Pizza Styles

I found this article giving an overview of the different styles of pizza across the USA quite interesting. While I love Chicago style, I’m quickly becoming a fan of California style pizza. With all the popularity of speciality pizza, choosing a non-traditional style pizza franchise concept will help differentiate your menu offfering in the minds of customers, and will help you command a premium price.

Franchisor Reality Show

You know it was coming sooner or later:

Squeegee Squad wants to work with a reality-based TV production company in order to document their growth as a franchise company and expansion into high-rise window cleaning.

Franchise development will include interviewing candidates, training franchisee’s, servicing franchisee’s, promoting the franchise organization overall in order to become the first brand name window cleaning company in America.

Even if the show never materializes, it’s boosting name recognition with customers and franchisees.

Panera Pizza

pepperoniPanera Bread looks to pizza to further increase sales:

The analyst day event included a showcase of management talent at key skill positions and the unveiling of the soon to be offered Crispani, a pizza-like product to be rolled-out this September.

After sampling the Crispani products, Oakes said they adhered to Panera’s “quality image” with an “upscale twist.” Management repeatedly emphasized that Crispani was part of an overall “evening strategy” geared to serve the Panera customer desiring to avoid the dinnertime delay at casual diners.

Bally’s Total Fitness tries more franchising

weightsFranchisees 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)

Midas Touch?

midasDo the franchisees believe this is $10,000 well spent?

Through 2007, Itasca-based Midas Inc. plans to spend up to $4 million to spruce up the interiors and exteriors of its 1,800 stores nationwide. The goal: Enhance curb appeal, reduce clutter and create more educational displays to draw customers into the auto repair chain’s stores.

and

A Midas spokesman says franchisees — at least those willing to participate — would spend about $8,000 to $9,000 per store. Midas plans to chip in up to $2,500 per store, he says, which will cost the company between $2 million and $4 million through 2007….
When Midas underwent its ’90s makeover, the company spent about $15,000 per store which included new signage.[edit: analysts say it did little to improve sales.]

Personally, I’d prefer to invest ~$2,000 in sprucing up the curb appeal and ~$7,000 on innovative (educational) promotions, or something that promotes “trustworthy and honest service”. The game is obviously increasing the quantity of customers through the door in the first place and offering honest services at a fair price. Once the potential customer is in the store, low-pressure upselling of recommended repairs or maintenance is routine.

Radiators

radiatorI stopped to read this press release because I’ve never heard of a retail radiator franchise before…1-800 Radiators looks interesting for those who enjoy autos and cold-calling sales. But, is it too narrow of a niche?

Example of making money in the franchise business

One company has about $8 million in sales with 10 employees in the franchise industry, and was just acquired for $21 million. No, it’s not PostNet, Great Wraps, or American Male, it’s the franchisor-advertising web site – Franchise Gator. Most of their money is earned with listing fees and click throughs to the franchisors’ web site, I’ve heard earnings of $30 per click among other arrangements.

On a related note, potential franchisees should always be aware how people are getting paid. A “consultant” or “independent rep”, for example, are generally paid by the franchisors essentially on 100% finder’s fee. When the consultant or rep only gets paid after you buy pay a franchise fee, do you think they have the franchisees’ best interests in mind or are they biased toward their own commission? What about the good franchises that refuse to pay the fee or those franchisors who pay the highest fees, do you think that influences their recommendations? Do you think sites like franchisegator.com who highlight franchisors with “Franchise of the Month” and “Franchise Spotlight” do it because those spots are paid for by franchisors? Don’t kid yourself, follow the money.

Quick-Service Barbecue

Raging Brands, the company and franchisor of the successful Moe’s, P.J.’s Coffee, and Planet Smoothie, seems to have found another interesting niche – quick-service barbecue. What I like about Shane’s Rib Shack is that it boasts a very authentic, down-home “look” that is timeless and fun. The building literally looks like a rough shack. In the franchise business, the ability to enable customers to step through the front doors and enter another time in history, or another distant locale, is the type of dining experience that will last and benefit from tremendous word of mouth. Assuming the food is above average, I’d consider buy this BBQ franchise.

Growth plans may be a bit excessive though:

Shane’s has some bone-breaking long-term growth plans to boast 1000 deals in development by 2010…just five years away. To date, this new-to-franchising concept has about 75 deals in development across nine states. Investors from Phoenix to Cincinnati to Tampa have put money on the national appeal and financial success of Shane’s

On a side note – BBQ joint Famous Dave’s sales increased this past quarter by 5%.

Quick News Notes

  • Burger King forecast still looking stale
  • Triarc Cos., owner of the Arby’s restaurant chain, said Friday same-store sales were up 4%
  • Fatburger system-wide same store sales for the first quarter increased .5% over 2005 results
  • Cosi: Comparable restaurant sales, as measured for restaurants in operation for more than 15 months, increased 5.3 percent, Cosi’s 18th consecutive quarter of increases. Factors driving the continued growth included a 2.1 percent increase in transaction count and a 3.2 percent increase in average guest check. The higher average guest check was primarily due to a 1.6 percent favorable shift in sales mix and a 1.6 percent increase in pricing.
  • Good article on the 5 Mistakes a small-business owner should never make…I agree with them all.
    1. too little cash
    2. thinking small
    3. skimping on technology
    4. underestimating the important of sales
    5. losing focus
  • T.G.I. Friday‘s same-store sales up 3.3%

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

I came across a few franchsies that I would not want to own:

  1. Snack-In-The-Box: UK based firm that delivers candy to the workplace (difficult to work and sell)
  2. 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.
  3. 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
  4. 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)
  5. 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.

