Early Termination and Liquidated Damages

Fair Franchising Is Not An Oxymoron: AAHOA’s 12 Points of Fair Franchising

Looks good and worth a read to understand the legal aspects of the franchise agreement. Point 1 is discussed in this articles, which encompasses:

A. Voluntary Buyout or Involuntary Termination and Liquidated Damages
B. Windows Provisions
C. Early Termination for Underperforming Properties

Here is sample analysis on windows provisions:

In franchise agreements containing “windows” or “additional termination right” provisions, the types of “gotcha” clauses that are most unfair are those that explicitly state a franchisee’s rights will automatically terminate, without notice, (1) the franchisee fails to cure any default under the franchise agreement within the time permitted, if any, in the notice of default sent by the franchisor, or (2) the facility receives a poor score on a QA inspection, and then does not receive a higher predetermined score set by the franchisor during a re-inspection of the facility.

Cheese Price Increases are Grating to Pizza Franchises

Pizza franchises throughout the U.S. are struggling with escalating costs of cheese. Block cheddar cheese – the benchmark for mozzarella and other cheeses – reached $2.08 a pound Thursday on the Chicago Mercantile Exchange, up 78 percent from $1.17 a pound a year ago. Industry observers attribute the price surge to strong demand and higher production prices – from the cost of milk to the cost for dairy farmers to feed their herds. Pizza Hut and Papa John’s International have raised their cheese-only pizza prices, and smaller restaurants, including Fat Jimmy’s in Louisville, Ky., have raised prices, too.

Papa John’s uses about 100 million pounds of cheese each year, and the cheese typically makes up 35 percent to 40 percent of the food cost in making a pizza.

Read the story
“Pizza makers struggling with higher cheese costs” by Bruce Schreiner in the Daily Herald.Something tells me that America’s Desire for pizza will remain.

According to Pizzaware .com

  • Americans eat approximately 100 acres of pizza each day, or about 350 slices per second.
  • Pizza is a $30+ billion dollar per year industry. There are approximately 69,000 pizzerias in the United States. Approximately 3 billion pizzas are sold in the U.S. each year. (Source: Blumenfeld and Associates)
  • Pizzerias represent 17% of all restaurants. (Source: Food Industry News.)
  • Pizza accounts for more that 10% of all foodservice sales. (Source: Food Industry News.)
  • 93% of Americans eat at least one pizza per month. (Source: Bolla Wines.)
  • 66.66% of Americans order pizza for a casual evening with friends. (Source: Bolla Wines.)
  • Each man, woman and child in America eats and average of 46 slices, (23 pounds), of pizza per year. (Source: Packaged Facts, New York.)
  • Italian food ranks as the most popular ethnic food in America. (Source: National Restaurant Association.)
  • According to a recent Gallop Poll, children between the ages of 3 and 11 prefer PIZZA over all other food groups for lunch and dinner.
  • A study done by a U.S. Department of Agriculture statistician and home economist found that in a three-day survey period, 42% of children between the ages of 6 and 11 has eaten pizza. (Source: Smithsonian Magazine.)
  • 94% of the population of the U.S. eats pizza. (Source: Parade Magazine.)

Cross Posted at: Let’s Talk Franchising

Quiznos New Leadership

Quiznos CEO puts turnaround skills to work

The former Burger King boss is applying his turnaround expertise to the troubled sandwich chain, whose dissatisfied franchise owners have complained about low profits, company operating requirements and the franchisee recruiting process.

Since jumping into the fray in January, Brenneman has worked to reduce food costs by as much as 4 percent, improve communication with franchisees and test new products, like a Quiznos taco, to boost profits.

Last year, private equity firm J.P. Morgan Partners became an ownership partner, and Brenneman later became a partner through his company, Turnworks.

Through the roller-coaster ownership ride, the chain expanded quickly, to at least 5,000 stores. Today it’s ranked third behind Subway and Arby’s by Technomic, an industry analyst firm.  Although Quiznos does not release much information, Technomic restaurant industry analyst Darren Tristano said Quiznos has average sales of about $425,000 a year per store while Subway has average sales of about $375,000.

