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I’m neutral on it

Tim Horton’s wants to eat Panera’s breakfast

Panera 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    

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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 …

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Reversal: Franchisor acquiring Franchisees

The trend has been for franchisors, especially for publicly traded ones, to sell more and more of their corporate owned stores. Why? The financial argument has been that earnings are stabilized by managing a franchise operation (simple income streams) rather than managing the nuances of local operating businesses. And, for the most part that makes sense both financial and practically. One company who is bucking that trend is Swisher Hygiene, acquired in 2004 for less than $20 million by Steven Berrard and Wayne Huizenga…the team behind AutoNation, Blockbuster and Waste Management. While their business haven’t all been models of success except for AutoNation, they have grown business fast and made a lot of money. Berrard was also CEO of Jamba Juice. You probably have never heard of Swisher Hygiene. The company sells low cost chemicals and cleaning services to business, especially foodservice and restaurants, such as the 3-compartment sink systems where EcoLab has traditionally dominated. In 2004, it was making an average of $17 per week per customer, with a base of about 30,000 clients. They feel the opportunity in this $9 billion market is in increasing sales to each existing customer and acquiring new ones. Swisher also was an amalgamation of 93 franchisees all working out of their trucks. Now, they acquired most of their franchisees, most recently their Chicago franchisee. The stock has fluctated greatly in the past year when it went from $2 to $10 per share, now it’s back down to about $5 per share. I don’t know if they will succeed, but it will make for an interesting case study one day. Hopefully the franchisees who took a buyout with stock will be better off than they were as franchisees.

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Terminating a Franchise by Krispy Kreme

You’re a franchisee and your financial and operational problems are snowballing out of control.  The result is you’re not operating in compliance and you’re late on payments to the franchisor, and the franchisor decides that you need to stop operating.   How does the franchisor shut down your store using the courts? See Krispy Kreme v Satellite Donuts (franchisee)

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Brand Positioning Will Help Us, Says Largest Pizza Hut Franchisee

The marketing function performed by most franchisors can mean the difference between a flat year-over-year sales, and 13% year-over-year decrease in sales.   For Pizza Hut’s largest franchisee, NPC, that difference in sales a massive amount of money.  Hypothetically, if the average Pizza Hut does $1.5 million in sales, then we are talking about a $195,000 difference per store.  With 1,150 stores, we’re talking about $22.4 million.  That’s a large distribution check for the owners to miss out on!

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Double Cheeseburgers cost more than $1 to produce and sell

Burger King franchisees are suing their franchisor over being forced to price the double cheeseburger at maximum of $1.  Franchisees’ problem is that it costs more than $1 to make and sell.  I’m sure Burger King corporate response to the loss argument is that the total average sale involving the $1 double cheeseburger turns a profit, because on average people also buy at least a drink and fries.

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Better Burger Burnout Coming?

I was browsing a few blogs and surprised at how many “we just make simple great burgers, fries and shakes” restaurant and franchises were popping up.  Some are going all-organic, most aren’t.  McDonald’s new higher-priced Angus beef burger is considered a response to the better burger trend. Most everyone likes a good burger and are willing to pay up to $5 regularly for good one.  I think the new wave of better burger joints will have some staying power compared to other pure trends like tart frozen yogurt, salad or pita/wrap specialty franchises. From what I’ve seen already from clients, these aren’t wildly profitable until you reach $1 million or more in sales per location assuming your rent is under 7% of gross sales, and that’s very difficult to do.Let’s look at one city.   Opening in Austin in the past year were: Mooyah Burger & Fries Five Guys Elevation Burger Flip Burger TerraBurger Mighty Fine Philadelphia Weekly put together this chart to compare the food, atmosphere, and wait times of various burger places.

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Tanning Beds As Deadly as Arsenic & Mustard Gas?

A recent study lumps tanning in tanning beds in the same caustic category as arsenic and mustard gas. The tanning industry is simply a rental business, and the rental business can be very lucrative.  Just ask my hero Wayne Huizenga who made billions from starting integrated rental businesses Waste Management, Blockbuster Video, and partly Autonation. The franchise tanning industry has been positioning itself for a reduction in the ultraviolet tanning beds with the spray tan alternative.   Most have purchase Mystic tanning beds (see video below) that can be rented in the same manner as bulb beds, plus some locations are offering spray-on artists to spray on manually that perfect tan with a high-end spraying device.  Spray tanning has been booming most evidently in the celebrity ranks, with many celebrities even hiring their own full time spra-on tan artists.  Lindsey Lohan is even being sued for allegedly stealing the formula for her new spray tan retail line.  All this points to tan growing trend (remember, the trend is your friend) of spray tanning consumers.  Can traditional tanning franchises offering spray tans grab a sustainable piece of this emerging spray tan market?   In the short term, probably yes. But it will take five-figures of investment and marketing for each location.  Customers previously visited tanning salons to rent 20-minute increments on tanning beds because tanning beds were too expensive to purchase for the home.  But, consumers can now buy spray tan bottles at Walgreens for $5.  The key for the tanning salons is offering customers 1) the “spray on artists” and 2) machines that spray the perfect tan.  Self application of tanning lotions can leave a person looking laughably orange if applied to heavily or unevenly, or left on too long.  So the edge for tanning salons is to have machines and people …

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Krispy Kreme’s New Strategy

From Krispy Kreme’s 10-K…, focusing on smaller stores with lower overhead. I guess it took them a while to learn from Dunkin’ Donuts that selling only $.50 donuts and coffee doesnt add up to enough revenue for a large store. The Company is working to refine its domestic store operating model to focus on small retail concept shops, including both satellite shops and shops that manufacture doughnuts but which are smaller and have lower capacity than traditional factory stores. Satellite stores in a market are provided doughnuts from a single traditional factory store or commissary at which all doughnut production for the market takes place. The objectives of the small retail concept model are to, among other things: reduce the investment required to produce a given level of sales and reduce operating costs by operating smaller satellite stores instead of larger, more expensive factory stores; achieve greater production efficiencies by centralizing doughnut production to minimize the burden of fixed costs; achieve greater consistency of product quality through a reduction in the number of doughnut-making locations; enable store employees to focus on achieving excellence in customer satisfaction and in-shop consumer experience; and stimulate an increase in on-premises sales of doughnuts and complementary products by increasing the number of retail distribution points to provide customers more convenient access to the Company’s products.

