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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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Unintended Franchise Killer – Street and Rail Construction Projects

Imagine you have the perfect location for your franchise near a stadium with lots of pedestrian traffic. You spend $450,000 to get your first franchise built and ready. Opening week was wonderful with sales of $12,000 and subsequents weeks continue on with profits. Then, a major light rail construction project starts out front and blocks your sidewalk. After a few weeks of jack hammers and tarps blocking views, nobody is venturing down your way because they don’t want to deal with the noise and nuisance. The construction project lasts for 8 months. A similar story has happened in Minneapolis, MN in an area called “Stadium Village” near Target Field. Quiznos couldn’t afford to stay open. Independent fast food places such as Hot Diggity Dog and Leo’s Burritos also shut down with no word whether they will reopen. This is a really unfortunate and sad situation. These projects are often years in the making so perhaps the franchisee should have anticipated this development. Nevertheless, with strict operating rules in a franchise agreement there is not much the franchisee can do to adjust operations.

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Passion for Managing Process v. Entrepreneurship

I like the way this article in the NY Times described a requirement to be successful as a franchisee: For someone who really has a passion for managing a process, though, investing in franchises can be so lucrative that that extra spark [entrepreneurship] may not matter. I’ve heard several franchisors speak at the National Restaurant Association conferences and have worked with others as their attorney, and some failure and poor sales is attributed to failure to “follow the system”. I’m sure the franchisees would disagree, but I believe there is on some level truth in this failure to “follow the system” particularly in regards to marketing/sampling, cleaning and training. “Following the system” is a little misleading though, because most of the franchisees technically are following the book, but the passionate and efficient execution is not there by the franchisee and their staff. Are the work areas and customer areas always clean even if you are following the operation manual’s cleaning schedule of “every 20 minutes walk through” of the dining area? Is the customer service respectful and prompt? Is the quality of product or service at least meeting the expectations of the customer? Is security monitored and threatening enough to ensure customers and staff are not stealing? I would also add that franchisees need to be leaders. They must be able to handle the moment in front of customers and employees, run effective meetings, and be articulate motivators that can instill at least mild passion in staff to do the right thing. If you are meek and weak, you will be taken advantage of. But, don’t worry, it’s not you, it’s like that throughout the animal kingdom. But you probably shouldn’t be a franchisee. Entrepreneurship requires the above traits as well. But, innovation is the element a franchisee is …

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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.

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9 Common Interview Questions That Are Actually Illegal

http://finance.yahoo.com/blogs/secrets-toyour-success/9-common-interview-questions-actually-illegal-201733303.html Interesting perspective on illegal interview questions. Franchisees and the hiring.managers should be aware of these as training guidelines. I think The article can be more clear about what the actual action is that is illegal. Asking the questions or discovering the answer isn’t illegal, only using it as the reason for certain employment decisions is prohibited. But why tread on thin ice with these issues? Just avoid these topics as a general rule.

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[Updated Mar 15, ’12] Pizza Fusion agrees to buyout from Unique Pizza & Subs

Unique Pizza and Subs, a 7-unit pizza-sports bar chain traded on OTC Pink Current tier, has agreed to acquire the well branded Pizza Fusion, an 11-unit organic pizza chain. I think there is more to this story, as Pizza Fusion seems to be a much strong player than Unique Pizza & Subs. It could be seen as more of reverse merger with Pizza Fusion as the driver, whereby Pizza Fusion can now be publicly traded and potentially raise more cash for expansion. [updated March 15, 2012] I found another interesting article about this merger. [more here] It seems there may be some Bacon Raton, FL penny stock promotion linked to this merger, and it’s not the first time Pizza Fusion has flirted with the Pink Sheets marketplace to attract needed capital, as you can read below: Trafford, Pa.-based Unique Pizza, which recently issued news releases about two franchising agreements, also said in January it was in the “secondary stage” of selling its pizza in China. The China announcement, which indicated a financial partner was actually still seeking a distributor in China, was issued by Mirador Consulting via PR Newswire and gave a Boca Raton phone number. Boca Raton is known nationwide as a center of penny stock promoters and penny stock companies, which would include Pink Sheets companies like Unique Pizza. Unique’s Pizza 2007 filing said the company had raised $718,993 of a $1 million offering, so one question is how the current deal will be funded. The news release said the deal is subject to execution of a definitive agreement and other conditions including the availability of working capital. A chart on MarketWatch shows no trading volume in Unique Pizza since January, when the announcement of the China deal and a sports pizza sports bar were made. However, …

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21 Essential Lessons to Growing a Business