Quiznos’ success has come with growing pains.

Lawsuits by franchise owners in Illinois, Michigan and Wisconsin allege the company draws in prospective owners, who pay $25,000 for a franchise, but doesn’t give them complete facts about restaurant locations and business operations.

Lawyer Justin Klein contends many franchisees sign contracts only to wait a year or more for the company to build a restaurant. The suits
also accuse the company of requiring franchise owners to buy all supplies from Quiznos at higher prices than if they bought locally.

The company denies the allegations and filed motions to dismiss the suits.

Brenneman, meanwhile, has reached out to franchisees and targeted their food and other costs. If he can cut food costs by 3 percent and coupon discount offers by 4 percent, Brenneman believes he can add $25,000 to $30,000 in franchisees’ profits.

Change has to come from the top and it will be slow, getting a better handle on the franchise sales group will be difficult, but relief for most owners will likely never come. The realistic best case scenario is lower costs, same or better quality, and more efficient and effective promotions. Cutting food costs by 3% and coupon discounts by 4% seems hardly enough to squeeze $25k – $30k in profits. The franchisor prefers heavy coupons because it is paid on gross sales, and the franchisor dislikes coupon generally beacuse they still have to find a net profit margin on sales.

Franchisee Won’t Sell Certain Foods, Says Against Religion

Muslim Dunkin’ Donuts franchisee can sue over anti-pork stance

The decision reversed an Illinois federal court judge’s 2004 ruling that rejected Walid Elkhatib’s argument that Dunkin’ Donuts discriminated against him based on his race by making the sale of breakfast sandwiches with bacon, ham or sausage a mandatory part of his franchise agreement.

According to court papers, Elkhatib, a Palestinian Arab, has been a Dunkin’ Donuts franchisee since 1979, before the company began selling any pork. Once breakfast sandwiches were introduced in 1984, Elkhatib’s Chicago-area outlets sold them without bacon, ham or sausage for nearly 20 years. The company did not object, even providing him with a sign that said “Meat Products Not Available.”

Who will win? My guess is the franchisor, as Dunkin’ Donuts has full discretion in deciding whether to renew the franchise agreement.

Franchise or Business Opportunity?

Buying a Franchise versus a Business Opportunity

How to tell the difference between a franchise and biz opp and determine which is the better fit for you.

The primary differences mentioned by the author are:

  1. Common Brand and Operating System
  2. Ongoing Support
  3. Ongoing Fees
  4. Legal Disclosures

Basic stuff, but it is what you are paying for as a franchisee. If you feel able to pursue a business opportunity and can do so without piggy-backing on another brand, operating system, and support, then you may be better off going it alone and foregoing the franchise fees, royalty fees, advertising fees, operational constraints, and required purchases.

Update 7-10-2007: Good comment by the always alert Michael Webster:

The article was terrible. It leaves the misleading impression that there is such a catergory as biz ops which don’t have to prepare a UFOC. Uh, well then how would one account for the fact that the FTC routinely closes biz ops because the failed to comply with the Franchise Rule? Really bad article.”

Interesting Idea – Auto Relocator

I came across this franchise and thought it was interesting, particularly because of the strong potential for commercial contracts with repeat business.

Vehicle relocator opens Columbus office

Auto Driveaway provides personal and fleet relocation services for cars and light-duty trucks, and arranges certified drivers for trucks and heavy equipment.

“We’ll be a full-service office, able to move any type of vehicle that can be driven on the highway,” Schultz said in a statement.

You Must Source Goods From Our Country [India]!

FIPB faces franchisee fan fury-Policy-Economy-News

Finance ministry officials are of the view that the move will lead to discrimination since many foreign brands such as Chanel, Marks & Spencer and Tommy Hilfiger are already present here, and restrictions will deny a level playing field to those who are waiting to enter the Indian market.

The food processing ministry is worried that infusion of technology brought in by brands like Pizza Hut and McDonalds—which operate here through franchisee arrangements—will be hampered. Similar is the concern of the textile ministry since a number of global brands operate here through franchisees and their arrival here has led to introduction of modern technologies.