Pet Care Franchises and New Competition

dogCamp 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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Here’s a free tip for franchisors – start a franchise specifically for veterinarians called “VetPet Suites”. This franchise would be sold ONLY to veterinarians. Vets are easy to target in your sales effort, they are generally doing well financially, and can leverage their own reputations to build both the day/night pet care buisness and simultaneously expand their own vet practice. They will have an immediate competitive advantage over all other non-vet pet care business (except PetsHotel with The Pet Hospital).

Fall Into the Gap

gapGap, Inc. uses the franchise distribution model in Southeast Asia and the Middle East to enter new markets and comply with local ownership laws:

Gap Inc. signed its first-ever franchise agreement in January with Singapore-based F J Benjamin. That opens the doors for up to 30 Gap and Banana Republic stores in Singapore and Malaysia by 2010. The first South East Asian stores will open around the same time as the first Middle Eastern stores.

Franchising is an effective way to skirt local laws against opening foreign-owned stores. The right franchise partner also helps a retailer tailor its merchandise to local tastes.

2006 First Quarter – Yummy Same Store Sales Increase

  • Yum! Brands (KFC, Taco Bell, Pizza Hut) U.S. blended system-same-store sales increased 5%.
  • Colony-based Pizza Inn pizza chain reported a 1.1% increase in same-store sales, or sales at stores open at least a year, during the first quarter 2006.
  • For the 13 weeks ended March 28, 2006, sales for Panera‘s franchised and company-owned stores rose 9.1% and 8.9%, respectively. Systemwide bakery-café sales increased 9 percent for the 13 weeks ended March 28.
  • Aaron Rents reports 13.7% increase in same store revenues.
  • Brooke Franchise ( distributes insurance, financial and funeral services through a network of more than 560 franchise locations) saw same-store sales decrease about 2.5% for the year that ended Feb. 28, 2006 compared with the prior year.
  • March retails sales growth for the Jean Coutu Group (PJC) Inc. rose 3.5% in Canada, 1.7% in the USA. PJC is the fourth largest drugstore chain in North America and the second largest in both the eastern United States and Canada. The Company and its combined network of 2,173 corporate and franchised drugstores (under the banners of Brooks and Eckerd Pharmacy, PJC Jean Coutu, PJC Clinique and PJC Sante Beaute) employ more than 60,000 people.
  • Tim Hortons first quarter same-store sales increased 8.7% at restaurants in Canada and 9.8% in the United States.
  • Wendy’s same-store sales decreased 4.8% at U.S. company stores and 5.2% at U.S. franchised restaurants.
  • Baja Fresh Mexican Grill’s system same-store sales declined 3.6% to 3.8%.
  • Sonic‘s 1st Q 2006 same-store sales growth of 4.7%, slightly above Sonic’s annual target long-term target range of 2% to 4% growth
  • Sales are climbing at Mr. Jim’s Pizza following the launch of Mr. Jim’s new product, Nacho Stix, and the debut of a new branding and advertising campaign. Same-store sales increased for the first two periods of 2006, including a same-store sales increase of 8.1% in the second period. Nacho Stix is a thin crust pizza, loaded with chicken, onion, jalapenos, mozzarella and cheddar cheese and served with salsa or dipping sauce.
  • Starbucks Corp. (SBUX) reported same-store sales during March were up 10%.
  • GNC: Domestic same-store sales growth of 8.1% in company-owned stores and 1.5% in franchise locations. (notice the BIG difference between corporate and franchised locations)
  • Regis (hair salon) same store sales -0.4%
  • Papa John‘s: Domestic system-wide comparable sales for the quarter ended March 26, 2006 increased 4.2% (composed of a 6.1% increase at company-owned restaurants and a 3.7% increase at franchise restaurants).

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 operations in a highly competitive, commoditized environment. The puny advertising budgets of franchisees cannot efficiently compete. The cost per new customer acquisition and the cost to keep that customer will be high, and the convenience of the a one-stop-shop for all your office supplies, including ink, is substantial and usually insurmountable for the little franchisee. Therefore, I wouldn’t buy this type of franchise.

Now, it’s time to change my yellow ink catridge on my printer that I bought online for $2.25.

Update: April 13, 2006, 6:00AM

More competitor differentiations:

Will [franchisee] feels confident that Caboodles’ new approach to offering remanufactured cartridges is more attractive than the traditional model of refilling cartridges in the store [Rapid Ink, etc.] as the customer waits. Caboodle offers ink and toner cartridges that are professionally cleaned and refilled in specialized factories which assures much higher quality. Until now, cartridges were refilled in a hurry by the same store technician that had to handle many different cartridges. There was no time to properly clean and service the cartridge.