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I’m neutral on it

More calories in a smoothie than a double cheeseburger?

New smoothie franchises seem to be opening as fast as Starbucks and now Chipotle’s. Unlike coffee, a “smoothie” is not a staple of the American palate and never will be. Nonetheless, the smoothie business has been hot lately with the likes of Jamba Juice (who reinvented the market), Smoothie King, Maui Wowi, and Planet Smoothie dominating the marketplace. They’ve been riding the omnipresent “health” wave by using tasty fruits and vegetables and vitamin powders in their potions. But how long will smoothies be perceived as healthy? You should be asking that question if you are thinking of buying a smoothie franchise. Just as financial markets always returning to the equilibrium, so do businesses. Eventually the product will commoditize, the market will saturate, and prices will drop (See the sub sandwich market). The process can be accelerated by negative news, just as the low carb movement (which I followed for a while) subsided. For example, if the national spotlight continues to highlight the high calorie count of smoothies defeating the impression of a healthy alternative to fast food, same store sales will suffer leaving smoothie franchisees with a lot of silent blenders. It’s already happening in the United Kingdom. Mississippi’s The Sun Herald reports: Thinking of ordering a smoothie for a healthful light snack between meals? Although these sweet fruity treats can be low in fat and rich in vitamins and nutrients, such as calcium and vitamin C, they can have a lot of sugar and calories. For example, a medium-sized Citrus Squeeze from smoothie chain Jamba Juice packs about five times as much sugar (103 grams) as a regular-sized Hershey’s milk chocolate bar (22 grams). It has 470 calories – more than a McDonald’s double cheeseburger (460 calories). Instead, try a lower-calorie smoothie option like of one of Jamba’s …

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Is caring for the elderly a profitable business?

The Wall Street Journal has an interesting article profiling an in-home elderly care franchisee. Home Instead and the other senior-care franchisees pay caregivers somewhere between $8 and $12 an hour and charge clients about twice that amount. In the highly competitive Chicago market, the Melingers charge clients $18 an hour, with a minimum of two or three hours a day, or $180 a day for 24-hour care. They also provide a “rise and shine” or “tuck in” service, for $200 to $280 a week. The Melingers declined to reveal just how lucrative their business is, but FranchiseHelp, a consulting firm in Elmsford, N.Y., provides some guidelines for similar businesses. In 2002, for example, a franchisee of Homewatch Caregivers in Denver, with 60 workers, took in gross revenues of $1,265,324 and paid out $1,141,578 in expenses that included royalties and the franchisee’s salary, leaving a profit of $123,746. Their isn’t inventory to deal with, which is very nice. But that time is otherwise spent on finding and hiring responsible people they trust enough to send into an elderly person’s home. The franchisee said almost 1/2 the people don’t even show up for the their interviews and many quit after a few days. Ugh! If you can maintain a steady staff, you can easily open a 2nd conierge style business, which we discussed perviously. I’m neutral on elderly care franchises right now because they are heavily commonditized business (the market controls the fee level, it’s hard to charge more than $18/hr with all the competition). I am also hesitant when so much depends on finding qualified low wage employees that must work independently (unlike a retail location where managers can monitor what you do).

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Papa John’s franchisees average $705K in annual sales?

According to this 10-Q filed with the SEC by Papa John’s, average franchised store sales are 705k annually. Papa John’s franchisees did increase sales 3.9% last quarter (Jan-March) compared to the same quarter last year. Average weekly sales of franchised units: $13,563 ($705,276 annually) Average weekly sales of company-owned: $15,075 ($783,900 annually) * Why are the company owned stores outperforming franchisees by 11.15%? The 10-Q speaks of one franchisee who sold his 19 restaurants with total annual revenues approximating $12.0 million ($631,578 per store) to a 3rd party. The restaurant sales were lower than the average by 11% or $70K, enough to obtain a loan writeoff from Papa John’s. This isn’t good: Domestic commissary sales increased 6.7% to $100.9 million for the first quarter of 2005, from $94.5 million in the comparable period, primarily due to higher cheese prices that were partially offset by lower volumes resulting from decreased restaurant transactions. and this: the first quarter 2004 operating margin was negatively impacted by the increased sales of lower margin promotional products and this: One group of 4 franchisees owning 33 franchises generated a $25,000 loss on $5.2 million of revenue, $4.6 million in operating expenses and other expenses (including G&A, depreciation and interest) totaling $600,000. Papa John’s also provided them with a large loan. I do love their garlic dipping sauce for the crust that is included with each pizza! Update 6-18-2005: Thanks to “Accountant” who in the comments pointed out my miscalculations. The post has been updated, including the title. Update 6-19-2005: Thanks to “Ken King” who in the comments pointed out another miscalculation on my part. The post has been updated.

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If students can do it without a franchise…

I’ve written a few articles on eBay drop offs. I was neutral on the franchise… Pros: it’s a service people will use eBay buzz and hype is still strong all franchisors are charging the same 35% fee (for now) Cons: the business is too simple to start, has no barriers to entry, new competitors will literally springing up overnight existing used and consignment stores will soon add eBay sales the service will have to compete based on fees (who wants a constant lowering on margins?) I’m sure I’ll be negative on the business within the next 5 years, but for now I’m staying neutral because the next 2-3 years will be strong. Want proof the eBay drop off store is easy to start and run without a franchise? Campus Easy Sales recently set up shop on the Washington University in St. Louis campus. A couple of fulltime students thought it’d be a good idea and just started it. They do nothing different than any other franchise out there (the hold the item, take pictures of it, post an ad on ebay, ships the item after the auction ends, and send the seller their cut). However, the total fees add up to ONLY 24% COMMISSION off the first $500. Compare to other eBay drop offs who charge 35%. You can bet your dog’s favorite toy this puppy will see their commissions slashed to 25% or less in a few years.

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The Battery Plus franchise

The Battery Plus franchise might just work. There is probably enough people who won't buy knock-off batteries online to support this business. And major retailers won't carry these Asian made batteries because of safety issues (the exploding battery).

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eBay drop offs

I question at this early stage in the industry whether the ongoing franchise fees of 5-6% will kill the margins need to be worthwhile.

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Which way is Curve curving?

A Curves franchise appears to be a truly lifestyle business that will require a lot of time and marketing. The franchise may be personally rewarding, but not as financially rewarding as one would expect.

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