Protectionism is a fact of life in foreign countries, but rarely works out for the best in the long run. The economic benefit is usually muted by higher prices.

Sports Bars Doing Well

Sports Bars’ Customers Love Their Hometown Teams, Drive Profits Up

[Buffalo Wild Wings] Same-store sales since the start of 2006 have jumped from 8% to 13% quarterly. For five straight quarters, profits have grown in double digits.

But rather than “worry if we are going to comp over last year,” the company “needs to make sure we’re executing and operating and giving our guests great value and experience,” she said.

Buffalo, N.Y.-style chicken wings are a big part of the guest experience. Though wing prices have risen, Smith locked in prices through the year that are now below market rate. She’s keeping an eye on other costs as well.

Buffalo also serves salads, burgers and a variety of specialty items.

As a neighborhood sports bar, it serves as a gathering place for friends and family. Guests play trivia games and watch sports and other shows on big-screen TVs. HD screens are replacing many of them.

Professional and college football and basketball playoffs are big draws, especially in the company’s core Midwest markets. Ohio stores make up about 20% of the store count.

“In Ohio, people are fanatics about their local teams,” Lyon said.

I’ve posted previously on the sustainability of chicken wing franchises – most everyone loves good wings, and matched with a large modern sports bar it makes for a solid business with an excellent chance of success, in my opinion.

Clever Way to Get Free PR

Perry business offers free flags to replace worn ones

If the flag you unfurled today looked a little more pink, beige and lavender than red, white and blue, Goin’ Postal wants to help.

Throughout July the Perry packing and shipping business is offering a free American flag to anyone who brings in a faded or tattered flag. It’s a companywide effort by the chain, which has 250 locations.

Hopefully your franchisor can come up with clever ways to get free PR and get people in the doors.  Free in-store give aways, promos with local radio stations, big donations of products/services – are a few commonly used techniques that will get you noticed.  However, many franchise agreements forbid franchisees from endeavoring on their own public relations efforts, so I would be sure to choose a franchise that gives the franchisee the flexibility to promote oneself in clever ways.

ActionCOACH Franchise Wins 2007 Stevie Award

“Best Overall Company in North America”

World’s Premier Business Award Competition Gives Global Business Coaching Franchise Its Top Honor; Contest Judged by International Business Leaders

Action Coach announced today that it has won one of the world’s top business honors: the 2007 International Stevie Award for “Best Overall Company in North America.”

The Stevie Business Awards is the only international, all-encompassing business awards program. Judged by a blue-ribbon panel of CEOs, business school academics and industry leaders from around the world, the Stevie Awards exists to raise the profile of exemplary companies among the press, the business community, and the public. The New York Post has called the Stevies “the business world’s own Oscar Awards.”

As “Best Overall Company in North America” for 2007, ActionCOACH is recognized for its innovation, integrity, and growth. The company will receive its award at a gala dinner ceremony September 10, 2007 at the Munich Marriott Hotel in Munich, Germany.

“Besides the long-term success of our franchisees and clients, being named ‘Best Overall Company in North America’ is one of the highest accomplishments ActionCOACH could hope to achieve,” said Brad Sugars, chief executive officer of ActionCOACH. “This is an award that recognizes not only the exceptional worth of our system’s coaching services, but also the way we at ActionCOACH conduct ourselves — our culture, our values and the way we’ve chosen to do business. On behalf of our employees, as well as our 1,000 franchisees in 23 countries around the world, I’d like to thank the International Stevie Awards for this tremendous honor.”

Winners of the International Stevie Awards were chosen from over 1,000 nominations received from more than 30 countries. A two-step judging process determines winners, with the Stevie Awards’ distinguished panel of judges and advisors deciding the Stevie Award recipients from a select group of finalists.

In addition to the Best Overall winners, the Stevie Awards recognizes companies for specific achievements including social responsibility, innovation, customer service, human resources, marketing, and new products. Stevie Award winners receive a statuette designed by R.S. Owens, the same company that makes the Oscar®, Emmy, and Clio awards.