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Cost of Wings Up

If you own a wing restaurant, like Wing Stop, and your in the middle of the $540k average store sales (see Item 19 of their FDD) for Wing Stop, then your costs went up $44,226 in December.  Why?  The price of wings has increased 39% since December 2008. 

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Church’s Chicken Lowers Building Costs

You’ve probably heard about the cost savings of prefabricated modular building.  Church’s Chicken is going with a new prefab building to reduce startup costs, hopefully attracting new franchisees. …Church’s Chicken estimates that the pre-fabricated buildings will cost 25 percent less than its traditional stand-alone structure, Brown said. The low-end of pricing for a traditional structure is about $660,000. The modular store has a slightly smaller footprint than the store’s traditional prototype. The 1,750 square-foot building has 23 seats in the dining room, down 10 from the traditional standard. Brown said he doesn’t see the smaller seating capacity affecting operations in most locations. The company is considering a 1,200-square-foot model to replace its small walk-up neighborhood units. It also may look into developing a larger store for regions where in-store dining is more popular. While Church’s Chicken used modular buildings about 30 years ago, the new structures have advanced well beyond their forebears. Advances in metal extrusion and other technology have allowed for a building of equal quality to traditional construction, he said. The modular store is designed to fit local building requirements, with each unit built according to pre-approved state building codes depending on the location. Financing… One program is an internally funded equipment leasing program in which the company would directly lease full equipment packages to franchisees. The leasing program, valued at $200,000-$220,000, would cover all necessary equipment, from smallwares to fryers, Brown said. Church’s Chicken is offering an 11 percent annual rate on the seven-year leasing package — a rate equal to the corporation’s cost, Brown said. Franchisees can purchase the equipment at the end of the lease for $20,000-$30,000. Brown said franchisees with great credit may be able to getter a better deal by purchasing the equipment with financing. But it’s a good deal for those …

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Domino’s Subs

As if the sub sandwich category wasn’t crowded enough, Domino’s Pizza is adding sub sandwiches to its menu and delivery service.  The $4.99 oven-baked sub sandwiches will include classic favorites like Philly Cheese Steak and Chicken Bacon Ranch. The move comes five months after Pizza Hut began delivering baked pasta dishes as well as pizzas. And it will be a wake-up call for sub shops Subway and Quiznos, which find themselves competing with pizza chains. For the pizza giants, the message is clear: If pizza sales aren’t growing in a sour economy, maybe something else will. Besides the hot subs and baked pasta, some pizza chains also deliver chicken wings. “It’s an attempt by the pizza players to try to get back into being a growth industry,” says Ron Paul, president of Technomic, a restaurant research firm. “They’ve all lost their mojo.” They also are further conflating a fast-food world that’s grown jumbled. McDonald’s (MCD), Burger King (BKC) and Wendy’s sell salads and chicken. Subway and Dunkin’ Donuts have tried pizza. Arby’s, once roast-beef-only, now makes a killing on Market Fresh deli sandwiches and sells toasted subs. Domino’s U.S. same-store sales fell 5.4% in the second quarter after a 5.2% decline in the first quarter. Brandon says the move should boost Domino’s lunch business and expects lots of calls from groups of office workers. (The minimum delivery order is $8 to $10, depending on location, and delivery fees are $1 to $2.) Rivals are unimpressed. Pizza Hut delivers hot sandwiches regionally but is focused on growing its national pasta delivery sales, says Brian Niccol, marketing chief. Tony Pace, marketing chief of the Subway Franchisee Advertising Fund Trust, says, “Domino’s is watching our success and wondering how to get a piece of the action.” Half of Quiznos’ locations deliver, and …

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Better Home & Garden real estate franchise

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

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First Watch to Franchise

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

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Corner Bakery Coming to California

From the Phoenix Business Journal: Fifteen of the fast-casual [Corner Bakery Cafe] restaurants are planned in the state under an agreement between franchisee Roland Spongberg and WKS Bakery Cafe Inc. The chain, which serves breakfast items, salads, sandwiches and desserts, has more than 100 locations in nine cities across the country. Spongberg’s WKS Restaurant Group expects to open its first restaurant in late 2008 near Arrowhead Towne Center in Peoria. He also operates 50 El Pollo Loco and Denny’s restaurants in Southern California and Phoenix. Corner Bakery is scattered throughout Chicago where I live and is a staple for many urban lunch-goers. It’s strategy of blanketing select cities and building local brand recognition and leveraging marketing dollars is an efficient brand-building strategy. A primary reason to become a franchisee is to leverage existing brand recognition and pool marketing resources with other franchisees, which Corner Bakery seems to have incorporated into their expansion strategy.

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Business Networking Franchise

I know a few people who have attended BNI meetings in Chicago, and have had a positive experience.  There is a lot of niche competition in this arena, but it could make a mildly profitable side business if you are passionate about networking, like calling and staying on top of people, and love socializing.

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