I loved this list. One of the United Kingdom’s most successful entrepreneurs, Luke Johnson, shares 21 lessons he’s learned in business: 1. The world is in love with the romance of start-ups. But all other things being equal, I believe it can sometimes be better to buy a business than start one. 2. Never demand a certainty: if you wait for that, you will be on the sidelines for ever. 3. Leave behind the notion of the big idea and just do what most successful entrepreneurs do: copy and improve. Imitate first, and then devote yourself to constant incremental improvement. 4. Whenever you can, make sure a name has some underlying meaning. Don’t copy the example of Diageo; one of the world’s biggest drinks manufacturers. “Diageo” means nothing. It’s not even easy to spell, or to Google. For everything that’s bad about high-concept names, look no further than Diageo’s own toe-curling explanation: “The word Diageo comes from the Latin for day (dia) and the Greek for world (geo). We take this to mean every day, everywhere, people celebrate with our brands.” I wonder if Diageo’s management realize that having to listen to that sort of rot could well make its staff want to quit and start their own business. 5. Today is a better time to start a business than tomorrow, no matter how today looks. 6. Achievement changes people. Once someone attains status and wealth, their attitude towards sharing the spoils and the glory alters. It slowly dawns on them that actually all the clever moves and breakthroughs were their idea and, in fact, they are the only one who really does any work. 7. When I interview managers, I ask them about their customers and competitors. The high achievers will know them intimately, and can talk for …

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Tasti D-Lite acquires Planet Smoothie

I didn’t see this one coming. Planet Smoothie is solid brand with a loyal customer base. I hope Planet Smoothie received a significant premium in this acquisition by Tasti D-Lite, and the existing franchisees have some protections. Tasti D-Lite was acquired by a private equity firm in 2007 majority owned by Jim Amos, who promptly appointed himself CEO after the acquisition. Amos was formerly CEO of Mail Boxes Etc before selling to UPS, former CEO of Sona MedSpa and I Can’t Believe It’s Yogurt. I don’t know Amos personally, but from what I have heard he is a classic promoter. He’s likable and has the right persona for a CEO. But, from what I hear he runs his mouth too much and gets into trouble confidently over-promising results and being extremely difficult with existing franchisees. He’s good as selling franchises and controlling the franchisor’s cash flow. He’s had to settle out of court in a dishonesty-related law suits in his previous CEO roles. The hybride ice cream/yogurt pumped by Tasti D-Lite is smooth and creamy thanks to multiple gums and thickeners, but most people only care about the relatively low calories versus full fat ice cream. I understand the strategic benefit for Tasti D-Lite: they can distribute their frozen yogurt through the 100+ existing Planet Smoothie locations, the customer base has a lot of crossover, smoothie recipes can incorporate frozen yogurt, and hopefully per-unit increase sales will increase more than 25%. It looks like the preferred transition option for franchisees is to allow units to co-brand the concept. I’m sure the Planet Smoothie franchise agreement was favorable for Amos. My guess is there is a clause whereby existing franchisees have to at least transition to selling the yogurt menu quite soon, but conversions to dual-branded units probably can’t be …

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Papa John’s Franchisee to Go Public in Germany, Previous Fraud with Investors?

WorldWide Papa’s is going public on the heels of opening up its 5th store in Russia. But, there are people who claim to have invested with WordWide Papa in Russia but were ignored by the company once they received the investment. The whole story isn’t here, but a company that fails to communicate with its investors in a respectful manner must be avoided. I’ve seen a lot of investment fraud as an attorney, and I still am amazed at how often folks will steal from people they know.

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10 Strongest Retail Markets

source: National Restaurant News 1. Washington, D.C. 2. San Francisco 3. New York City 4. Boston 5. San Diego 6. San Jose/South Bay 7. Baltimore 8. Philadelphia 9. Seattle 10. Pittsburgh I would agree with Washington, D.C. being number 1. I’ve spoken to several small operators, that are expanding to Washington, D.C. One take and bake pizza concept expanded there and within a year it was their best performing store in the system of about 20. As a rule, franchisees should try to keep their rent 5-9% of gross sales except indoor malls where you’ll be at about 15%. Recently I was evaluating lease rates in the Chicago downtown loop area, and for a nice spot between 1,200-2,000sf you’ll be paying around $50+sf NNN. Compare that to suburbs of Orlando where you’ll easily grab prime shopping center space for $20-25sf with lots of incentives.

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Obika – Mozzarella Bar – Needs Work

I thought Obika, a Fresh Mozzarella Bar concept from Europe, would do fine in the big cities and may ultimately make a good franchise, succeeding by shadowing the locations of Au bon Pain. I assumed their dozen overseas locations would have been prepared a powerful USA launch. But, the NYC location is not earning universal fondness from New Yorkers. The look is modern and euro, and it has the right formula of escalating a familiar food to a higher level of passion. However, it fails in execution – service is too slow and the sandwiches are simply average. When people are paying a premium ($10 a sandwich), your niche is smaller and there is more pressure to earn repeat business from the local workers. I would imagine they have to do at least 350 transactions per day to break even. Eventually the number of potential new customers will dwindle to unsustainable levels and survival will depend on repeat business. I still think Obika will make it, but the chances of it being a 10+ unit chain in the USA are very slim.