ActionCOACH, is one of the fastest growing franchises and is the largest business coaching company in the world. The company was established in 1993 in Australia by a young visionary named Brad Sugars. Brad recognized early on that most owners of small and medium-sized businesses were unaware of how to effectively grow their businesses and achieve their goals. He developed a comprehensive system and methodology to assist business owners in achieving their goals and realizing their dreams with dramatic results. The company began franchising in 1997, and now has nearly 1,000 offices in 23 countries around the globe. For more information visit Action Coach.

Cross Posted at: Let’s Talk Franchising

10 Costly Mistakes to Avoid When Buying A Franchise

Many people dream of being their own boss someday, but are afraid of the risks involved. We know that it is impossible to take all the risk out of going into business. In many cases franchising provides a way to minimize the risk, but it can never remove all of it.

Franchising methods can be quite complicated, and certainly anyone looking into a franchise quickly learns that there are a large number of factors to be considered.

Again and again, I’ve seen people ignore the important warning signs and make Costly Mistakes when buying a franchise. They fall into the same traps that have victimized others before them. As they say, what we don’t learn from history, we are doomed to repeat!

I have compiled a list of “10 Costly Mistakes to Avoid When Buying a Franchise”, you can get a FREE Copy emailed to you at: Franchise Perfection

Costly Mistake #9 Not writing a business plan.

An essential part of any franchise business is its plan for success. The word “plan” comes from the Latin planum, meaning to lay a foundation or groundwork. Your business plan lays the foundation for your new franchise.

Formulating a strategic business plan for your franchise is the first step to success.

Remember the famous saying: “Always plan ahead. It wasn’t raining when Noah built the ark.” The discipline of developing a franchise business plan lets you look at the challenges ahead and your expectations for your new business. This involves looking at your business ideas and financial needs as well as your marketing and management plans.

One of the advantages in developing a franchise business plan is that a good deal of the information is provided by the franchisor. Much of the financial information is available in the UFOC.

Make sure you consider your strategy for investing, including the entry strategy, a long-term strategy, and an exit strategy. Does the business fit your personal strategy for growth and success?

There are no guarantees that your plans will actually play out. But making the effort to think about and develop a business plan puts you in the driver’s seat. You will have thought through almost all of the potential issues and either revised your plan or outlined contingencies. You will also have a clear idea of the costs and benefits involved, including the costs of not proceeding.

Simply put, many people do not take the time to really understand what they’re trying to achieve when they invest in a business, and consequently, they are never satisfied with the results.

When you’re planning, be conservative. If there are going to be surprises, let them be pleasant ones.

If you know in your heart that you can do what it takes to make a business succeed no matter how challenging it is, then you are well on your way towards success.

To see the complete list of: “10 Costly Mistakes to Avoid When Buying a Franchise” click here!

KnowFat Franchise Changes Its Name to UFood

KnowFat, a healthy fast casual restaurant franchise based in Massachusetts is changing its name to UFood Grill.

George Naddaff Chairman and CEO of KnowFat Franchise Co. bought KnowFat Low Fat Lifestyle Grill in 2004 with Eric Spitz co-CEO and President. They are changing the name to UFood Grill, updating the menu, and redesigning the stores to capture a larger audience.

To help market the UFood Grill franchises, Naddaff has signed a deal with former heavyweight champ George Foreman. The new concept and the Foreman endorsement agreement come at a time when quick-serve restaurant sales continue to climb and consumers are increasingly looking for more healthy dining options.

The first UFood Grill opened in Naples, Fla., a couple of weeks ago. The KnowFat stores in Boston’s Downtown Crossing and Landmark Center, as well as the five other locations in Massachusetts, will close for two days this summer to be converted to UFood Grills. The 74 KnowFat units slated to open under eight area developers nationwide will open as UFood Grills

The menu items, all without trans fats and many low-fat or no-fat, will remain largely the same with name changes for some of the products — KnowFat AirFries will become UnFries, for example. Efrem Cutler, the former executive chef at Ritz-Carlton Hotel Atlanta, is the vice president of food development.

