pickup only, and the others are sit-down AND are starting to contract out delivery to local entrepreneurs. Having a dinning room exposes your menu to more people. In turn, more people will be familiar with your menu and more likely to think about using you for delivering business lunches or family dinners. The more you are exposed to a product, the more likely your to think of it when the time for the service comes. It’s partly a numbers game, and I’d rather have my customers experience my product in person in my controlled atmosphere then exposing them to my product on a piece of paper, coupon or flyer. I’m not saying delivery only business are a bad idea, I just wouldn’t want to take the risk when my competitors out-of-the-box are going to be exposed to exponentially more customers. That raises my marketing costs. Pizza is the only food that has carved out room for delivery-only stores. Papa John’s is going from delivery only to delivery + sit down. A 75-unit Subway franchisee group in South Florida bought the telephone number 888-SUB-TO-GO. Orders are processed via the store’s POS system and then delivered by Subway employees. Can a delivery-only subshop startup and compete with that? I doubt it, and I wouldn’t want to risk my capital trying. If you are buying a restaurant, you should consider what …

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Burger King Franchisee Woes

43 Burger King franchisees operating 1,112 restaurants filed for bankruptcy in the past 5 years, almost 15% of all Burger King units. While costs rose for franchisees (utilities, labor and food), total customer flow and average sales per customer did not. The price wars between McDonald’s, Hardee’s/Carl’s, and Wendy’s did not help. Many franchisees are highly leveraged, so a reduction in in cash flows put a serious strain on finding the money to service the debt. Burger King charges a $50,000 franchise fee for a 20-year agreement. Renewal after 20 years is possible for another $50,000 fee, but only if the store meets the new Burger King operational and design standards, which usually require about $400,000 in upgrades. Additionally, the Burger King franchise agreement prevented multi-unit owners from closing underperforming stores. One bright side is that Burger King reported the highest same-store sales in 10 years this past year. With so many franchisees in bad shape, speculative business owners can pick up a franchisee on the cheap. Any takers? Update November 24, 2005: Though I’m not a fan of NPR, you can listen to the audio of a reporter slam Burger King’s new “King” character marketing. He wrote this critical article.

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We the People, or We the Screwed?

We the People is a paralegal document preparation service.  People typically use their service for simple legal documents and court filings (name change, non-contested divorce, wills, incorporation).  The company provides customers with forms to fill out with a pen, and the franchisee then sends the form off to a processing center located in the state.  One to seven days later (14 days max), the forms are sent back to the franchisee to give to the customer.  The franchisee may also offer to file the forms with the appropriate court for an additional fee.  The processing center takes a 25% cut of the document charge.   No legal training is required.  Franchisees are basically a sales and marketing arm for the processing centers.  Franchisees are not allowed to alter any document or provide any service not performed exclusively by the processing center.   Franchisees are free to set their prices above the mandatory minimum.  For example, restraining orders will run customers $100, a noncontested divorce run $400. (article listing more services and fees) The company was founded in 1996, purchased by a couple in California, and recently sold to Dollar Financial Corp. (NASDAQ: DLLR) in March, 2005.  Dollar plans to also open the store in conjunction with the Dollar Financial stores (like H&R Blocks). The experience for customers is somewhat odd if you have previous experience speaking with a lawyer.  We the People employees can’t recommend a form, can’t point you in the right direction, and can’t discuss specific facts about your problem.  All the employees can do is generally describe a form and offer a form booklet to fill out.  Recommending a form or solution is considered engaging in the practice of law, and it can subject the franchisee to fines, jail, or liability for damages resulting from the …

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Quiznos gets toasted with lawsuit

It looks like the Quiznos franchisees are not standing by in the face of apparent fraud: The primary allegations of the complaint are that the franchisees were harmed by the company’s "deceptive recruitment practices" and "failure to deal in good faith" when it took franchise fees from the plaintiffs, but refused to approve locations to open Quizno’s stores. In addition, the complaint charged, Quizno’s has refused to return any portion of the franchise fees, even though the plaintiffs paid more than 18 months ago and are now being threatened with termination. and more general comments… Commenting on the lawsuit, Susan P. Kezios, President of the American Franchisee Association, said, "This lawsuit is a classic example of a popular franchise chain using its brand name recognition to deceive hard-working Americans into investing their dollars to grow a franchise. Bob-the talking baby in Quizno’s current media campaign-is definitely talking out of both sides of his mouth in this case." Added Klein: "It is unfortunate that not enough people are aware of the abuse that franchisees often endure at the hand of their franchisors. Too many entrepreneurs automatically assume that buying a franchise is a safe investment. We are confident that we will prevail in our lawsuit, and are eager to finally bring justice to the franchisees who were victimized while also alerting people who are interested in purchasing a Quizno’s franchise to make an educated decision. I don’t have a comment from Quiznos, but I’d assume they deny the allegations. Still, Quiznos claims to open a new franchise every 16 hours. Have those franchisees all done enough due diligence to uncover these allegations of fraud? I fear they are too eager to hand over the $25,000 franchise fee. Even if this lawsuit turns out to represents a relatively small percentage of …

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