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Better Burger Trend Peaking?

Elevation Burger, the well branded organic better-burger franchise, closed it’s Baltimore franchise.  Reviews were pretty bad. As a whole, healthy, all-natural, and organic concepts have been having a hard time making their sales goals,  except for notable exceptions like Chipotle.  Everybody says they’ll go for healthy options, right? You have to watch what people do and not what they say.  I’m sure most people reading this post would say during a focus group, “Yes, I’ll pay a little premium for the organic meal”.  But, in reality what do you do?   Most of the time you purchase based on convenience, taste and price as long as you deem the quality above an acceptable level.  I was reminded of this recently from a PepsiCo executive.  Chipotle is the rare bird – it succeeds because it tastes good, is priced competitively, the line moves very fast, and most people don’t even realize the food is mostly organic. Another “healthy” brand to watch is Naked Pizza because it has signed several area development agreements for hundreds of units but lacks experienced management. A reviewer on Yelp stated, the “cheese was rubbery and the pizza was cardboard” – ouch! Naked Pizza has gathered remarkable attention for only having a single location.  The buzz is the result of winning an open venture funding call in a blog post from billionaire Mark Cuban.  It’s also reknowned for embracing of twitter (a billboard simply lists it’s twitter address).  A recent article summarizes the Naked Pizza idea: NakedPizza’s solution is an all-natural, fortified pizza, made with simple, unprocessed ingredients, informed by science and made affordable and available through the proven carry-out and delivery model. It’s signature difference is a crust made with a diverse blend of “ancestral” whole grains, seeds and beans fortified with prebiotic fiber and probiotics (live, …

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Discounted Franchise Fees, My Perspective

Over at the BlueMauMau blog, there was a post about Huddle House discounting their upfront franchise fee from the magical $25,000 to $5,000 and waiving the royalty for the first five months. Some comments frowned upon franchisors who discount franchise fees. Here my opinion: Count me as one who loves to see franchisors discount their fees as done by Huddle House. The goal of the franchisee should be to get the highest likely return on invested capital for their risk profile. My point is that franchisors should be more willing to base their fees on market demand like all other services. Nearly all industries (and even financial instruments liked bonds) fluctuate their pricing based on many internal and external factors, particularly balancing prices with demand. Selling franchises should be no different. Support suffers to the point of reduced sales for the franchisee if fee are discounted? Perhaps in some instances, but it is the exception rather than the rule. Per franchisee support expenses between can vary tremendously between franchisors, and the use of technology and other efficiencies can dramatically reduce support expenses. Maybe the franchisor’s fees were too high to begin with and now they are drifting in line? A few commenters missed the point and disagreed, arguing that reduced fees makes it almost certain you’ll earn lower returns.  My response: Come on – I wasn’t suggesting investors focus on year one returns, nor was I suggesting you ignore non-financial issues.  I am suggesting that a franchisor reducing upfront and ongoing fees often can, but not always, make the investment more attractive. Projecting your return on invested capital is based on the entire expected life of the investment.  After you review your expected return on invested capital, then you consider and adjust for intangible factors such as franchisor quality, …

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Burger King’s New Design

I like Burger King’s new 20/20 design. It’s this kind of change in customer experience that can reinvent the brand. Concept stores that have been rebuilt with the new design have seen 30% increase in sales compared to the old style. Burger King’s new broiler, Duke’s Flexible Batch Broiler, is a great piece of equipment too. It will allow more innovation and adaptability by franchisees. The price tag at $6,000 is reasonable. Whether it be Angus beef or chicken, the Flexible Batch Broiler turns frozen products into char flavored, tender and juicy pieces of meat. A single cook in the kitchen can deliver eight Whoppers or 12 regular burgers in two minutes or less. This would give a production rate of 240 Whoppers and 360 regular burgers per hour. Also, the Flexible Batch Broiler can flame broil products that haven’t been thawed out. Ranging from $5,400-6,900, the Flexible Batch Broiler will save energy, time and money. For more insight on Burger King’s strategy, see this presentation from an investor conference:

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Does Discounting Work?

Discounting hasn’t worked so far for Chili’s and  Applebee’s who began offering 2 for $20 meal deals.  The problem is total customer traffic is off and these discounts tend to amplify the problem because profit margins are reduced on the customers that do come in.  Even P.F. Changs, and Benihana are seeing 10%+ slowdowns in sales just from a quarter ago.

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