The company is selling three franchise models: a two-in-one food and retail store at about 2,500 square feet; a smaller, 2,000-square-foot model without retail; and a 1,000-square-foot mall food court model. Many of the KnowFat stores have a retail component already to them and can account for 20 percent of a store’s sales.

The fast-casual segment has been averaging 15 percent to 20 percent growth over the past few years, according to food service research firm Technomic Inc.

Naddaff — known for creating the highly successful Boston Market franchise concept — and Spitz decided to change the concept after months of focus groups and research led them to believe they were already reaching the fitness-minded consumer and needed to drop the word “fat” from their name to reach a broader audience. The new tagline is intended to attract that audience: “Feel great. Eat smart.”

In the agreement, the legendary boxer will lend his smiling mug to UFood Grill and franchises in return for an undisclosed number of shares in the company, according to Naddaff.

Cross Posted at: Let’s Talk Franchising

Franchisee Now Prefers non-Franchised Businesss Route

Despite Sales Awards, Printing Franchisee Opens Second Business, Plans Move

Twenty years since Mizerak signed a contract agreement to run an Allegra Print & Imaging franchise in Dulles, he is opting not to renew when his contract expires this year. Instead, the Purcellville resident is going out on his own with, Unity Business Solutions, a similar business he launched in January and plans to move to Leesburg in September.

When Mizerak signed the dotted line with Allegra, he said he “didn’t have any experience and normally a franchise gives you backing and cushioning. Franchises normally are successful when a lot [of startups] fail.”

Within about five years of running the franchise, Mizerak said he decided “you don’t need it anymore.” A franchise termination fee worth about $75,000 kept him with Michigan-based Allegra. While being a franchisee served him well during his first two years of business, in hindsight, Mizerak said, he probably would not have gone the franchise route because “it’s hard to be entrepreneurial because you have to stay focused on what the franchise dictates. I didn’t particularly care for that.”

Fitness Together Sells its 500th Franchise

Fitness Together announced the sale of its 500th franchise. The 500th franchise is located in Glen Ellyn, Ill. Since 1996, when the company first began franchising, franchises have been sold in 42 states as well as Canada, Costa Rica, Ireland and Israel.

“We are extremely excited about the growth of the company and the fitness industry, in general,” said Rick Sikorski, president and CEO of Fitness Together. “Our growth is a testament to the great opportunity offered to our franchisees and the excellent service provided to our clients. Starting with our first franchise sale nearly 10 years ago, we have been able to provide personal fitness training to hundreds of thousands of clients during that time. We are excited about the future of our company. I firmly believe that the fitness industry, especially our segment, where we provide personal training at an affordable price, will continue to grow. Our goal of opening 1,000 studios by 2012 is within our reach.”

About Fitness Together Franchise Corp.:

Established in 1996 in response to the growing demand for personal fitness training, Fitness Together offers the latest in one-on-one personal training. Fitness Together is part of Fitness Together Holdings, Inc., the world’s largest wellness organization. Fitness Together, founded by fitness leader Rick Sikorski, is built on three main foundations: strong corporate support, proven operating systems, and excellent leaders. There are over 340 Fitness Together franchise locations throughout the United States, Costa Rica, Israel, Ireland, and Canada and another 160 scheduled to open. Fitness Together Franchise Corp. also includes Elements Therapeutic Massage.

Cross Posted at: Let’s Talk Franchising

Patriot Express SBA Loan Initiative

The new Patriot Express loan is offered by the Small Business Administration (SBA) network of participating lenders nationwide and features our fastest turnaround time for loan approvals.  Loans are available up to $500,000 and qualify for SBA’s maximum guaranty of up to 85 percent for loans of $150,000 or less and up to 75 percent for loans over $150,000 up to $500,000.  For loans above $350,000, lenders are required to take all available collateral.

The Patriot Express loan can be used for most business purposes, including start-up, expansion, equipment purchases, working capital, inventory or business-occupied real-estate purchases.

Patriot Express loans feature SBA’s lowest interest rates for business loans, generally 2.25 percent to 4.75 percent over prime depending upon the size and maturity of the loan.  Your local SBA district office will have a listing of Patriot Express lenders in your area.

For more information: Patriot Express